Emerging Market Real Estate - The Most Promising Asset Class

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In the second part of this two-part interview, the Daily Reckoning’s own Eric Fry sits down with DR founder Bill Bonner at this year’s Agora Financial Investment Symposium in Vancouver to discuss what Bill sees as the most promising long-term investment: emerging market real estate. This overlooked and undervalued asset class is perfect for investors who are looking for a long-term play. In addition, Bill and Eric talk about the long side of The Trade of the Decade: Japanese shares.

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We’ll pick a winner and send you a special prize. We can’t tell you what it is, but we can say that almost every single employee at the DR HQ keeps this item on their desk…

Emerging Market Real Estate – The Most Promising Asset Class

Eric Fry: All right.  All right.  So let’s – let’s talk about the long side of that.  Now, you are – you also have said several times you invest in stones, you like stones, not gemstones but the stones that go into houses.

Bill Bonner: Houses.

Eric Fry: Houses, right.  But it seems it would become increasingly important where those stones are –

Bill Bonner: Absolutely.

Eric Fry: So if you were going to be moving stones around now, what country would you want them to be in?

Bill Bonner: You know, that is a very good question and I didn’t hear anybody touch on it, but I think one of the least explored, the least understood and the most promising asset classes in the world is third-world real estate because the stock markets are extremely vulnerable to any movement of capital, to any sell-off in the west –

Eric Fry: That’s right.

Bill Bonner: The stock markets go right down.  We’ve seen that in India, China and elsewhere, but the real estate markets don’t go down.  The real estate markets depend upon the economies and the economies have largely decoupled. So I think if somebody is true – but it’s a hard thing to do –

Eric Fry: That’s right.

Bill Bonner: And I have one friend, Ronan, Ronan McMahon, who does that, and Ronan has found the coast of Brazil, which you think is very attractive because – and he’s buying commercial properties there because he’s getting the benefit of the rise, of the Brazilian economy without the risk of a falloff in Brazilian equities.  There could be a falloff any day in equities, but the property markets don’t move that fast.  They respond to economics.

Eric Fry: Right.  I’m familiar with Ronan’s research also and he’s buying cash flow positive properties and it’s an underdeveloped mortgage market in Brazil, etc.  You have a number of winds in your sails in markets like that.

Bill Bonner: You know, Ronan has also found properties off the coast of Ecuador which are long-shot properties, he calls them, legacy properties.  You buy them, you hold them for ten years, something will go right eventually, and you have to not mind holding them.  These are very long-term places.  But I do think that that is – that’s a class that we ought to think more about is undervalued, underpriced, third world emerging market property.

Eric Fry: The emerging market trading alert.

Bill Bonner: Yes, I see a new service coming.

Eric Fry: Okay.  One final question.  On the long side of your trade, getting back to Japanese equities, let’s talk about that for a second.  You are still a fan of these long, slumbering securities?

Bill Bonner: Well, fan is putting it to too much.  I’m not a fan of them.  I just think they’re very cheap and the only point of the trade of the decade is to monetize from regression to the mean, and I’m not making any prediction.  I don’t have any opinion.  I don’t know anything about these companies.   I just know they’re darn cheap and they’ve been going down for the last 20 years, so just on the basis of regression to the mean, if you ask me ten years from now what’s going to go up and I look around the room and I don’t see anything that’s down like Japanese shares, so I’ll say I’ll take a shot on Japanese shares.

Eric Fry: Makes sense.  Well, and don’t think you can just make this recommendation and leave.  We’re going to come back in ten years and we’re going to talk about that.

Bill Bonner: Oh, no.

Eric Fry: All right.  Thanks very much, Bill.

Bill Bonner: Thank you.