Thursday, September 30, 2010

Apartment Sector Showing Improvement

The underlying fundamentals of the apartment sector are beginning to show improvement.  Consider the 3rd quarter report released from MPF Research:

- Occupancy rates rose to 93.9%, up 2.1% since the bottom in 2009

- Effective rent prices have increased 1.2% from mid 2010 and 2.6% year to date

- 3rd quarter apartment additions were limited to 12,000 units

- 2010 apartment additions have been limited to 48,000 units

This is the free market working itself out.  There is no financing available for new apartment construction (and there is no new supply needed) so it has essentially stopped.

As more homeowners lose their homes to foreclosure or make the (correct) decision to rent, it increases the price of available apartments.

So what is the problem?

The prices being paid for apartments is still too high.  Investors are accepting too low a rate of return for the income a property generates. (cap rate)

The question will ultimately be whether the Federal Reserve bails out the commercial real estate loans that need to be refinanced over the next 3 years.

If they do not bail out commercial real estate, nominal prices will fall to attractive investment levels.

If they do bail out commercial real estate, prices will fall to attractive levels priced in gold.

Either way a tremendous opportunity will be coming, and you can see this by the fundamentals improving for the sector as a whole.

Wednesday, September 29, 2010

$22 Silver - $1,300 Gold

It appears more and more investors around the world are putting the pieces together on how the story will end.

The big money is moving hard into precious metals and they are devouring the limited supply of physical metal.

The government announced over the weekend that they have run out of buffalo gold coins.  This coincides with announcements earlier in the year that they had run out of eagle coins.

The buffalo gold coins sell for about 20% over the spot price and last sold for $1,560.  At these prices investors ravaged every last coin available.

Announcements have come from dealers around the world that they must shut down operations due to all supply being non-existent.

Remember, the is only the first round of buyers entering the market: the ultra rich who move in first.

Next will come the hedge funds, pension funds, and mutual funds.  The public will come in last.  During the last bull market in the 1970's, 10% of the global community participated.

This time 100% percent of the world will participate. 

This is also the first time we have experienced a bull market where the commercial banks (JP Morgan, Bank of America) are heavily short the market.  It was the opposite during the housing boom where these banks bought every mortgage they could get their hands on.  Same for the dot.com boom where they participated in every IPO they could bring to the market.

At some point, as prices move higher, these banks will have to cover their shorts and buy back the metal.

Then the public will arrive for the grand finale.

Expect massive pull backs along the way.  Use this opportunity to add to your position.

Tuesday, September 28, 2010

Sovereign Debt Ticking Time Bomb

The credit bubble on the private sector balance sheet imploded during the credit crisis of 2008.  Instead of allowing the debt to cleanse itself from the system, governments around the world nationalized the toxic loans.

Since that point we have been experiencing the next credit crisis; sovereign (government) debt.  It was felt first in Dubai, then moved to Greece, and is seen today in Ireland and Portugal. (You'll hear about these last two in the news in a few weeks)

Most financial analysts expect the crisis to continue to worsen in the Eurozone and move next to Japan and the UK.  The final destination will be the United States, which will provide the bursting of the final great financial bubble: United States Treasury Bonds.

The following excellent graphic provides a global heat map which shows the areas in the most danger. (Black)  You can click here for a live update of the global debt clock ticking time bomb.


Monday, September 27, 2010

Insider Confidence

3 weeks ago I wrote about the massive insider selling taking place in the stock market.  Insiders are the managers and employees within the companies selling (or buying) their own stock.

They typically have the best outlook on the future direction of prices because they see information in real time.  They are on the "inside."

3 weeks ago the ratio of insider sellers to buyers was a massive 650 to 1.

This past week the ratio improved to a still dismal 290 to 1.

This week?

1,411 insider shares sold for every share purchased.  1,411 to 1.