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- Prosper or Panic? 06-Oct-2011
- A Revolution Occurring? 13-Sep-2011
- How to Pay Off Your Mortgage 05-Sep-2011
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Profiting from the GFC
Whilst the worst of the GFC has passed the improvement in asset values has been a slow process and will continue for some time.
However, we are now starting to see some of the good work done by astute investors when the rest of the world where either panicking or forced to sell assets at reduced prices.
The John Hancock Tower in Boston is a 62 story tower that was sold 18 months ago for US $660 million or about half the price it was in 2006. Through purchasing the building when the market was in free fall and there were defaults on the associated debt the buyers were taking a long term view on where they saw the value. Last month the building sold for US $930 million. The return whilst impressive is also enhanced by the gearing involved with the transaction.
Of the US $660 million purchase price some US $471 million was bank debt. This meant that the equity in the deal was US $189 million. After receiving sale proceeds of US $930 million and repaying the bank debt of US $471 million the residual equity in the transaction was US $459 million. This meant that the return on equity was a staggering 243% in only 18 months ($459 divide by $189).
There are a lot of similar positioned transactions in the property market at the moment which provide opportunities for investors. It also shows that for existing investors that have managed to stay in the game and have not yet had to sell their property holdings can benefit from the same things that hurt them in the first place, mainly the level of gearing and a recovery in fallen asset prices. It should also be noted that for those assets that are listed on stock exchanges they are also trading at large discounts to their Net Asset Backing providing another layer of opportunity.
However, we are now starting to see some of the good work done by astute investors when the rest of the world where either panicking or forced to sell assets at reduced prices.
The John Hancock Tower in Boston is a 62 story tower that was sold 18 months ago for US $660 million or about half the price it was in 2006. Through purchasing the building when the market was in free fall and there were defaults on the associated debt the buyers were taking a long term view on where they saw the value. Last month the building sold for US $930 million. The return whilst impressive is also enhanced by the gearing involved with the transaction.
Of the US $660 million purchase price some US $471 million was bank debt. This meant that the equity in the deal was US $189 million. After receiving sale proceeds of US $930 million and repaying the bank debt of US $471 million the residual equity in the transaction was US $459 million. This meant that the return on equity was a staggering 243% in only 18 months ($459 divide by $189).
There are a lot of similar positioned transactions in the property market at the moment which provide opportunities for investors. It also shows that for existing investors that have managed to stay in the game and have not yet had to sell their property holdings can benefit from the same things that hurt them in the first place, mainly the level of gearing and a recovery in fallen asset prices. It should also be noted that for those assets that are listed on stock exchanges they are also trading at large discounts to their Net Asset Backing providing another layer of opportunity.
Centre Capital Christmas Closure
Centre Capital would like to wish you and your family a safe and merry
Christmas.
Our office will be shut from Friday, 24th December 2010 and will reopen on Monday, 10th January 2011.
In the case of an emergency please call and leave a message as they will be checked periodically during this time.
Our office will be shut from Friday, 24th December 2010 and will reopen on Monday, 10th January 2011.
In the case of an emergency please call and leave a message as they will be checked periodically during this time.
What is QE2?
When a central bank is trying to stimulate an economy they decrease interest rates to encourage people to borrow for investment and consumption. However, what happens when interest rates are at effectively zero and can't go any lower?
In short the Central Bank undertake quantitative easing where they "print" money to purchase government bonds. This means they are injecting more money into the system to try and stimulate economic activity. Whether or not it works is a question of debate amongst economists and the like so we wont discuss this in this blog.
In the US, the Federal Reserve will purchase US$105 billion of US Treasuries over the next month to expand monetary stimulus measures in the hope of reducing unemployment and avert deflation. Furthermore, the "Fed" is buying an additional US$600 billion of US Treasuries through to June 2011 and expects to reinvest US$250 billion to US$300 billion of proceeds from mortgage backed debt securities into US Treasuries.
Currently if you invest in a 30 year US Government bond they will give you 4.3% per annum return for the next 30 years. There is a heap of investors sitting on cash and bond type investments at the moment earning this type of return. Lets cut to the chase and go buy real estate and businesses that are returning far in excess of this.
In short the Central Bank undertake quantitative easing where they "print" money to purchase government bonds. This means they are injecting more money into the system to try and stimulate economic activity. Whether or not it works is a question of debate amongst economists and the like so we wont discuss this in this blog.
In the US, the Federal Reserve will purchase US$105 billion of US Treasuries over the next month to expand monetary stimulus measures in the hope of reducing unemployment and avert deflation. Furthermore, the "Fed" is buying an additional US$600 billion of US Treasuries through to June 2011 and expects to reinvest US$250 billion to US$300 billion of proceeds from mortgage backed debt securities into US Treasuries.
Currently if you invest in a 30 year US Government bond they will give you 4.3% per annum return for the next 30 years. There is a heap of investors sitting on cash and bond type investments at the moment earning this type of return. Lets cut to the chase and go buy real estate and businesses that are returning far in excess of this.
Who Does and Who Wants To Own US Debt
Japan is poised to pass China as the largest US creditor as Japan added US$55.3 billion of Treasuries this year. This increases its total holding to US$821 billion according to Treasury data. China, reduced its US debt by US$48.1 billion to US$846.7 billion.
The purchases from Japan show no slowdown in demand for America’s debt which will help keep funding costs down as the deficit swells.
Foreign holdings of US debt have increased US$374 billion this year to US$4.07 trillion as of July, according to Treasury data.
Demand from international investors for Treasuries is in contrast with the view of Warren Buffett the world’s greatest investor. He states unequivocally in a Fortune magazine article that investors buying bonds now “are making a mistake”.
“It’s quite clear that stocks are cheaper than bonds,” Buffett said. “I can’t imagine anyone having bonds in their portfolio when they can own equities.”
Stock dividends are paying more than government bonds. According to Bloomberg Ten year Treasuries yield 5.2 percentage points less than equities of companies in the Standard & Poor’s 500 Index.
Looks like of another case where investors are taking their eye off the ball in regards to weighing up the benefits and risks of investment choices.
The purchases from Japan show no slowdown in demand for America’s debt which will help keep funding costs down as the deficit swells.
Foreign holdings of US debt have increased US$374 billion this year to US$4.07 trillion as of July, according to Treasury data.
Demand from international investors for Treasuries is in contrast with the view of Warren Buffett the world’s greatest investor. He states unequivocally in a Fortune magazine article that investors buying bonds now “are making a mistake”.
“It’s quite clear that stocks are cheaper than bonds,” Buffett said. “I can’t imagine anyone having bonds in their portfolio when they can own equities.”
Stock dividends are paying more than government bonds. According to Bloomberg Ten year Treasuries yield 5.2 percentage points less than equities of companies in the Standard & Poor’s 500 Index.
Looks like of another case where investors are taking their eye off the ball in regards to weighing up the benefits and risks of investment choices.
Buffett Rules Out "Double Dip" Recession
The media and the market has been running with it relentlessly along with European debt problems. The great man Warren Buffett has ruled out a second recession in the US.
“I am a huge bull on this country,” Buffett said recently to the Montana Economic Development Summit. “We will not have a "double dip" recession at all. I see our businesses coming back almost across the board.”
Well what has the worlds greatest investor been doing during the Global Financial Crisis?
He spent US$5 Billion acquiring a stake in the iconic investment bank Goldman Sachs. Only weeks after this purchase the share price of that investment had halved from his purchase price. However, market movements don't bother Warren and he is now sitting on quite a tidy profit not even a couple of years later.
He also bought railroad Burlington Northern Santa Fe Corp. for US$27 billion earlt this year which was "a bet on the US economy".
Buffet commented “I’ve seen sentiment turn sour in the last three months or so, generally in the media. I don’t see that in our businesses. I see we’re employing more people than a month ago, two months ago".
Buffeted commented “It’s night and day from a year, year and a half ago”.
“I am a huge bull on this country,” Buffett said recently to the Montana Economic Development Summit. “We will not have a "double dip" recession at all. I see our businesses coming back almost across the board.”
Well what has the worlds greatest investor been doing during the Global Financial Crisis?
He spent US$5 Billion acquiring a stake in the iconic investment bank Goldman Sachs. Only weeks after this purchase the share price of that investment had halved from his purchase price. However, market movements don't bother Warren and he is now sitting on quite a tidy profit not even a couple of years later.
He also bought railroad Burlington Northern Santa Fe Corp. for US$27 billion earlt this year which was "a bet on the US economy".
Buffet commented “I’ve seen sentiment turn sour in the last three months or so, generally in the media. I don’t see that in our businesses. I see we’re employing more people than a month ago, two months ago".
Buffeted commented “It’s night and day from a year, year and a half ago”.
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