Kerry Stokes: Bang On the Money — Current State Of Asset Markets

Kerry Stokes: Bang On the Money — Current State Of Asset Markets
  1. Hey, check this out. One of Australia’s best businessmen just summed up the current state of asset markets. Take a bow Kerry Stokes!

A journo was quizzing the great man about the low interest rate policy of the central banks currently.

Here’s a snippet from the Australian Financial Review:

“Of course. No one has ever experienced a low interest rate environment like this,” Stokes says.

“There is no value to capital, labour has not improved — there’s been no giant inflation in wages — and so it just comes back to land. Land has been the only thing that’s had a rapid rise.

“At the end of the day, there are three equations: capital, labour and land.

“And if they’re out of kilter, one of them will respond more than the other. At the moment, land and buildings have skyrocketed based on yields, based on current interest rates.”

Spot on! The property market is hot, hot, hot.

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  1. By the way, you don’t have to take our word that property — and the related stocks — is a good place to be.

You can see it in the financial results of the credit stocks on the ASX. I showed you those of Pepper Money Ltd [ASX:PPM] last week.

Now we have another one rolling out the profit and revenue numbers. Hello, Liberty Financial Group Ltd [ASX:LFG]. What can you tell us?

Revenue was up 18% and underlying profit up 61%.

Like Pepper, the COVID loans in distress are trending down — despite the current lockdowns.

So they’ve hit their forecasts — and then some — from their recent IPO.

It’s just another little hint that the property freight train isn’t going to slow down anytime soon. Good businesses that can monetise it are a solid place to be.

That’s especially true if inflation heats up…

  1. Yep — the most powerful central banker in the world opined at the annual Fed shindig at Jackson Hole. What did he say?

Not a great deal in the end that the market didn’t already know. The ‘taper’ is coming, but not tomorrow, so keep going about your business.

That’s more credit and more US dollars pumping around the world. I expect further inflation from this.

Where to hide? One man crunched some data on all this and was kind enough to share the results.

The Australian reported the other day…

He says property wins when inflation rises and it wins big when inflation takes off.

He found inflation has more often than not been above 3 per cent over the last half century: when inflation is in the 3-6 per cent range, listed real estate “generated more than double the real return relative to equities”.

No wonder Blaess believes that investors in property — or in listed property companies — could actually benefit from inflation.

But is the research applicable to Australia? Blaess says it is highly relevant to our listed property trusts anchored by traditional tangible assets. He says the hot spots are segments of the market where rental terms are shorter, such as selected retail developments, storage facilities and data centres.

This was music to my ears. I have several Real Estate Investment Trusts (REITs) under recommendation that fit this bill perfectly.

They’re already winning positions and paying out dividends. But I don’t expect this trend to slow down anytime soon.

Again, make sure you sign up to Cycles, Trends & Forecasts today.

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Callum Newman,
Editor, The Daily Reckoning Australia

PS: Our publication The Daily Reckoning is a fantastic place to start your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.