04/12/11 Buenos Aires, Argentina – Buenos Aires is beautiful. We have been blessed with good weather.
The city is booming, too. Strong agricultural prices have done what they always do in Argentina – they’ve set off a boom.
“Property prices are up about 30% over the last 3 years,” says our BA-based colleague, Rob Marstrand. “But this is such a funny place. I love living here, because you see everything. If not in the present, certainly in the past…or the future. Booms, busts, corruption, inflation – everything.
“Only about 6% of properties are sold with mortgages. So this is a real boom – where people are paying cash. But, where does this cash come from? Much of it comes from the bull market in farm products. Argentina is one of the world’s top producers of cereals, for example. But there is probably a lot of money coming from the government too. The inflation rate is about 25%.
“Now, you’d think that a country with a 25% inflation rate would have a currency that is falling through the floorboards. But no. The authorities have been supporting the peso; it actually went up 4% against the dollar. Put the dollar’s drop and Argentine inflation together, and you get a loss of dollar purchasing power of 30%.
“People want to protect themselves. And here, they do it by buying real estate.
“Americans might want to think about it too.”
Prices are down 30% nationwide in the US. In Florida, Nevada, and most of California, they’re half off. Even if they might go down a bit more, there are some very good deals available now. A friend of ours is able to buy apartment buildings for little more than 5 times rent income. If upkeep and taxes take half of that, that still gives him a 10% return. But it could be much better. Suppose he takes out a 30-year, fixed rate mortgage. Now, suppose inflation goes up. Every percentage point that consumer prices rise is another percentage point of yield for a fully-mortgaged investor.
Rob also is in charge of our Family Office investments.
“I don’t see any way that they can unwind all this debt and spending without causing even more problems,” he says. Investors might get some protection from real estate or stocks. But the best protection is gold.
“But we’re still in a correction,” Rob continued. “It wouldn’t be surprising to see gold fall when this round of quantitative easing ends. Take away the money-printing and gold could sell off along with everything else. But people are now catching on. When the economy worsens, they expect the feds to add more stimulus…or lower rates…or more QE. So, they know that over the long run, the effect will probably be to undermine the dollar. I wouldn’t be at all surprised to see gold down 15% in the next sell-off.
“But when the feds step in with more spending, gold will be the clear winner. We already own a lot of gold. I feel like I want to buy more of it…”
Regards,
Bill Bonner,
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Something to think about- gold (or silver), even in large quantities is a private matter. Keep it in your safe place and nobody needs to know it’s there. Real estate is always subject to easy theft by government either incrementally by property taxes or all at once whenever it catches someone’s fancy. Anyone who’s ever been stuck with a tax, “child support” or other government theft realizes this pretty quickly- if they know where it is they can get it. And they are pretty desperate for wealth already.
There will come a time when anyone who owns gold will say not a word about it. To be discovered “long” –especially physical gold– will be an invitation to confiscation, and not necessarily confiscation by the government. Inflation is never pretty, but given the other alternative of default and near immediate currency failure, the Fed has little choice but to inflate. The crime of it resides in their unwillingness to spread the cash more fairly, instead handing it over to corporate hucksters who are responible for the mess to begin with.
Prices in the U.S. will be pretty stable from here on out. But they will not go higher than their utility value for years. I would only buy property if 1) I wanted to be in the same place for a long period of time or 2) As an inflation hedge. When I say hedge I don’t mean making money, I just mean keeping your assets floating on top of the money lake like a leaf. You can do that with other instruments as well, not just by buying property.
Also keep in mind, property taxes will increase as local governments are becoming more desperate.
“Prices are down 30% nationwide in the US. In Florida, Nevada, and most of California, they’re half off.”
I never did figure out how people without jobs are able to buy houses. Maybe Bill can explain that to us?
@Baby Jesus
The market has become so perverted. What do prices even mean in this economy anymore.
Ernie’s right on- to the matters of “open ownership of assets” that you count on for daily life in the society known as the sham.
It is a big SHAM owned and controlled by few and prop’d by many ignorant souls who’s brains are truly only capable of one thing….And that is to sense danger
…get gold(silver), get yourself some resources (food,water,protection,EDUTCATION,common sense, skills,friends) Believe it or not but to get those needs met in 1 day is ALOT harder to do in a greed infested, everyman for them self society that bases there entire existence on possession’s and positions for a quick jealous-hatred eye from their otherwise would be friends.
Civilization FAILED!
IF YOU DON’T LIKE YOUR SITUATION…CHANGE IT!
IF YOU CAN’t CHANGE YOUR SITUATION..LEAVE IT!