Condoflip.com
By Yiannis G. Mostrous
MCLEAN, Va.–A friend pointed out to me recently the existence of a Web site where active “condo traders” buy and sell this specific type of real estate. In disbelief– my na’vet’ wouldn’t allow me to think the situation had reached such levels–I immediately visited www.condoflip.com. Sure enough, I found myself in a different world.
The “Panic Button”–with three levels (1, 2 and 3) in three colors (green, yellow and red)–immediately caught my attention. Here’s how the site describes the feature:
As one moves from one level to the next, the price of the condo is automatically reduced. So Level 2 reduces the condo’s price to a break-even point. According to CondoFlip.com, “When a condo seller pushes a Level 3 panic button, they agree to give up half of their deposit, thereby reducing their price to less than what they paid for it. This is for the most desperate of circumstances. The price of the condo is the seller’s original contract price less 6%.”
After spying on the world of condo flipping, I have no doubt that this housing market is indeed different than any other before it–from the use of the home as an ATM machine to the service described above.
How many people do you know who have become real estate experts during the last five years? In the late 1990s, the rage was hot stock tips. But even after that travesty, advising each other on real estate deals has seemingly supplanted baseball as the national pastime.
After everything is said and done, housing remains one of the pillars of the US economy. The reasons are well known–residential investment accounted for 14 percent of US growth between 2001 and 2005–and therefore won”t be discussed here.
The point to remember is this: For the majority of households, the house remains the most substantial asset and it’s been used extensively as a consumption subsidy. It’s therefore legitimate for investors to ask how the American consumer–and consequently the US economy–will react to a slowdown in housing and a potential unraveling of the complicated financing schemes (e.g., ARM rates, securitization of loans and the like) surrounding this bull market.
The housing market is slowing down, alarmingly for some. The chart below depicts new single-family home sales; it’s clearly trending sharply downward.
Source: Bloomberg LP
In a global economy currently registering its longest, strongest and most synchronized period of growth in decades, weakness in the main engine of the biggest economy on the planet has investors and market observers desperately trying to understand potential consequences.
The game is extremely interesting in light of signs the global economy is slowing heading into 2007. It’s well understood that if the US housing market declines substantially, thus damaging US growth next year, the global economy could be in for a nasty downside surprise–i.e., a recession instead of a slowdown.
SRI readers shouldn’t be surprised by discussions (the most recent warning came from the International Monetary Fund during its annual meetings currently taking place in Singapore) of the possibility of a recession or a slowdown.
Six months ago I noted: “The thinking here remains the global economy will perform decently this year, although a US recession in 2007 can’t be ruled out. Yet, there are some signs that many markets around the world are due for a correction.” (See SRI, 8 March 2006, Hedge Your Bets).
And in June, reassessing the previous statement, I wrote: “The latter prediction materialized, while the jury’s still out on the former. Although I’ll eventually provide a more detailed 2007 forecast, recent data suggest the possibility of a US recession next year has increased. And as has been noted here before, expect the slowdown to begin in the second half of 2006.” (See SRI, 14 June 2006, Complications).
It’s obvious that a US recession in 2007 would have negative consequences for economies and markets around the world. I’ll address a wide range of outcomes and consequences individually in the next several issues of SRI.
I still haven’t made an estimate of how severe the US slowdown will be, although 2 percent GDP growth in 2007 – down from 3.6 percent for 2006 – seems to be a reasonable ballpark figure.
Source: Bloomberg LP
A US slowdown would be a particularly serious headwind for Asia. Although Asian economies are better equipped to deal with such a scenario now than ever before, a slowdown of any degree will impact their growth and damage markets. But the larger growth story won’t be derailed; it may proceed a little slower, but it won’t be stopped. I’ll have more on this topic next week.
Given the developments discussed above, you should act on the Portfolio hedge positions previously introduced. In early March, I recommended you start building positions in government bonds: “This is the time to take a position in bonds. Use the iShares Lehman 7-10 Year Treasury Bond Fund (AMEX: IEF). Even if there is short-term risk, now is the time to gain exposure to the Treasury market.” (See SRI, 8 March 2006, Hedge Your Bets.)
My view is unchanged. Continue to buy iShares Lehman 7-10 Year Treasury Bond Fund.
I introduced another permanent Portfolio hedge at the end of March, noting (see SRI, 29 March 2006, Right You Are!):
This recommendation, too, still stands.
The long-only SRI Portfolio continues to be dominated by domestic demand (e.g., telecommunications, consumer staples) and domestic reflation themes (e.g., banks) in an effort to capture the structural changes taking place in Asia’s economies.
My view remains upbeat–the onset of the usually weak months of September and October notwithstanding. The world’s stock markets can rally to the end of the year, but as I’ve said before, investors should treat such a rally as tactical in nature and therefore steer clear of major portfolio restructuring.
And as previously discussed, the technology stocks I favor in the case of a rally include Taiwan Semiconductors (NYSE: TSM), United Microelectronics (NYSE: UMC) and AU Optonics (NYSE: AUO). International readers may want to take a look at Hon Hai Precision Industry (Taiwan: 2317).
Italy’s Renaissance?
Last week I wrote:
Currently, the Old Europe economies are expected to grow at a respectable 2.5 percent–a good development in light of 1.4 percent growth in 2005. This number is more important since growth is increasingly driven by domestic demand; lack thereof is usually a problem in Europe.
In the event of a global economic slowdown, European economies would also be negatively affected. I expect Europe to slow to about 2 percent, not a bad number given that the Continent isn’t known for high growth.
Italy has been one of the weakest economies globally during the last five years, but 2006 has been a good year. Growth in Europe as a whole has been instrumental in Italy’s improvement, and the government sounds serious about implementing much-needed structural changes. Gradually–and critically–consumer confidence has been rising again. Italy could offer substantial upside to the patient investor.
My favorite play here is Mediaset (OTC: MDIUY). The company has performed poorly this year, but I expect it to finish strong. It’s one of the cheapest stocks among its peers and will do well as the turn in the Italian economy directs more money into TV advertisement.
The local shares have traded in a range between EUR8 and EUR11 during the past three years. The stock has more upside than downside, and a 4.8 percent dividend yield offers ample support. Mediaset trades on the over-the-counter (OTC) market in the US, but has good liquidity so it won’t be problem to purchase the shares. Buy Mediaset below USD36 on the OTC market.
Because the SRI Portfolio features ample dividend-yielding stocks, I’m not adding Mediaset. I do recommend it, though, as a bet on Italy’s recovery with a solid dividend. I’ll follow the stock closely and advise periodically on developments.
Please note that Dr. Reddy’s Laboratories split 2-for-1, and Singapore Telecom changed its ticker symbol to (OTC: SGAPY).
MCLEAN, Va.–A friend pointed out to me recently the existence of a Web site where active “condo traders” buy and sell this specific type of real estate. In disbelief– my na’vet’ wouldn’t allow me to think the situation had reached such levels–I immediately visited www.condoflip.com. Sure enough, I found myself in a different world.
The “Panic Button”–with three levels (1, 2 and 3) in three colors (green, yellow and red)–immediately caught my attention. Here’s how the site describes the feature:
When you have a listing in Condo Flip and you push a “panic button”, your price automatically drops, and thousands of buyers are notified. Most sellers are Level 1 sellers. They list their condo for sale at a price that would produce a profit.
At ANY time, a seller can elect to change their listing to a Level 2 or Level 3 listing with the simple push of a button. When this happens, thousands of prospective buyers are alerted that a price drop has occurred, and you may find that an offer comes to you quickly!
As one moves from one level to the next, the price of the condo is automatically reduced. So Level 2 reduces the condo’s price to a break-even point. According to CondoFlip.com, “When a condo seller pushes a Level 3 panic button, they agree to give up half of their deposit, thereby reducing their price to less than what they paid for it. This is for the most desperate of circumstances. The price of the condo is the seller’s original contract price less 6%.”
After spying on the world of condo flipping, I have no doubt that this housing market is indeed different than any other before it–from the use of the home as an ATM machine to the service described above.
How many people do you know who have become real estate experts during the last five years? In the late 1990s, the rage was hot stock tips. But even after that travesty, advising each other on real estate deals has seemingly supplanted baseball as the national pastime.
After everything is said and done, housing remains one of the pillars of the US economy. The reasons are well known–residential investment accounted for 14 percent of US growth between 2001 and 2005–and therefore won”t be discussed here.
The point to remember is this: For the majority of households, the house remains the most substantial asset and it’s been used extensively as a consumption subsidy. It’s therefore legitimate for investors to ask how the American consumer–and consequently the US economy–will react to a slowdown in housing and a potential unraveling of the complicated financing schemes (e.g., ARM rates, securitization of loans and the like) surrounding this bull market.
The housing market is slowing down, alarmingly for some. The chart below depicts new single-family home sales; it’s clearly trending sharply downward.
Source: Bloomberg LP
In a global economy currently registering its longest, strongest and most synchronized period of growth in decades, weakness in the main engine of the biggest economy on the planet has investors and market observers desperately trying to understand potential consequences.
The game is extremely interesting in light of signs the global economy is slowing heading into 2007. It’s well understood that if the US housing market declines substantially, thus damaging US growth next year, the global economy could be in for a nasty downside surprise–i.e., a recession instead of a slowdown.
SRI readers shouldn’t be surprised by discussions (the most recent warning came from the International Monetary Fund during its annual meetings currently taking place in Singapore) of the possibility of a recession or a slowdown.
Six months ago I noted: “The thinking here remains the global economy will perform decently this year, although a US recession in 2007 can’t be ruled out. Yet, there are some signs that many markets around the world are due for a correction.” (See SRI, 8 March 2006, Hedge Your Bets).
And in June, reassessing the previous statement, I wrote: “The latter prediction materialized, while the jury’s still out on the former. Although I’ll eventually provide a more detailed 2007 forecast, recent data suggest the possibility of a US recession next year has increased. And as has been noted here before, expect the slowdown to begin in the second half of 2006.” (See SRI, 14 June 2006, Complications).
It’s obvious that a US recession in 2007 would have negative consequences for economies and markets around the world. I’ll address a wide range of outcomes and consequences individually in the next several issues of SRI.
I still haven’t made an estimate of how severe the US slowdown will be, although 2 percent GDP growth in 2007 – down from 3.6 percent for 2006 – seems to be a reasonable ballpark figure.
Source: Bloomberg LP
A US slowdown would be a particularly serious headwind for Asia. Although Asian economies are better equipped to deal with such a scenario now than ever before, a slowdown of any degree will impact their growth and damage markets. But the larger growth story won’t be derailed; it may proceed a little slower, but it won’t be stopped. I’ll have more on this topic next week.
Given the developments discussed above, you should act on the Portfolio hedge positions previously introduced. In early March, I recommended you start building positions in government bonds: “This is the time to take a position in bonds. Use the iShares Lehman 7-10 Year Treasury Bond Fund (AMEX: IEF). Even if there is short-term risk, now is the time to gain exposure to the Treasury market.” (See SRI, 8 March 2006, Hedge Your Bets.)
My view is unchanged. Continue to buy iShares Lehman 7-10 Year Treasury Bond Fund.
I introduced another permanent Portfolio hedge at the end of March, noting (see SRI, 29 March 2006, Right You Are!):
[I]t’s becoming increasingly obvious that the majority of investors aren’t certain as to what will be the final outcome of the Fed’s moves and the probable 2007 slowdown of the US economy. The debate between deflationists and inflationists remains animated.
I anticipate a deflationary outcome (i.e., a deleveraging of the consumer), and the only hedge able to cover both is gold.
Gold has been the object of ardor and the target of scorn throughout the centuries, but has never been refused as means of payment. The reason is that gold has no substitutes.
And given the demand for gold we’ve seen during the past three years (from central bank buying to new gold exchanges and liberlization of trade around the world), gold has become the world’s fourth currency. In today’s world of massive deficit spending and financial imbalances, expect demand for gold to continue to increase.
*Buy gold bullion; if storage is a problem, the streetTRACKS Gold Trust (NYSE: GLD) is a suitable substitute.
This recommendation, too, still stands.
The long-only SRI Portfolio continues to be dominated by domestic demand (e.g., telecommunications, consumer staples) and domestic reflation themes (e.g., banks) in an effort to capture the structural changes taking place in Asia’s economies.
My view remains upbeat–the onset of the usually weak months of September and October notwithstanding. The world’s stock markets can rally to the end of the year, but as I’ve said before, investors should treat such a rally as tactical in nature and therefore steer clear of major portfolio restructuring.
And as previously discussed, the technology stocks I favor in the case of a rally include Taiwan Semiconductors (NYSE: TSM), United Microelectronics (NYSE: UMC) and AU Optonics (NYSE: AUO). International readers may want to take a look at Hon Hai Precision Industry (Taiwan: 2317).
Italy’s Renaissance?
Last week I wrote:
Italy could surprise to the upside during the remainder of 2006. I’m finishing my assessment of the market and economy and plan to provide recommendations next week. As Europe is a better value at these levels versus the US and will outperform through the end of the year, increased exposure to the European Union market seems warranted.
Currently, the Old Europe economies are expected to grow at a respectable 2.5 percent–a good development in light of 1.4 percent growth in 2005. This number is more important since growth is increasingly driven by domestic demand; lack thereof is usually a problem in Europe.
In the event of a global economic slowdown, European economies would also be negatively affected. I expect Europe to slow to about 2 percent, not a bad number given that the Continent isn’t known for high growth.
Italy has been one of the weakest economies globally during the last five years, but 2006 has been a good year. Growth in Europe as a whole has been instrumental in Italy’s improvement, and the government sounds serious about implementing much-needed structural changes. Gradually–and critically–consumer confidence has been rising again. Italy could offer substantial upside to the patient investor.
My favorite play here is Mediaset (OTC: MDIUY). The company has performed poorly this year, but I expect it to finish strong. It’s one of the cheapest stocks among its peers and will do well as the turn in the Italian economy directs more money into TV advertisement.
The local shares have traded in a range between EUR8 and EUR11 during the past three years. The stock has more upside than downside, and a 4.8 percent dividend yield offers ample support. Mediaset trades on the over-the-counter (OTC) market in the US, but has good liquidity so it won’t be problem to purchase the shares. Buy Mediaset below USD36 on the OTC market.
Because the SRI Portfolio features ample dividend-yielding stocks, I’m not adding Mediaset. I do recommend it, though, as a bet on Italy’s recovery with a solid dividend. I’ll follow the stock closely and advise periodically on developments.
Please note that Dr. Reddy’s Laboratories split 2-for-1, and Singapore Telecom changed its ticker symbol to (OTC: SGAPY).