Play The Property Boom This Way
- $475 a day. That’s how much the average Melbourne house is clocking up in value, according to The Age on Saturday.
Melbourne houses are up, broadly, $173,000 in the past year.
Forgive me, I’m going to toot a horn for a moment. This is exactly as Catherine Cashmore and I forecast in May 2020. You should be on our team if you aren’t already.
A friend of mine is up over $30k from simply buying the Real Estate Investment Trusts I recommended three months ago.
He waited around too long and still made money. He gets off shouting a beer too because we’re in lockdown!
Those REITs outpaced the general market too, as I showed last week.
Where else might we find an edge from this? A note from CommSec recently said that Aussies spent $47 billion on foreign travel in 2019.
That money, or at least a good chunk of it, is now going to savings and/or domestic spending.
The obvious COVID winners are marked up on the ASX now. We can’t turn back the clock.
But for sure, there’ll be more as we move out of lockdowns and the acute phase of the pandemic itself.
My way of playing this is slightly asymmetrical. I suggest targeting not the retailers that benefit from this extra cash, but the advertisers.
A lot of companies are going to go after these cashed-up types. But you have to reach them first.
Go back to when COVID first hit. I remember my sister told me a lot of her friends were getting stood down or fired because they were in marketing.
Discretionary expenses like marketing are the first to go in a downturn.
But it works in reverse too. Companies will spend if they’re cash flow-positive and can see potential growth.
This is not news. Advertising stocks have always been considered a good lead indicator of where the market thinks the economy is going.
TV networks Seven and Nine are shortly releasing their schedules for 2022 and courting their advertisers. We’ll get a good test of the waters here.
We are also racing headlong toward a federal election. That brings out big spending too.
I find it a compelling idea and put down a whole lot more in my last (paid) issue. For my latest recommendation on that, go here.
- Bill Evans is Westpac’s chief economist. The Australian ran a commemorative piece on him on the weekend to celebrate his 30 years in the game (and I feel like 10 has been a long time! Well done, Bill).
One comment stood out for me. The topic was the early ‘90s recession — the one we ‘had to have’. Señor Evans is quoted as saying:
‘That one…was caused by a policy mistake…There was an overtightening of monetary policy and a slow response from fiscal policy — made worse by the presence of asset bubbles.’
My reading of history does not place the blame on rising rates.
They merely pricked the bubble that was happening. It’s likely the same thing will happen around 2026 this time around too.
It’s the unsustainable built-up debt that puts a noose around the economy. Everybody sees the interest rate tightening. But to me it just drops the trapdoor.
It’s what happens before that counts…an unsustainable build-up of non-productive debt.
That’s like Australia right now — so we can expect the same outcome. It’s only a question of timing.
And the timing, ultimately, is everything.
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10 years ago, there was a general consensus that Australian housing was already overpriced and ready to drop from too much debt.
A decade later, here we are having the same conversation.
Nothing changes because nothing meaningful is done to address the core issue.
What happens instead?
Most commentators write their pointless drivel and you, being the polite and considerate person you are, read it and get on with your day. So do I.
Then we do it all again next week…and the week after that…then there’s a government inquiry every five years or so that says and recommends the same things as the one held five years previously…and nothing changes…and onwards we go.
The debts get bigger, the economy a little more fragile…but the big crash never comes…until all the bears and doomsters are retired, dead, or too embarrassed to make a pipsqueak.
And so this time next year it’s likely we’ll be reading how it’s Perth or Brisbane houses rising X amount of dollars per day.
There’ll be concern for affordability (perhaps time for another inquiry?)…perhaps even some ‘macroprudential’ levers put in place.
Alas, all these things do nothing but treat symptoms…and the cause remains misunderstood and therefore the treatment misdirected.
The rise to giddying heights will suck in more and more people as the whole edifice rots away. Ned Kelly said it best: ‘Such is life.’
The above, incidentally, is the gist of Bill Bonner’s new book. The godfather of the newsletter business is putting out his final one now.
Editor, The Daily Reckoning Australia
PS: Australian real estate expert, Catherine Cashmore, reveals why she thinks we could see the biggest property boom of our lifetimes — over the next five years. Click here to learn more.