The rebound from a housing disaster has transformed a lot of companies. Beazer Homes might have transformed the most as it has gotten creative and may have found a way to increase revenue while the housing market continues to find a bottom. Investors can put money into a slew of real estate: office properties, apartments, retail stores, etc. Beazer has joined forces with KKR to add single family homes to the investment list. Warren Buffett said he would buy hundreds of thousands of these homes at today's low prices. Now the common investor can throw some money into single family homes through an REIT.
There are 25.5 million single family rental properties in the US compared with 18 million rental apartments. This new single family home REIT will capitalize on a largely untapped investment locale for the common investor. Beazer already has 192 single family homes in the Phoenix and Las Vegas areas. More than 10% of these properties are homes that Beazer originally built and sold. KKR is hoping that Beazer’s expertise can help turn houses around to a rental market. Most homes are being purchased at a discount because of foreclosures or short sales, which isn’t surprising given that Phoenix and Las Vegas are still in terrible condition.
Currently, the REIT is private. Once the assets increase and reach a specified amount, Beazer and KKR will consider making it a publicly traded REIT. Essentially, it will be made up of ‘certified pre owned houses.’ It has worked in the automobile industry the past few years. Why not housing?
Wednesday, May 16, 2012
Prepaid Debit Cards
Banks are becoming more creative to increase fee revenue. The billions of dollars that were lost in the new regulations brought about by the financial crisis are hard to return in an industry that has limited products. JP Morgan Chase became the newest bank to start selling prepaid debit cards following in the footsteps of US Bancorp, BB&T, and Regions Financial. This comes as banks face strong criticism following plans to initiate monthly fees for debit cards.
Prepaid debit cards are targeting the consumers who don’t have the financial means to pay monthly checking account fees. The new Chase card has a $4.95 monthly fee which is effectively a 50%+ discount from monthly checking account fees. The debit card can be used as debit or credit for purchases and can also be used to pay bills. Customers can even have their paychecks direct deposited to the card. They can also use it at Chase ATMs or at their teller lines. There are no loading fees, although we all know other fees may apply.
Prepaid debit cards are targeting the consumers who don’t have the financial means to pay monthly checking account fees. The new Chase card has a $4.95 monthly fee which is effectively a 50%+ discount from monthly checking account fees. The debit card can be used as debit or credit for purchases and can also be used to pay bills. Customers can even have their paychecks direct deposited to the card. They can also use it at Chase ATMs or at their teller lines. There are no loading fees, although we all know other fees may apply.
Tuesday, May 1, 2012
From Investors to Landlords
The housing market has been seeing ups and downs for years now. Lately, it looks like the market is stabilizing. Even still, the market is flooded with a huge inventory of houses. Many economists think that house prices will not go back up until inventory is liquidated. Supply vastly outstrips demand as the rental market has been heating up. Some even think the rental market is slowly forming a bubble. Until the economy improves and home buying increases, supply will remain high and prices depressed.
Fannie Mae has been selling homes one at a time while trying to keep every penny of value in their hands. They own hundreds of thousands of homes with no surefire way of getting rid of them soon. A new idea has formed on Wall Street which could make many investors into landlords. In the idea, Fannie Mae would sell homes in bulk to investors. Investors would then have to rent out these homes for a specified period of time before they could sell them. Many think that this could significantly reduce the number of houses on the market. Reducing the supply is only half of the equation. There is still a demand factor that has yet to return.
With the rental market hitting the price increases that it has over the past year, a huge supply of rentals could quickly inflate a bubble or it could kill price increases. Either way, housing prices are looking to remain stable for years to come as the economy continues to fight its way forward. Getting investors to buy homes and rent them out would help out the supply. It is going to take a lot more to get demand back up. On a side note, bulk sales by Fannie Mae would have to be sold at a discount which would only hurt the taxpayer since we pretty much bought all those homes, but that is another story.
Fannie Mae has been selling homes one at a time while trying to keep every penny of value in their hands. They own hundreds of thousands of homes with no surefire way of getting rid of them soon. A new idea has formed on Wall Street which could make many investors into landlords. In the idea, Fannie Mae would sell homes in bulk to investors. Investors would then have to rent out these homes for a specified period of time before they could sell them. Many think that this could significantly reduce the number of houses on the market. Reducing the supply is only half of the equation. There is still a demand factor that has yet to return.
With the rental market hitting the price increases that it has over the past year, a huge supply of rentals could quickly inflate a bubble or it could kill price increases. Either way, housing prices are looking to remain stable for years to come as the economy continues to fight its way forward. Getting investors to buy homes and rent them out would help out the supply. It is going to take a lot more to get demand back up. On a side note, bulk sales by Fannie Mae would have to be sold at a discount which would only hurt the taxpayer since we pretty much bought all those homes, but that is another story.
Thursday, April 26, 2012
Southeast Asia's Growing Exchanges
Southeast Asia’s financial markets have been booming. Many of the region’s exchanges have hit multiyear highs recently with several benchmarks hitting double digit year over year returns. Indonesia was even given investment grade status which is opening up the country to a lot of capital inflows. The Philippines are reported to be the latest country to possible get an investment grade status upgrade in the next year. As the region continues to grow and become a safer place to invest among funds and investors, more countries will be trying to improve their financial markets.
Cambodia is the latest country to open an exchange. They had their first IPO that began trading at 9:09AM as it seems that 9 is a lucky number there. As Cambodia grows, they hope their exchange grows as well as the other countries in the region. Southeast Asia has easily been outperforming China in the past year. The main reasoning behind this is the fact that many of these countries grow domestically. They aren’t as export oriented as China. This gives them true growth and not one so reliant on the rest of the world.
Cambodia is the latest country to open an exchange. They had their first IPO that began trading at 9:09AM as it seems that 9 is a lucky number there. As Cambodia grows, they hope their exchange grows as well as the other countries in the region. Southeast Asia has easily been outperforming China in the past year. The main reasoning behind this is the fact that many of these countries grow domestically. They aren’t as export oriented as China. This gives them true growth and not one so reliant on the rest of the world.
Wednesday, April 25, 2012
Bondholders Beware
The bond market has had a 30 year bull market run. These bull runs are hard to find and seldom last. One that has lasted this long might never be seen again. It looks like things will turn around in the next couple of years. I have been saying that bonds will be the first thing to take a hit when the economy recovers. As the economy has been gaining steam, yields have been inching up. As we all know, when yields rise, bond prices fall. The Fed has given a time frame for rates to remain artificially low. The question is whether these rates can actually be sustained for the next two years.
Yields could soar if the Fed prematurely came out and raised rates. Bondholders would be crushed as the bottom would fall out among prices. I don’t foresee a quick change in monetary policy as the Fed is consistently quoting 2014 as the earliest year to possibly raise rates. Should the economy or inflation force the Fed to show its hand early, bondholders beware. Even still, Treasuries remain one of the safest places to hide as the economy struggles to provide consistently good news.
Yields could soar if the Fed prematurely came out and raised rates. Bondholders would be crushed as the bottom would fall out among prices. I don’t foresee a quick change in monetary policy as the Fed is consistently quoting 2014 as the earliest year to possibly raise rates. Should the economy or inflation force the Fed to show its hand early, bondholders beware. Even still, Treasuries remain one of the safest places to hide as the economy struggles to provide consistently good news.
Return of the Carry Trade
The 90’s are roaring back in fashion as carry trade opportunities reignite. The carry trade is a way to profit off currencies and rates. Investors borrow money in one country where rates are low and exchange it for currency in a country where rates are high. The carry trade went away and was rarely used when the global economy went into a recession. The easy monetary policies around the world cut down on carry trades. The artificially low rates kept the dollar and euro as currency of choice to borrow from.
Japan is trying to keep the yen artificially low. The yen was the currency of choice back in the 1990s. Investors are borrowing yen and then investing in Mexican pesos, the Brazilian real, or other countries where the interest rates are higher than the rest of the world. This only works as long as Japan keeps flooding the market with yen to keep rates low and the currency from strengthening. As long as the yen keeps falling, investors will profit from the spread in rates and the currency play.
Japan is trying to keep the yen artificially low. The yen was the currency of choice back in the 1990s. Investors are borrowing yen and then investing in Mexican pesos, the Brazilian real, or other countries where the interest rates are higher than the rest of the world. This only works as long as Japan keeps flooding the market with yen to keep rates low and the currency from strengthening. As long as the yen keeps falling, investors will profit from the spread in rates and the currency play.
Monday, April 23, 2012
Creative Collateral
Over 20 years ago, Wall Street was rocked with a 'greed is good' persona. I don't know if I can fully endorse that; however, I do think greed is kept honest. What I mean by this is that over time, the ones who start something out of greed get hooked. Once they get hooked, it is very hard to turn away. It is the very ones who create an empire of out greed who lose everything on the way down. All the firms who made the biggest bets in the housing market were the ones who no longer exist. Greed isn't always good and it definitely doesn't always last.
As is prevalent on Wall Street, short term memory problems persist even today. Bonds and collateralized securities backed by mortgages finally started coming back around. It certainly isn't at the height that it was several years ago. As a result, bankers are creating new types of bonds known as esoteric bonds. These bonds are backed by unusual assets not usually seen in the banking business. Domino's Pizza has backed bonds with revenue from franchises. Drug companies are using patents to back bonds. Some bonds are even backed by time shares.
In this case I have to agree that greed is good. The need to raise money in whatever way possible has created a whole new class of bonds. The diversification of collateral helps to guard against the possibility of another bubble. The only trouble lies with the possibility that the ideas of collateral get out of hand. Could a handful of greed set up this class for another classic downfall or will this greed actually help small business get the types of loans they can to stimulate the economy? Where will it stop? When do bankers say collateral isn't sufficient? Today, everything can be quantitatively measured.
As is prevalent on Wall Street, short term memory problems persist even today. Bonds and collateralized securities backed by mortgages finally started coming back around. It certainly isn't at the height that it was several years ago. As a result, bankers are creating new types of bonds known as esoteric bonds. These bonds are backed by unusual assets not usually seen in the banking business. Domino's Pizza has backed bonds with revenue from franchises. Drug companies are using patents to back bonds. Some bonds are even backed by time shares.
In this case I have to agree that greed is good. The need to raise money in whatever way possible has created a whole new class of bonds. The diversification of collateral helps to guard against the possibility of another bubble. The only trouble lies with the possibility that the ideas of collateral get out of hand. Could a handful of greed set up this class for another classic downfall or will this greed actually help small business get the types of loans they can to stimulate the economy? Where will it stop? When do bankers say collateral isn't sufficient? Today, everything can be quantitatively measured.
Sunday, February 26, 2012
The Behavioral Investor
Past performance is no guarantee of future performance. This disclosure has to be packaged on every investment vehicle. Even still, most investors have short term memory loss. Many base their investment choices on what has been and not on current events. They forget about rising problems that have been over shadowed or down played. Statistics show the investors become bullish after the market has risen and bearish only after the market has fallen. This is a primary reason of why the average investor cannot beat the market's returns by himself. Emotions get thrown on the table and all the fundamentals are tossed aside.
This is the classic case of behavioral finance. Investors get too tied up in how they feel about a certain investment and lose the buy/sell discipline. Statistics show that investors are prone to sell a winner too quickly and hang on to losers. We feel that if we sell a winner then we can show we accomplished something. As a result, many of us sell too soon in a bull market. We then get back in at the top. From there we buy and watch our picks fall. However, we refuse to sell based on the perception that our investments were good picks and will rebound soon. We hang on to these picks too long and lose more and more money. We then sell at the bottom and sit on the sidelines bandaging our wounds. The market rebounds and we get in too late, thus starting the cycle over again.
Discipline is needed to buy and sell at specific points. We buy based on fundamentals. Once those fundamentals change, we need to sell and move on. We all have our favorite picks. The great investor distinguishes himself by selling those picks and moving on without ever looking back. He takes the emotion out of the game. As a result, he can buy and sell according to his game plan without ever hanging on too long. Many people can pick great investments. Only a few can actually manage those investments effectively.
This is the classic case of behavioral finance. Investors get too tied up in how they feel about a certain investment and lose the buy/sell discipline. Statistics show that investors are prone to sell a winner too quickly and hang on to losers. We feel that if we sell a winner then we can show we accomplished something. As a result, many of us sell too soon in a bull market. We then get back in at the top. From there we buy and watch our picks fall. However, we refuse to sell based on the perception that our investments were good picks and will rebound soon. We hang on to these picks too long and lose more and more money. We then sell at the bottom and sit on the sidelines bandaging our wounds. The market rebounds and we get in too late, thus starting the cycle over again.
Discipline is needed to buy and sell at specific points. We buy based on fundamentals. Once those fundamentals change, we need to sell and move on. We all have our favorite picks. The great investor distinguishes himself by selling those picks and moving on without ever looking back. He takes the emotion out of the game. As a result, he can buy and sell according to his game plan without ever hanging on too long. Many people can pick great investments. Only a few can actually manage those investments effectively.
Cash Money is Irrelevant
Today's world is moving closer toward a cash-less society. The amount of debit cards and credit cards being used is increasing every year. Banks are pushing customers to direct deposit and online bill pay systems. Many are even penalizing those who come in to see tellers too often. Gift cards are even becoming the Christmas gift of choice for some. So, why do we even need cash money?
I have a single dollar bill in my wallet. I used to go to the ATM and get a few bucks out here and there. If I didn't have anything in my wallet then I would refuse to spend money. Every week I find myself using plastic for cheaper and cheaper purchases. I cannot even remember the last time I had more than twenty dollars in my wallet. Statistics are showing more and more people are doing the same thing I do.
Many are pushing for the Fed to cut out some types of currency. The Fed has been producing gold dollars for a decade now. It would be easier to spend these instead of keeping bills in our ever expanding plastic wallets. Too many people, including myself, have chosen to collect these coins instead of spending them. Even as a banker, I see no dollar coins coming in from the Fed. Pennies are more expensive to make than they are actually worth. It would make more sense to trade them. Still, the Fed keeps on producing them.
It doesn't take much to initiate a change, but it takes a lot more to implement and execute that change. I am not pushing to get rid of currency altogether. Currency should be made easier to keep and spend or plastic will be the currency of choice pretty soon. Many people still like the feel of paper money and the sense that if they see it then they really have it. The only people who really seem to carry money are the elderly, corrupt government officials, and rich college kids looking to buy little bags of marijuana.
Currency still plays a critical part of our everyday lives. Whether it is to buy bread, gas up the car, or stuff under the mattress, currency will remain the money of choice for some. Sure, it might make sense to clean up our currency to make it fiscally responsible. Still, currency will never go away even in today's plastic world. Is cash money irrelevant? The choice differs according to who is asked; however, even after typing all this up, I am not convinced either way.
I have a single dollar bill in my wallet. I used to go to the ATM and get a few bucks out here and there. If I didn't have anything in my wallet then I would refuse to spend money. Every week I find myself using plastic for cheaper and cheaper purchases. I cannot even remember the last time I had more than twenty dollars in my wallet. Statistics are showing more and more people are doing the same thing I do.
Many are pushing for the Fed to cut out some types of currency. The Fed has been producing gold dollars for a decade now. It would be easier to spend these instead of keeping bills in our ever expanding plastic wallets. Too many people, including myself, have chosen to collect these coins instead of spending them. Even as a banker, I see no dollar coins coming in from the Fed. Pennies are more expensive to make than they are actually worth. It would make more sense to trade them. Still, the Fed keeps on producing them.
It doesn't take much to initiate a change, but it takes a lot more to implement and execute that change. I am not pushing to get rid of currency altogether. Currency should be made easier to keep and spend or plastic will be the currency of choice pretty soon. Many people still like the feel of paper money and the sense that if they see it then they really have it. The only people who really seem to carry money are the elderly, corrupt government officials, and rich college kids looking to buy little bags of marijuana.
Currency still plays a critical part of our everyday lives. Whether it is to buy bread, gas up the car, or stuff under the mattress, currency will remain the money of choice for some. Sure, it might make sense to clean up our currency to make it fiscally responsible. Still, currency will never go away even in today's plastic world. Is cash money irrelevant? The choice differs according to who is asked; however, even after typing all this up, I am not convinced either way.
Tuesday, January 3, 2012
Corporate Cash Being Kept Overseas
American corporations are stashing cash overseas instead of bringing it back home. This isn't new to the government as they had to give a special tax holiday to corporations in 2004 to bring income back to the US. The tax rate was set at 5.25% and the cash had to be used toward investments. Corporations are making sure they keep money where it is made until another tax holiday comes around. The current repatriation tax can reach 35%.
A lot of cash is kept overseas because of currency exchange rates. Many companies would like to see currency rates become a little more favorable before trying to convert to dollars. It might be wise for some to go ahead and convert with the problems in the Euro zone. Some cash is kept in the local currency to be reinvested. This is especially prevalent in emerging markets.
Apple has $82B in cash with $54B overseas. Cisco has $44B with $40B overseas. These are two examples of companies with loads of cash that should be spent on dividends or share buybacks or even acquisitions. Instead, our extremely high tax rate is keeping this cash overseas. Another tax holiday is sorely needed to jumpstart this economy.
A lot of cash is kept overseas because of currency exchange rates. Many companies would like to see currency rates become a little more favorable before trying to convert to dollars. It might be wise for some to go ahead and convert with the problems in the Euro zone. Some cash is kept in the local currency to be reinvested. This is especially prevalent in emerging markets.
Apple has $82B in cash with $54B overseas. Cisco has $44B with $40B overseas. These are two examples of companies with loads of cash that should be spent on dividends or share buybacks or even acquisitions. Instead, our extremely high tax rate is keeping this cash overseas. Another tax holiday is sorely needed to jumpstart this economy.
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