Can Turtles Fly?

Hard to find long term real estate charts and I found the following that is useful for future reference. Data and chart is from the 2018 Credit Suisse Global Investment Returns Yearbook (summary version free.) Found it from the following Finalytiq blog post. This chart is real prices (so add say 3% inflation) and doesn't include rent or imputed rent (so add another 4% (say $1500/month rent x 12 months on a $500k home.) For USA, annual price return was 0.3% so that's like 7.3% annual return if you go with my assumption for inflation and rent above. Overall world figure was better at 1.3% for the price return. Like all other assets, home prices were basically flat until the mid-1900s (partly due to deflation/gold-backed money supply and partly due to deflationary destruction from world war 2.)  Australia has had the best price return at 2.2%, most of it from the last 30 years.

Real Estate Contribution to Canadian Provincial GDP (source: " In Home Capital’s Mortgage Mess, Blame the ‘Unlucky’ Brokers " by Katia Dmitrieva, Bloomberg, May 23 2017)

Not sure if this an isolated event or a symptom of a possible Canadian housing bubble, but Home Capital Group (TSX: HCG), just terminated its CEO. I don't follow Canadian financials so not sure but I think HCG may be the largest alternative real estate lender in Canada. CBC News reports  (Mar 28 2017): Home Capital announced Monday after stock markets had closed that that Martin Reid, its president and CEO, was out, effective immediately. Investors responded by sending shares of Home Capital down $2.66 to finish at $25.06 on the TSX. Reid has been replaced by Bonita Then, a member of Home Capital's board of directors, until a new permanent CEO can be hired. "Home Capital requires leadership that can bring to bear a renewed operational discipline, emphasis on risk management and controls, and focus on improving performance," said Kevin P.D. Smith, the chair of company's board, in a statement. In February, Home Capital said it had received an enforcement...

(click on image for a larger picture) (source: DesignandGeography.com. Image downloaded on Apr 8 2012 3:25 AM from " Mapping the US Housing Bubble: 2000-2010 ," VisualizingEconomics.com)

I ran across a pretty good, old, video, posted on July 15, 2011, but possibly from an event in 2010(?), of a conversation between Vanity Fair's editor, Graydon Carter, and Michael Lewis. The talk mainly covers the financial crisis, Wall Street culture, and book authorship. It's a really good 8-part interview, lasting approximately 40 minutes, and I recommend it to anyone interested in the culture of Wall Street, the 2008 financial crisis, or is simply interested in writing non-fiction books. Most of you probably know of Michael Lewis as a contributor to Vanity Fair and Bloomberg, and the author of popular books such as Moneyball , The Big Short , and Liar's Poker . Lewis is arguably the most-entertaining American writer covering business culture. He isn't everyone's cup of tea given how he paints with broad brushes and makes stories easy to digest, but I love his writing and his humour. I haven't read The Big Short yet but do plan to do it at some point. (If ...

I remember hearing someone say a while back that the American real estate crisis will be near the end when we start seeing homes being demolished. Although very small and in the early stages, it seems that it is starting to happen (h/t The Atlantic ): Bank of America Corp. (BAC), faced with a glut of foreclosed and abandoned houses it can’t sell, has a new tool to get rid of the most decrepit ones: a bulldozer. The biggest U.S. mortgage servicer will donate 100 foreclosed houses in the Cleveland area and in some cases contribute to their demolition in partnership with a local agency that manages blighted property. The bank has similar plans in Detroit and Chicago, with more cities to come, and Wells Fargo & Co. (WFC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Fannie Mae are conducting or considering their own programs. The number of homes in question for demolishion is negligible but, nevertheless, it does indicate that inventory is being taken off the market.

Happy Canada Day to fellow Canadians... and Happy Fourth of July to my neighbours down south. Here are some articles that have been on my list that I have read or plan to read. As usual, unlike other blogs, I don't necessarily link to recent articles so do keep the timeline in mind when reading my posts. (Recommended) Bitcoins - a novel, virtual, currency (Bloomberg Businessweek): Interesting story of a virtual online currency. I don't know if the US government, and others, will start cracking down on this—it's a threat to the existing currency scheme—but it remains to be seen. It's also interesting to see how the value of fiat currencies—bitcoin is purely virtual but limited by an algorithm—is set. Bitcoin's value appears to fluctuate wildly but that is likely due to the small number of users. "Reinsurance explained" (Liarspoker for Gurufocus): A basic introduction to reinsurance companies. (Recommended) Retained earnings for net-net stocks (Geo...

American Home Ownership (source: Calculated Risk , as of April 27, 2011)

Some articles, including some important ones summarizing the Berkshire Hathaway meeting held a few weeks ago. (Highly Recommended) Warren Buffet 2011 shareholder meeting notes (Ben Claremon for GuruFocus): Very detailed and extensive notes from last week's shareholder meeting. Too bad it's in scribd format (am I the only one on the planet without a Facebook account yet? ;) ) (Recommended) Summary of Warren Buffett 2011 shareholder meeting (Epic Investor): Another pretty lengthy summary of the shareholder meeting from earlier in the month. (Recommended) TV interview of Warren Buffett and Ajit Jain (NDTV via GuruFocus): First time I've seen the publicity-shy Ajit Jain... I wish someone would ask Buffett to walk through one of his past investments. The canned questions and short TV-oriented questions have been repeated a million times and are a complete waste of time for people like me. Oh well. Maybe Alice Shroeder will write an investment book soon. (Recommended) ...

Here are some articles I found interesting. I have a bunch related to politics and this may anger some of you so if you don't want to hear it, skip over the WikiLeaks stuff near the bottom. As usual, not in any particular order... Some Canadians snapping up US residential real estate (MoneyVille): Real estate bulls such as John Paulson have said that it's a great time to buy American real estate but I am not so sure. Although not as risky as buying near a peak, I can see someone not making any money for years. Having said that, the funds mentioned in this article are buying prime Florida real estate—I assume they are prime?—so they should be ok in the long run. After all, they don't build those sandy white beaches in America. A bubble in private Internet companies? (Dealbook): The privately rumoured valuations of Internet companies like Twitter, Groupon, Zygna, and others, often reach billions of dollars. Some of these companies are revolutionary and likely will dominat...

It'll be interesting to see how the stock market finishes off the year. The US markets are hovering close to +10% right now. I don't find the stock market attractive and probably won't do anything for a while. Anyway, here are some articles I ran across that you may be interested in...Still have to figure out a better way to quote long text in these link posts I do. If you have any suggestions, feel free to leave your thoughts. Anyway, hope you find some of the articles and essays useful...credit goes to the original authors.

(source: Ed Stein, Rocky Mountain News, 2007. Downloaded from financialbounce.com )

Mortgage Payment to Rent Ratios for USA and Canada (source: " Buy/rent ratio suggests vulnerability ," The Globe & Mail. Published Monday, Oct. 18, 2010 12:15PM) In reality, it is hard to tell if it's better to rent or buy a home in Canada even though the mortgage payment to rent ratio is 1.85. Unless the mortgage payment shown has been adjusted in some manner, we need to keep in mind that a mortgagee will end up owning the house after a few decades whereas a renter won't own anything. So it's not a simple 1-to-1 comparison. In any case, the chart appears to show that it is better to buy, than rent, homes in USA.

The skyline never stays still in Beijing... (source: " Beijing's Changing Skyline ," Time) From her leafy, 11th-floor rooftop terrace at the headquarters of Soho China Ltd., billionaire Zhang Xin scans the relentlessly expanding Beijing skyline she helped create. Zhang’s avant-garde buildings -- some sleek as chopsticks, others stepped like rice terraces -- became part of the hottest real estate market on Earth in 2010. Zhang says she’s well aware of the chorus of investors and economists who predict that China’s property boom is about to go bust, taking the global economy down with it. The doomsday scenarios don’t intimidate Zhang, a onetime penniless sweatshop worker who ascended to Wall Street by defying the odds. She hopes to prove skeptics wrong again this year by betting hundreds of millions of dollars on new buildings in Beijing and Shanghai, Bloomberg Markets magazine reports in its September issue. “I don’t see any bubbles,” says Zhang, dressed in a white ...

Sorry about the lack of posts. Hopefully the linked articles will keep you busy :) (Recommended) Top-down look at Microsoft (Bronte Capital): John Hampton of Bronte Capital takes a detailed industry-level look at Microsoft. The comments by readers is also worth reading IMO. I haven't looked closely at Microsoft but my feeling is that it is probably an investment that will produce market(or maybe 1% or 2% more than market) returns. The problem for companies like these is that they are very large and its hard to see a big upside. As for the downside, it is probably exaggerated. As long as Microsoft produces high profits and reinvests a lot in R&D, its downside won't be that large. Microsoft's historical strength is in turning products, often after competitors get first-mover advantage, into relatively lower cost, mass-market, products... Investing in Microsoft is kind of like inesting in Coca-Cola in the 70's or 80's. That is, you really need some high growth m...

On a bright, warm Saturday in late June, couples and families wandered through the empty village, which has been renamed Millenium Water. It opened for public tours last month and draws about 100 people a day. Millenium Water is a city of the future, built with enviro-touches like green roofs and automatic shades that moderate the temperature inside the apartments. An 815-square-foot, one-bedroom apartment is on sale for C$879,000, which works out to C$1,078 per square foot, or $12 higher than the average price in Manhattan, according to The Corcoran Report. (A Canadian dollar is currently worth about U.S. 96 cents.) Millenium Water isn't in downtown Manhattan, of course. It's not even in downtown Vancouver, which is across an inlet known as False Creek. It isn't really even in a neighborhood; the nearest establishment is the sales office for another condo development. If all this is starting to sound a little irrationally exuberant, especially given the shaky internatio...

Fannie Mae and Freddie Mac are Delisted The government agency in charge of Fannie Mae and Freddie Mac told them to delist their shares. I'm not really sure what this means since the market cap of their shares was still roughly $1 billion... This ends a multi-decade attempt by the government to utilize a public-private partnership structure to facilitate purchase of homes by Americans (there is still Ginnie Mae and Farmer Mac.) The structure probably doesn't make much sense given how profits accrue to private investors during the good times, while losses accrue to taxpayers during bad times. I'm not in favour of such structures and would prefer something to be privatized completely. As you could tell from the charts private investors, including Warren Buffett and several other value investors at one time, made a fortune in the 80's and 90's; but taxpayers ended up massive losses (not shown by the share price graphs) in the late 2000's. Although Fannie Mae...

You may recall Jim Chanos, a short-selling specialist, making the news a few weeks ago when he was quoted in a New York Times article laying out the bear case for China. What's interesting about the China bear vs bull fight is how many of the tradtional bears and contrarians are actually bullish on China. Strategists such as Marc Faber and Jim Rogers, not to mention the countless perma-bears who seem bearish on everything, are actually bullish on China (usually through heavily leveraged bets on China-sensitive commodities.) So, even though the China bear case is quite signficant (we aren't talking about some minor asset class or security from the middle of nowhere), there are very few bears. Jim Chanos, as well as Hugh Hendry, appear to be the only prominent ones that are on the bear side. Jim Chanos gave a great presentation a few weeks ago, outlining his China bear thesis. Some of you may have already seen it but I just got around to watching it fully (it's almost an h...

Finally catching up on investment articles and here is a long list of items you may not have run across.

An obscure story but I thought it may be monumental. Lennar, a prominent homebuilder in America, has cut a deal with the FDIC to buy back some distressed loans. MarketWatch reports : Lennar has positioned itself to benefit further from a real estate recovery through a distressed-land transaction with the FDIC to purchase a 40% stake in bank loans with a combined unpaid balance of about $3 billion. Late Wednesday, the Miami-based company said it closed transactions with the FDIC to buy two portfolios of loans for $243 million. Lennar subsidiary Rialto Capital Advisors will conduct the daily management and workout of the portfolios, the company said. This wouldn't be much of a story except for two things.