Apartment building investments are a top choice according to Gary Shilling, one of the world’s foremost economic forecasters, a long-time Forbes columnist, publisher of Insight Newsletter with his editor Fred Rossi, and author of “The Age of Deleveraging,” (http://amzn.to/L9hm7W on Amazon) the perfect playbook for America’s new Age of Austerity.
Quoted in the Market Watch post:
Rental apartments. A huge inventory still overhangs the housing market as prices continue falling. The American dream of homeownership may be history. Renting is the affordable option. And with REIT prices running high, “direct ownership of rental apartments may still be attractive.”
See the whole post for more ideas for investing in these turbulent times.
Mark Dow’s Behavioral Macro blog has a great post illustrating some of our most persistent cognitive errors in real time. The sad thing is that our cognitive errors tend to magnify under pressure which must have worked back when we were dodging saber-tooths out on the savanna but doesn’t help in our current culture which is built on the (mistaken) idea of rational actors doing what’s best for them. Here’s Mark:
Big, Fat Cognitive Illusion (and all of us are more Greek than we think)
Joe Wiesenthal at Business Insider put out a quick post this morning on the Pew Research Center study, “European Unity on the Rocks”, released today. It is an eye opening read.
To start with, it strongly supports the working hypothesis of many that the political forces now unleashed in Europe are centrifugal, not centripetal. This reality makes betting on solving the crisis through a deepening of the EU a longshot whose odds are getting longer by the day.
The main thing the report underscores to me, however, which is also jumps out from Wiesenthal’s post, is the extent to which human nature is gifted in self-deception, especially when under duress. But more on Europe below the fold. First, a word on behavior.
Starting about 15 years ago, I developed a strong interest in behavioral economics and evolutionary psychology. This came about when I started working in asset management and realized (1) how poorly economics was served by the assumption of ‘man as a rational maximizer’ and (2) how emotional and inefficient markets really were.
In the literature I ran into four takeaways time and time again. Specifically:
- We overestimate our abilities, our uniqueness, and our objectivity, even more so when under emotional strain. We have all seen the studies: 90% of people say they are above average drivers. Rarely do people think those around them work harder or better than they do. And so on…
- We systematically understate the role of ‘random’. We crave order, and we are willing to torture the facts to get there. But sometime things just happen, and sometimes problems don’t have solutions. No fundamental cause, no guilty party, no concrete answers. Moreover, on the up side, when random does break our way it’s appropriated as skill. The investment world is shockingly bad at separating outcome and process—yes, even those who drone on and on to prospects about their processes.
- People will find a way to believe what they are incented to believe. As the saying goes, “The most dangerous place to stand is in between someone and what they want to believe”. In my experience, it’s hard to overestimate the power of this statement. Starting with the conclusion and reverse-engineering the supporting arguments is central to the human condition and, surprisingly, serves and important role in our evolution.
- When presented with points 1, 2, and 3, almost everyone recognizes their validity, but believes at some level that he/she is exempt. The typical reaction is “Yeah, for sure, of course that’s how [other] people act”. It is always easier to see others’ mistakes than one’s own. And this is one of the reasons we have a very hard time changing our cognitive biases. All of us.
Now, back to the Europe and Greece.
Here’s the table that was screaming of self-deception: Continue reading Our Big, Fat Cognitive Illusion PLUS free campaign template for always getting elected
… small and Large. Sunday was the 2nd anniversary of the May 6th Flash Crash of 2010. High Frequency Trading (HFT) insiders have hacked the stock markets so they get a sneak peak at your, and everyone’s trades before they’re executed. Think of it like one player at the poker table can secretly see your cards, and everyone else’s before they bet- Want to play in that casino?
When the HFT trading robots all lock onto the same pattern they can take a major market like the Dow Jones Industrial Average down 700 points in 10 minutes and thus we all remember the Flash Crash. Now it so happened that that time the market recovered about 70% of the loss shortly after but the damage to confidence was done.
Once bitten, twice shy. Or as Joe Saluzzi and Sal Arnuk at Themis Trading (a specialty company that trades equities for large institutions and hedge funds- stock traders not OWS supporters) put it: ” traditional retail and institutional buyers and sellers of stock have been steadily waking up to the dangers of drinking at the increasingly dangerous ”stock market watering hole”. Like the animals on the Serengeti, who for years were accustomed to sipping long and heartily at their favorite spot, retail and institutional investors now see what’s beneath the surface. And they are deciding that the drink they crave is just not worth the risk.
It isn’t hard to blame them. They have witnessed a radical transformation of the best capital allocation market system in the world, into one where:
– 13 stock exchanges cater to hyper traders who game the system, chasing exchange rebates, and leveraging speed for the purpose of a nanosecond scalping dance.
– More than 40 dark pools together trade more than 1/3rd of all shares.
– Conflicts of interest abound as exchanges own stakes in Continue reading Happy Flash Crash 2nd Anniversary. Lack of trust in stock markets is scaring away investors…
Six lessons on crisis that help explain why we’re still in one:
- When you don’t reinvent institutions at a time of systemic failure, the problems they’re creating don’t just magically disappear.
- When you prop up (read: bail out) the institutions causing the crisis, instead of reinventing them, the crisis will deepen.
- When dysfunctional institutions prop one another up, prosperity’s a house of cards. Crisis becomes stagnation.
- When propping up failed institutions has drained your resources, you’ve turned a crisis into a catastrophe.
- The longer it takes you to see a crisis for what it truly is, the disproportionately worse it’s likely to get.
- When people who are prisoners of the
Continue reading Six lessons on the financial crisis that help explain why we’re still in one.
European debt-crisis issues are lessons for the US. They belong in the political debate. Both political parties are responsible for our growing debt issues. Bush ran up huge deficits. Obama continued them. Each party blames the other. See the whole post here: Back from Paris
Especially pay attention to item #4. that begins: Private holders of Greek debt had several years to get out…
For extra credit from ‘The Only Thing New In History’ department: Yet another sovereign debt crisis If that link no longer works use this one to see the PDF.
The bullet points:
- Having believed the myth that governments don’t default, many banks and investors will take huge losses in Europe’s sovereign debt crisis.
- The historical regularity of government defaults—more than 250 have occurred since 1800*—gives the lie to the notion that holding sovereign debt is “risk-free.”
- The sovereign debt crisis of post–World War I Europe provides highly relevant lessons for today.
*Referencing Rogoff & Reinhart’s work in “This Time Is Different”. See ‘Whodunit’ in the column to the right for this essential book.
Mainstream economic theory (MsET) has two fundamental tenets that most thoughtful people (even economists) realize are wrong and yet economic decisions and importantly even Fed policy is still based on this flawed model. We know what Einstein said this defines and it’s true.
Problem #1 is the Efficient Market Theory (EMT) or Theory of Rational Expectations says that economic information is widely distributed and that we as individuals and collectively as a market of decision makers and consumers consistently make our choices based on what will give us the most benefit. This has been scientifically proven to be not the case way more often than we like to think. For more on this see “Predictably Irrational” by Dan Ariely and “Thinking, Fast and Slow” by Kahneman in the ‘On Our eReaders Now’ box in the far right column of this page.
The second problem is that MsET is built on the idea that the economy tends to be stable and that dislocations are temporary and tend to correct themselves back to stability somewhat like a train running down the tracks that gets thrown off from time to time. History teaches us that is not the case either. Most often we are moving away from or back towards stability and occasionally pass through stability but typically overshoot. It doesn’t take much imagination to see how these two errors cause problems for economists (and us) and leads to a dismal reputation for them.
I’ve been reading a lot on economics lately searching for a new improved model and have just found a number of articles that tackle those issues. They are lengthy but well worth the reads. The first two were posted by John Mauldin in his ‘Outside The Box’ (OTB) series where others write about and discuss their sometimes opposing views from John’s. Mauldin will begin each piece with an intro about the author and where he might differ from that point of view. His guests are typically people who deal at the highest levels and their insights are Continue reading Economists Prove Einstein’s Theory About Repeating Behavior And Expecting Different Results.
A recent report from New York–based commercial real estate research firm Real Capital Analytics (RCA) reveals that apartment sales figures closed out 2011 on a positive note. The firm’s “2011 Year in Review” report shows that the fourth quarter of 2011 netted $16.6 billion in sales, the highest quarterly volume racked up since 2007. This marks a 16 percent increase from the previous quarter and a 24 percent bump from fourth-quarter apartment sales in 2010. Among the more optimistic data revealed in the report was the rebound of garden-sector sales.
Garden properties ended up 47 percent ahead of the 2010 figures, and it appears that the sales momentum experienced in the fourth quarter will carry over into the first quarter this year. “Given the stable cap rate environment for garden properties, compared to sinking caps in mid-/high-rise, that trend is likely to continue in 2012,” projects Thypin.
See the whole AHF article here: Apartment Sales Close Out 2011 on the Rise
Over the past few weeks, investors used to setting their economic expectations based on a “stream of anecdotes” approach have seen their economic views evolve roughly as follows:
“After a brief ‘scare’ during the third quarter, economic reports have come in better than expectations for weeks – a sign that the economy is on a gradual but predictable growth path; Purchasing managers reports out of China and Europe have firmed, and the U.S. Purchasing Managers Indices have advanced, albeit in the low 50’s, but confirming a favorable positive trend, and indicating that the U.S. is strong enough to pull the global economy back to a growth path, or at least sidestep any downturn…”
“Unfortunately, in all of these cases, the inference being drawn from these data points is not supported by the data set of economic evidence that is presently available, which is instead historically associated with a much more difficult outcome. Specifically, the data set continues to imply a nearly immediate global economic downturn… Frankly, I’ll be surprised if the U.S. gets through the first quarter without a downturn.” (Underlining mine)
Definitely worth a careful read: http://bit.ly/ArTDyK John Hussman is a value investor and a serious student of the economy, we may not always agree with him but we should not dismiss his research.
I believe that apartment building investment should be a core holding for every successful conservative investor. Briefly here are the top ten reasons for low risk investors:
1. Monthly Income. Properly acquired apartments generate monthly checks in 6-8% or higher annual cash on cash returns.
2. Straight forward, conservative investment strategy. Buying existing apartment buildings with good due diligence means that you know what you’re getting going into the investment. Apartments are not subject to sudden changes in investor sentiment and/or valuations.
3. The numbers determine the value. Apartments are valued based on rents less expenses (Net Operating Income) and increases in rents can go straight to the bottom line increasing the value.
4. Inflation protection. Rents rise with inflation and with 12 month leases every year there is the opportunity to adjust rates. With fixed rate financing your income goes up while your biggest cost stays the same. Continue reading Top Ten Reasons To Own Apartments Now