Tuesday, 10 September 2013


If you look at the successful investors of our time, the Warren Buffets, Donald Trumps and others you will notice a number of common attributes. The most obvious of which is that they are able to find investments that are under-priced.

Some people describe that as the “Contrarian Principle” of investment. That is that they invest in what the popular opinion says is not a good investment.

But if you think that through you will come to the conclusion that that is not a good strategy for making money because there are plenty of investments that are not good investments today and will still not be good investments in the future. Just as there are investment that we could have made 10 years ago that are still not good investments today.

I don’t think that what successful investors do is “contrarian” at all. What they have is the ability to recognise change before it happens and have the self confidence in their ability to back themselves and to make a move before others and before the situation starts to improve.

That ability to recognise change comes from keeping themselves informed and thinking through what is a likely outcome from the information they are receiving.

One thing I find interesting about the investments that successful investors make is that if you look at their decisions objectively and with the benefit of hindsight, they seem quite obvious.

On that basis what do you think is the likely outcome of this information?
What that says to me is that the mining boom is likely to be “on again” sometime in the next few years. The follow on from that is likely to be that property prices in towns that are benefiting from any such mining boom might increase and perhaps substantially.
But then mining towns are high risk because they are too dependent on one industry for their long term viability. If the mine closes then the town dies. However there are towns that are benefiting from substantial infrastructure spending to allow for the processing and export of the various resources that are being mined.
These towns are likely to survive the ups and downs of a “Boom or bust” industry because the infrastructure that has been put in place like hospitals, schools, shopping centres, roads and housing subdivisions will remain. Other businesses will grow and thrive within the town because of the infrastructure that has been provided.
Food for thought…
Give us a call if you are considering investing in property sometime in the next 12 months.
1300 131099
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Thursday, 18 July 2013

The most common mistakes people make when considering property investment!

One of the most common mistake people make when considering an investment property is:

They think that all property is the same or at the very least they don't adequately consider the differences between one property and another and what effect that will have on their ability to create wealth.

They think that all they have to do is to invest in property and they will make money...

And to some extent that is true... all property will eventually double in value, so they will make money. We all look at our family home and remember what we paid for it all those years ago and think that every property will do that.

Property experts will tell you that property doubles every 10 years...

But that is the average of all properties, so it stands to reason that some will do better than that and some will do worse. The fact is that some will do much worse.

The real trick to successful property investment is finding those properties that will double in less than 10 years.

If your investment was to take 20 years to double, then it is not necessarily a great investment and it won’t make you rich... in fact at that rate of growth it won't even keep pace with inflation. (We can show properties where that has been the case)


Eg. Worse than average (ie. in poor locations):

With a portfolio of 6 properties at $300,000ea. (equals $1.8m in loans)

If that portfolio double in value in 20 years (ie worse than average)

Then in 10 years you have made $900,000 profit. (not bad but...)

Eg. Better than average (ie in good locations):

With a portfolio of only 4 properties at $450,000ea. (still equals $1.8 in loans)

If that portfolio doubled in value in 7 years (ie better than average)

Then in 10 years you would have made $2,570,000 profit.

*Nearly 3 times as much for the same outlay.
Note: These examples are just used to show the relative difference and are not intended as guarantees that any property will perform as predicted.

A lot of people also believe that Property Marketers all tell the truth... all the time.

Think about it… they want to sell you a property because that is how they get paid.

Are they likely to say to you that the property they have is not suitable to you or that it might not capitally appreciate as quickly as you would like?
What I have found is that most don’t actually lie...
They tell a very good story or present compelling information by leaving out crucial facts.

What is common is for them to distract you from the real purpose of investing in real estate which is making money over the long term. They do that by focusing your attention on what I call “Hot Buttons”.

Typical “Hot Buttons” would be things like:

·         High rental yields or Rental Guarantees

·         National Rental Affordability Scheme (NRAS)

·         Government Grants

·         And pretty much anything called a scheme.

*Note: All of those can be very helpful, but they should not distract you from the real purpose.

The first question you should ask yourself should always be:

Would I buy that property, in that location and at that price if it did not have (whatever the offer is)?

In other words; Is it a good investment without the offer?

Then and only then, should you consider what other benefits or “schemes” can make it easier or more attractive to buy or to hold on to for the length of time that you need for it to increase in value to achieve your goals.

If you allow yourself to get distracted by the “Hot Buttons” then you risk overlooking key factors that might mean that you:

·         Pay too much

·         Buy in the wrong location

·         Or have a higher chance of getting the tenant from hell

Most importantly your investment in property might not grow in value quickly enough to achieve your goals and aspirations. And by the time you realise that you have made a mistake, it is likely too late to change or correct your financial position.

Absolutely I think property is a great investment vehicle. It has shown to be one of the safest investment classes particularly through the GFC (see graph above) but always “keep your eye on the prize”, ie the long term creation of wealth through the capital growth of your property portfolio.

But as I have said many times before:
"Where ever there is a great opportunity these is an even greater opportunist"
So be wary...

Call us if we can help… we have been creating wealth through property investment for our clients for nearly 15 years.
1300 131099


Thursday, 6 June 2013

Apartments or houses: which is the better investment?

Apartments or houses: which is the better investment?

Ask anyone who invests in property – and even those who don’t – and they’ll likely have an opinion on the old “houses versus apartments” debate. If this is a question in your mind then read on...

When the topic of conversation drifts towards investing in apartments or houses, it usually generates some debate amongst landlords!

It’s often a firmly divided camp, with those who believe that a property’s value is in the land on one side. On the other side, you’ll find those who believe that a property’s individual characteristics – such as location and number of bedrooms – are far more important than simply the dwelling type.

“Many first-time investors assume that houses are always better as investments as they have more accommodation and land,” says Monique Sasson Wakelin, director of Wakelin Property Advisory.

“This may have been true once, but as a growing number of Australians have come to prefer living closer to the centre of town, the patterns of growth in property values has changed.”

She believes that investors who are stuck on this question are often focusing on the wrong thing, as the question you need to be asking is not, “Should I invest in a unit or a house?” but rather, “What type of property will deliver a bigger return on investment in the long term?”

According to the Real Estate Institute of Australia (REIA), there’s not much of a difference in price growth between each dwelling type. Over the past ten years, median house prices have increased by 81 percent, while median apartment prices increased by 72 percent.

"Historically, over a longer time frame, price rises for houses are greater than that for units, [but] this is not always the case over a shorter to medium time frame," a REIA spokesperson says.

"Houses generally, however, require more attention in terms of ongoing maintenance than units do and thus do not always suit all investors. Units have much of the maintenance and care of the building and surrounds undertaken through the body corporate."

Ultimately, there are pro’s and con’s attached to any dwelling type, and the right investment for you will depend on your risk profile, investment strategy and financial position.

It’s also vital that you pay attention to lifestyle trends, adds Wakelin, so you can tailor your investment to suit the area you’re looking to buy in.

“As more people choose to live in inner precincts, closer to work and the attractions of urban life, the land that inner urban properties sit on has become increasingly valuable,” she says.

“Apartments are most likely to be built in the inner urban areas, as they take up a higher share of the land there than anywhere else, and owners of apartments are sharing in the rising value of the land that their buildings stand on… Apartment investors therefore benefit from the appreciating land values, even though they don’t have a direct landholding.”

Monday, 27 May 2013

NRAS - "To buy or not to buy"

Thinking about buying an NRAS investment property... think long and hard first.

In principle NRAS sounds like a great investment...
You buy a property with NRAS approval and place a tenant from a service industry like a Teacher, Fireman or Police Officer at a reduced rent of 20% below market.
In exchange the Govt will give you about $10,000 p.a. (Tax Free) for the next 10 years.

You dont have to be a mathematical genius to work out that a 20% discount is about $60 - $80 per week and the Govt $10,000 pa is about $200 pw before taking into account the Tax benefit. So it is more like being about $260+ before Tax. Sounds too good to be true... that is nearly $200 pw positive cash-flow, so what is the catch?

Well there are some catches, that they don't necessarily tell you about when you are lining up to buy one...

The first one is, there are some fees that you are going to be charged because it is a scheme that needs to be reported to the Govt regularly. Those fees will vary greatly from one organisation to another but let's ignore that for the moment.

Let's start with the type of tenant because it is the tenant that helps you pay the mortgage.

They say that they are aimed at servive industry workers like Teachers etc. but when you look at the maximum income that the tenant can earn under the NRAS rules, you could only get a Teacher, Fireman or Police officer that was working part-time... and only about 50% of a week at that.

So what sort of tenant are you really going to attract?
The answer is unfortunately, in many cases a social housing tenant. And realistically that makes sense... the Govt are not doing this to make the investor rich. They are doing it to provide affordable housing to those people that cannot afford to rent a home for standard rent.

We are getting reports from Property Managers (admittedly in Qld because there are more NRAS houses in Qld) that tenants in NRAS houses are less likely to pay the rent and more likely to do damage. But it will likely be that case in SA and other states equally.
Crazy isnt it... you give people a great deal with lower rent and they abuse it. That is unfortunately human nature.

But that is not the end of the problems with these NRAS houses.
Some of the people that have invested have decided that because of the non payment of rent and other hassles it is not worth the hassle so they have decided to sell the property... only to find that the house is not worth what they paid for it.
We are hearing stories that some of these houses are now worth $50,000 - $100,000 less than was paid to buy them. How can that be?

"Whenever there is a great opportunity there is an even greater opportunist."

What has been happening in some cases is Property Marketers and/or Builders have inflated the price because the deal is so attractive that people will pay more to buy it....
And of course these houses are often in areas that are already either over supplied with properties or in areas that are more affected by recessions and periodic slow downs in property prices.
Hence there may be a higher turnover of properties and therefore a lowering of prices, to make sales.

Prediction: We have all seen the stories of the tenant from hell is a Housing Commission house. Well look forward 10 or so years and i think we will be seeing those stories about people in NRAS houses.
If you have already bought one i hope, for your sake, that i am wrong... at least with yours.

The moral to this story is:
If you want to make money out of property investment you need to buy the best house you can afford and put in the best tenant that can afford your rent. Then will get consistent growth.
Where are those houses?
Generally closer to the CBD of the major cities. It is those areas that are less affected by the economics of downturns because the people that live there are in higher paying jobs and less likely to be laid off. Therefore they are in a better position to pay your rent. That means that you have less hassles and will make more profit over time.

If you would like more information on how to find a property that will make money for your future give us a call...

On 1300 131099

Thursday, 21 March 2013

The Wealth Effect... and why now is the time to invest.

And perhaps more so now than anytime prevoiusly in our lifetime.
Here are the comments from an industry expert:
"Have you felt  the (Wealth Effect) lately?
The wealth effect... Do you know what the hell I'm talking about? ...it's not a bad thing, actually a pretty good, more than just a warm and fuzzy feeling. Please explain?
I will shortly.  But first...

Everyone knows I'm bullish on house prices this year.

The cycle has already turned, and the housing market is quickly gathering steam. It's a pretty common view now that 2013 will be a good year for capital growth, particularly through the second half of the year.

But at the same time I've been making it pretty clear in these posts that I don't see interest rates going anywhere anytime soon.

Someone asked me about this the other day. How do you square these two away? Normally if house prices are rising the RBA is gearing into a tightening cycle. Won't that be happening this time around?

That's a very good question. I'm glad you asked.

The answer is, No. Not this time. Interest rates will start edging up at some point down the track, but by then, house prices will be long out the gate.

Such sweet conditions like these don't come around every day. House prices are rising fast and interest rates are stuck on a super-stimulatory setting... But this can't go on forever either!

So how did we get here? To understand it, we need to pick apart the connection between house prices and interest rates a little bit.

In normal times, by which I mean the pre-GFC era, if house prices were rising quickly then interest rates were rising too. The lynch-pin was consumption.

It's called the 'wealth effect'. The basic idea is that if house prices were rising, households felt wealthier, and felt more inclined to consume.

And as consumption ramped up and the economy found another gear, the RBA started to get worried about inflation, and started pulling on the interest rate hand-brake.

That's "normally" how it goes. (Though when have things ever been truly "normal"?)

The actual size of the wealth effect is difficult to pin down. However, researchers at the University of Sydney published an interesting paper a few weeks ago that found that for every $100 increase in house prices, annual household consumption increased by around $8. The Fed published some similar numbers for the US.

So, say you had a house worth $300,000, and it increased 5 percent in value. That extra $15K in equity would, by itself, increase annual consumption by around $1200.

So, in the old world, rising house prices were a solid plus for the economy, and sooner or later, the RBA would try and throw ice on the party.

But that's how it used to be. It won't play out this way this time round.

One of the key findings from the USyd paper was that rising house prices increased consumption because they helped "relax household credit constraints".

That is, households who found they had more equity in their home often used it take on more debt, which helped fund higher consumption levels.

But following the GFC, attitudes to debt have done a full 360. Around the world actually.

People have become a lot more hesitant to take on more debt, especially to fund non-productive consumption of plasma TVs and so on.

In a speech a couple of days ago, RBA Assistant Governor Phil Lowe noted that Australian households were net dis-savers in the lead-up to the GFC, but are now saving more than 10 per cent of their disposable income.

That amounts to $90 billion a year that is now being saved, rather than spent.

This chart here, (taken from a speech by ex-BHP head Don Argus) shows just how much the game has changed.

Through the 90s and up to the GFC, household debt, as a percent of GDP, increased from a little under 50 percent to a peak of around 110 percent. Since the GFC though, it's pretty much been tracking sideways.

But with a household to debt ratio of over 100 percent, Australia still has the most indebted households in the OECD, and where debt ratios have come down across the world, they remain elevated in Australia.

This suggests that households are likely to continue deleveraging into the near term. And if house prices are rising, households will be using this increasing equity to pay down debt, rather than funnelling it into consumption.

All of which makes the wealth effect a thing of the past.

So imagine that the RBA keeps rates at record lows, but Australian business doesn't take the bait. Perhaps they're scared of the damage the high Aussie dollar is doing, and are reluctant to invest.

In that case, record low interest rates are feeding straight into asset prices, as people take the cheap and easy money and invest it in profitable assets, like property. The wall of money creates a super-surge in property prices.

But without a wealth effect, there's no pick up in consumption, and the 'heat' in the economy is unchanged.

The RBA then has no reason to raise rates, because there'll be no signs that the economy is over-heating. And an uncertain foreign situation will make them extra wary of pulling the trigger too early.

So until households deleverage back to more comfortable levels, and consumption picks up again, the main beneficiaries of record low interest rates are going to be the owners of assets - particularly property.

And so what we have, and what I reckon we'll see over the next 18 months or so, is a massive disconnect between property prices and interest rates...

... and this creates an incredible window of opportunity for investors.

You'll be enjoying a massive ramp up in capital, while your funding costs, tied to interest rates, will remain on the cheap.

Who could ask for more?

These are uncharted economic times. The rules of the game are changing. But that doesn't mean that there isn't money to be made, if you know what you're doing.

Stick with me. I'll show you where these opportunities are hiding.

Signed with Success,
Jon Giaan
Knowledge Source

 GIVE ME A ALL CALL... if you would like to know how and where to make the best of this opportunity.
Or if you would like to attend our next FREE information and training Seminar

Graeme Clark

1300 13 10 99

Tuesday, 12 March 2013

A nice little story about Stamp Duty... if there is such a thing

Hi Graeme,

Look I don't mind paying tax... Really.

Yes seriously! I figured out many years ago that the more tax I paid, the more wealthy I am from an asset and wealth perspective.

So in effect I love paying tax... and looking to pay a lot more in the future.

But, there is one tax that is absolutely crazy and it is quit frankly holding the economy, first home buyers and property investors to ransom.

It's the stupid tax called, stamp duty.

But there is light at the end of the tunnel and its from a very unusual source.

 The ACT government, that hot-bed or radicals, has announced that it's going to phase out stamp duty on property transactions over the next 20 years.

Good on 'em. This will be good news for the property market, but the stamp duty on property itself is a stupid tax, and it's about time the States broke their addiction with it.

If you ask me, Stamp Duty on property is the Cane Toad of Australian taxation.

Cane Toads were brought over from South America to eat the Cane Beetles in Queensland. As it turns out, the beetles in Queensland lived up in the cane, rather than on the ground like they did in South America. So it's questionable as to whether the Cane Toad ever actually ate a single Cane Beetle.

But once cane toads were introduced, they quickly slipped the leash of their handlers. Now they've become a monster completely beyond anyone's control.

In a compelling parallel, Stamp Duties as a concept were first introduced in the Netherlands all the way back in 1624. It soon spread in popularity among the European aristocracy, always fond of finding new and creative ways to crush and punish the peasants. William and Mary started levying stamp duties in the England in 1694 as a way of funding the war with France.

In time, stamp duties were passed down through our legal DNA until 1886, when NSW introduced a stamp duty on property as way of funding a war with Victoria over the right to play rugby...seriously, google it.

But likewise stamp duties have long since slipped the leash of their handlers, and they have become a monster completely beyond anyone's control.

Now this isn't a rant against taxes in general. I can see that in the modern world, taxation and the public provision of some services is a good thing.

...and I said it earlier, I love paying it!

But some taxes are better (less bad?) than others, and the stamp duty on property is about as bad as it gets. It is a stupid and inefficient tax that is holding the property market back from its full potential.

I say it's time to crush this cane toad once and for all.

My biggest gripe with the stamp duty on property is that it becomes an incredibly prohibitive upfront cost. If you're looking at a bill of $20-30,000, particularly on your first home, this can really take the wind from your sails.

And for what? The Cane Toad started out as a simple filing fee - a small cost to have your documents branded with the governments stamp and become legally recognised.

Now I know the public service is inefficient, but you can't tell me that $20,000 is a reasonable fee to pay for processing - particularly since they phased out actual stamps!

I mean, one study found that the stamp duty in NSW accounted for about a quarter of upfront costs, including deposit, moving costs, and legal work.

The property market relies on a constant supply of new entrants in the housing market, beginning their journey from entry-level homes into the palaces of their dreams, to keep things kicking along.

We should be doing everything we can to encourage them. Slugging them with a massive fee, just to get started, is an incredibly stupid idea. If it wasn't part of our legal and cultural heritage, there's no way you could get anyone to buy into such a blunt and damaging tax today.

The crazy thing is that it's not that great for the government either. Since it is a marginal tax, the fee is determined on the value of the property. However, the amount of revenue the government actually receives is a function of property values and the volume of property transactions in a given year.

Trouble is, the volume of transactions can swing wildly. I remember back in 2007 and 2008. The number of properties sold in Sydney fell a massive 19 percent. As a result, the amount of stamp duty raised in NSW fell 30 percent, smashing a whopping $1.2 billion hole into the budget.

So what this means is that in the presences of cycles (which are an constant feature of the housing market), the stamp duty needs to be higher than it otherwise would be, to compensate for the years when volumes, and revenue, fall.

It's just adding worse to bad...

The other trouble with stamp duty is that it is a transactional tax. In the principles of efficient tax design, you always try to minimise the impact on the number of transactions taking place.

(The obvious exception is the case where you're targeting a particular 'bad', such as smoking for example, where the point is to actually reduce use.)

But otherwise, economic transactions are the very life-force of the economy. In general, you want to keep the engine as lubricated as possible.

A big fat ugly stamp duty on selling your home, creates a massive obstacle for efficient market functioning. And the downsides of these market inefficiencies can play out in all sorts of way.

Not only does it deter new entrants to the market, as I said before, but it also stops the market adjusting to changes in conditions. Say for example the kids move out and your thinking of moving into something a bit smaller, closer to the beach. Or you get a new job on the other side of town.

Or maybe you feel a bit overstretched on your current mortgage and want to wind it back a bit.

A transactional tax like a stamp duty will mean that people hold off on making these decision for longer than they otherwise would have. The market is slow to react.

And when a market is slow to react, boom and bust cycles become exaggerated, which, as I said, exaggerates swings in government revenue.

So the case against is pretty compelling. The real trouble though is that the States are completely hooked on licking the cane toad. Stamp duty now accounts for about a full third of State taxation revenue every year.

That's why the ACT is giving itself a good twenty years to slowly wean itself off the habit.

Thankfully, there are other options. The 2010 Henry tax review suggested shifting more weight to existing land tax regimes, and scrapping stamp duty altogether.

Land tax avoids a lot of the traps stamp duty falls into. In particular, the same amount of revenue could be spread over the life of property ownership, rather than being front-loaded into the purchase price. This would therefore improve affordability and take some of the burden off first home buyers.

But whatever the case, the other states need to follow ACT's lead and break their addiction to property stamp duty.

And then perhaps we can be rid of this ugly cane toad once and for all.

Signed with Success,

Jon Giaan
Knowledge Source

Wednesday, 6 March 2013

Big Money is Moving ...and you'll be shocked where it's going!

Las Vegas.

Proof that all that glitters ain't gold.

Elvis impersonators, flashy lights, pretty girls with costumes made up of more feathers than fabric... it's got it all.

And every casino in Vegas is crammed to the rafters with suckers looking for an entertaining way to throw all their hard-earned money away.

You roll past the poker, the black-jack, the roulette wheel. But hang on, who's that over there? It is! It's Warren Buffet!

What's he doing in Vegas? You don't become the world's third richest man by backing a rigged game - unless you know the game is rigged in your favour.

And who's that sitting next to him? It's old boy Larry Fink, the chief of Blackrock - the largest money-management firm in the world. And to his left is John Angelo, from Angelo, Gordon and Co.

Together, these guys control more wealth than many nation states. So what are they doing in Vegas? What game are these guys backing?


What, are they crazy? Everybody knows the US property market is a disaster zone. Sure, there have been some solid signs lately, but property prices nationally are still 30% lower than they were at the peak almost 6 years ago, way back in mid 2006.

And a lot of Americans still find themselves financially deep underwater.

But as you're scratching your head, you remember the golden rule of investing.

Buy low, sell high.

And that's exactly what these guys are doing. If you follow the big money in America right now, it will show you that the serious investors believe that the property market has bottomed, and we're launching into an upswing dynamic.

And if you follow the scale of funds being directed into property, it tells you that these guys believe that a lot of property markets over-corrected in a big way in the downturn. That is, prices fell too far and a lot of high-performing properties are massively undervalued.

Las Vegas is a case in point.

In the run up to the housing peak, Las Vegas and Nevada led the country is housing construction, and it was one of the hottest housing markets in the country.

Then the bubble burst.

Between 2006 and early 2012, house prices in the city of lights fell a staggering 62%. It was the biggest fall in any US metropolitan centre, and the real estate market was smashed to pieces.

But while it was clear that prices were over-valued before the crash, prices seem undervalued now. A lot of people got very badly burnt in the crash, and as the saying goes, once burnt, twice shy. This is keeping a lid on demand for what are now, very cheaply priced homes.

And this gap in demand is being filled by Buffett and the boys. They know that the market has overcorrected on the down-side - and there are some awesome bargains to be found.

And so large investment funds have been snapping up land and properties in Las Vegas and other cheap markets across the country. They've also been very active in the foreclosed property market, where they've been snaffling up some incredible bargains.

They're not bound by sentimentality and fear, and just see an investment for what it is - the promise of a particular return at a particular price.

And though the eyes of a cold-blooded accountant, investing in US property makes a lot of sense right now.

This is all a classic play for Warren Buffett. He's not a short-term, get in and out quickly kind of investor. He's made his fortune by backing major macro trends, and keeping an eye on the big picture. He's a master at positioning.

And he's also done it by keeping a level head, and knowing when the market has lost touch with reality. He gets out when things are too hot and people are too excited, and he gets in when people become too pessimistic and the market is undervalued.

He zigs when they zag.

And this is just what he's doing in property. He's buying up bargains because people just don't trust property right now - for no good reason. Just fear.

Fear that the normal cycle in housing is somehow busted. That the good times will never return. Sure it was the mother of all downturns, but in Buffett's words, "housing will come back - you can be sure of that."

That's why Buffet has been aggressively bidding for billions of dollars of distressed loans and underwater properties. He's also buying up mortgage brokers and their loan portfolios, real-estate vendors, and even brick-making companies.

Brick-making companies.

He's going all out to take on a massive exposure to the US property market.

And will he be right?

Well, no one knows the future. But I can tell you one thing: no one has made much money betting against Warren Buffett in the past 50 years!

And while it does seem clear that some markets in the US are massively undervalued, there are also some tried and tested recovery dynamics on his side.

In a cyclical market like housing, it all comes down to supply and demand.

On the supply side, the crash knocked out a lot of supply. A lot of real-estate vendors and homebuilders went underwater. This is holding back the markets ability to respond to increasing demand, which therefore gets translated into increasing prices.

Sure, there was probably an over-supply of houses during the peak. But that was six years ago. The market is a lot tighter than what it was.

The other key factor is demand. The US economy is holding up and confidence is returning.  During the GFC, a lot of young people returned to the nest, creating 'doubled-up' households.

In 1985, only11 percent of 25-34 year olds lived with their parents. In 2010, that percentage had almost doubled to 21.6 percent.

I remember being 25 and I remember being 30. I guarantee you this is about economic necessity, not choice.

So as America's economic fortunes continue to improve, and as young people feel more and more financially secure, they'll be super-keen to head out on their own. They'll be eager to form a household of their own.

Between 2008 and 2011, America added an average 650,000 households a year. In the year to September 2012, that had spiked to 1.2 million households.

This translates into a huge pickup in demand. And with supply still constrained, that will quickly translate into an increase in prices.

These are the fundamentals that are pulling the big money to the table.

...and with that  momentum, remember you can't pick bottom. Well at least I can't.

But, I'm not silly enough not to recognise momentum and we now have it in the USA market.

You can sit on the side-lines and watch, be a spectator and miss yet another opportunity or you can get on your bike and pedal like crazy...

I know what I will be doing.

What will you do?

There is also a yield play, and an exchange rate play for Aussie investors, but more about that another time..

Signed with Success,

Jon Giaan

Independent, Insightful, And Profit-Driven Muses From
A Self-Educated Multi-Millionaire Investor, Jon Giaan

Wednesday, 27 February 2013

This is no Nigerian scam... Read on

Reprinted from an email I received and this guy writes some interesting stuff:

It goes:
I got an odd email the other day.  It said,
"Dearest trusted friend, I am writing to you because I need your urgent respond relating this mutually beneficial business. I must to deposit $1 trillion in your account..."

Yeah! Yeah! Yeah! I've heard it all before. Someone out there is just giving money away for nothing.

But then I read to the end. And what do you know, it was signed:

Ben Bernanke
US Federal Reserve

So I looked into it and guess what?

It turns out that this one is legit. I've never met this guy Ben, but right now, he is doing everything he can to make me a very rich man.

Remind me to buy him a beer one day.

And he's not the only one. He's got friends at the Bank of England, the Bank of Japan, and even Super Mario Draghi at the European Central Bank has put his name on the card.

I know it sounds crazy, but they are all doing everything in their power to send a wall of money barrelling my way.

In fact, you're going to actually have to work pretty hard to avoid it!

"Quantitative Easing" is the new fad in central banking and it's all the rage. From New York to London, from Paris to Tokyo, everybody's doing it.

Another way it's been coined is "kicking the can down the road."

Interest rates are so 1990s.

In pretty much every economy that matters, interest rates have hit the floor and have nowhere else to go. In the US and the UK it was the GFC that finally broke the camels back, but Japan has had an official cash rate of zero percent since the late nineties.

And in Japan, the "zero interest rate policy" was a bust. Growth averaged less than 1 percent a year in the 2000s, and inflation was negative. Japan now has not one, but two lost decades.

But when the GFC hit the states, Buffalo Ben Bernanke at the Federal Reserve wasn't about to lose a decade on his watch, no sir!

Knowing that letting the price of money sit at zero percent wasn't going to help America any more than it helped Japan, The Fed had to get creative.

So with the price of money locked in at zero percent, the Fed started targeting the quantity of money. And so we entered the Quantitative Easing era.

But what does Quantitative Easing mean in practice? Printing money. Pure and simple.

There's no printing press cranking up beneath the Fed building in New York, but in the digital era, there doesn't need to be. Just a few clicks of the mouse and the Fed trillions and trillions of new dollars start gushing into the economy.

As public policy, it's the kind of idea that would have got you kicked out of economics school in the eighties, but desperate times call for desperate measures. And the Fed had run out of options.

And no one is sure that Quantitative Easing is actually going to work. So far, it hasn't had much success in getting the American economy going.

But that hasn't stopped every major central bank from jumping on the Quantitative Easing bandwagon - the UK, Europe and Japan.

They all find themselves in the same boat...

... without a paddle.

What's the theory behind QE? Basically it's about targeting liquidity. Back in the old interest rate era, if you wanted to give the economy a nudge, you knocked 25 basis points off the cash rate. Banks then passed this on to their customers, making it cheaper for consumers to consume, and business to invest.

Economic activity was given a boost.

But how do you make it cheaper for consumers and businesses if your cash rate is already zero? The idea behind QE is that if you just get so much money slushing around the economy, banks will start falling over themselves to lend it out to paying customers. Competition between the banks will drive rates even lower.

Side Note: I am going to write about this phenomena later in the week... move over Glen and the RBA, the "big bad banks" are cutting rates...with no RBA assistance... Go figure.

Anyway more later...back to my thinking and analysis.

Let me fill you in on the big secret.

What is going right now should be called,

....the wealth effect.

And 99% of investors are either missing out on this "wealth effect'' or will wake up and it will be to late.

The Central Banks know that if you send truckloads of cash into a market economy, first and foremost it will get directed to where returns are greatest.

The money will eventually find it's way to Mr and Mrs Jones to help them buy a plasma screen TV, but not before it finds its way into high yielding assets first, things like stocks and particularly real estate.

The banks know that all this cheap money is going to have a MASSIVE effect on asset prices.

And what are they going to do about it?


If asset prices rise, fine, let them rise. In fact, the central banks are actually banking on it creating what is called a wealth effect. That is, as people's assets rise in value, they feel wealthier, and they're more inclined to spend and consume.

Brian Sack, the markets chief of the New York Federal Reserve, the man with his hand on the actual printing press (sorry, mouse), let the cat out of the bag:

"[QE]... can still lower longer-term borrowing costs for many households and businesses, and it adds to household wealth by keeping asset prices higher than they otherwise would be."

Yep, you heard right. The Fed's implicit strategy is to pump up asset prices, and make people who own assets, wealthier. And then pray that this wealth effect gets consumer spending going again.

And so in a world where all the central banks that matter are trying to pump up asset prices, what's the most logical thing to do?

Own assets, of course.

I don't know if QE is actually going to get the world economies going again, but it is definitely going to ramp up asset prices. All that money has to find its way somewhere.

This is the beginning of a long bull run. Investment giants Bain & Co. reckon that this
"superabundance of capital" is going to keep the world "awash with money" until 2020, when financial assets will be worth 10 times the size of the entire world economy!

After that? Who knows? The world might muddle through or it might come undone.

But the take home lesson is that right now, there are unprecedented global forces - trillions upon trillions of dollars, and the biggest central banks in the world - all doing every thing they can to make you wealthier.

It's going to be a wild ride, but if you play your cards right, there's going to be a lot of money to be made.

Stay smart, stay invested or get going. You'll seriously kick yourself if you miss out on the next 12months.

My preferred asset class is of course real estate...the time is perfect.
And of course, remember to send Ben some flowers.

Signed with Success,

Jon Giaan
Knowledge Source