A clue to the future of housing

Monday, 14 February 2022 — Albert Park

[6 min read]

Dear Reader,

1) Oh my. Since December, Catherine Cashmore and I have been telling you to put the property cycle at the heart of your investment strategy. A bit of news from developer Mirvac is a case in point.

The Australian Financial Review reports that the company will ‘press the button’ on entering the land lease sector.

This is following on from the pioneering work of James Kelly and his Lifestyle Communities business.

What is land lease, exactly?

This is where homebuyers buy the physical house but lease the land on which it sits. Why would you want to do such a thing?

They buy the physical house but lease the land on which it sits. Why would you want to do such a thing?

The general pitch is that you can free up equity in your existing home, pay a lot less for your next house, and use the leftover cash to fund your lifestyle.

It’s a very reasonable proposition for those with meagre to middling super balances. I even have it in mind for my parents.

I live down on the Mornington Peninsula here in Victoria. There are a few of these communities. I checked out a couple a while back.

They are a bit tight, house-to-house, but I can see the appeal.

But it’s also a profitable business for any developer that can get their land at a good price and pack out their community.

They get a regular stream of income and any upside from the locational value they still own.

Mirvac entering this space is a clear demonstration of them finding an additional way to monetise the property cycle. You should be doing the same thing.

That’s why Catherine and I did a presentation on this very idea. You can check it out here.

One of the stocks I recommended in the special report to go along with this is also moving aggressively into the land lease space.

That’s a major reason why I like it. Australia is full of baby boomers with limited cash flow but lots of property equity. The tailwind for the sector is huge.

I suggest you start following it. Maybe you’ll even consider the idea for yourself!

2) We’re really getting into the nitty-gritty of the ASX in the next two weeks.

Companies will be showering us all in their results for the past six months…and the outlook coming up. Expect volatility for any stocks that surprise, either up or down, positive or negative.

Meanwhile, the big bad world is overshadowing everything. We have Ukraine under (supposed) threat, inflation ratcheting up in the US, and the uncertainty around Taiwan.

Why does anyone care about Taiwan? As far as the West goes, it’s because so much of the world’s semiconductors (‘chips’) are made there.

Last week I saw that the European Union wants to spend 43 billion euros to expand its own semiconductor industry.

This follows on from the news that US tech behemoth Intel is going to spend up to US$100 billion building a chip plant in Ohio.

This looks like the market is saying an invasion of Taiwan is now a matter of when, not if. At the very least, the stakes are too high to leave any possibility to chance.

China believes the same thing, in terms of the importance of this industry.

Don’t forget China nominated semiconductors as one of the industries they want to develop domestically a couple of years ago. It was said they spent more money importing chips than they do oil.

Whether that remains the case when oil is US$95 and not US$50, I’m not sure. But China is now getting pummelled with a high oil price alongside booming coal and LNG prices.

High energy costs like this hurt a big commodity importer like China.

One wonders how much more they can sustain before cracks start appearing in their tidy narrative of 5% growth for 2022.

What am I driving at? I think we’re in for a lot more volatility in 2022 — it’s a trader’s market.

Do make sure you check out the work of my colleague Murray Dawes and his Pivot Trader service.

Murray came on my podcast before Christmas to warn about rising yields in the US. We then saw the ASX get carted for six in January.

But it threw up buying opportunities too. And not every stock gets smashed. BHP, for example, is up 17% since the start of January.

With oil pressing to US$100, there’s a clear case to trade the energy sector. Murray already has his readers in one trade on this theme…I’m sure there’s more coming too. Check it all out here.

Best wishes,

Callum Newman,
Editor, The Daily Reckoning Australia

Recently, we’ve been looking at the ‘culture of work’.

Over time, we’ve seen that people want to move to join the elite — the people who work without getting their clothes dirty.

We’ve seen, too, that having more administrators, controllers, regulators, elite hangers-on, meddlers, and finger-waving know-it-alls is not necessarily a good thing. Instead of helping move things along more swiftly, they slow things down…misallocate time and resources…reward cronies…push pet projects…and fund jackass ‘investments’ with the country’s hard-earned savings.

Yes, the upper classes are filling up with idle moochers or trouble-making busybodies. But today, we turn to the others — the 90% of the population who schlep, tote, and bus to keep us fed, clothed, housed, and entertained. Have they been corrupted too? The answer is ‘yes’. And as usual, our favourite dysfunctional society is way ahead of us. Jared Dillian of The Daily Dirtnap:

‘The labor force participation rate in Argentina dropped to 38.4% in 2020, during the pandemic. Now it stands at 46.7%. A labor force participation rate below 50% means that less than half the country is working—and supporting the other half that is not. It enlarges the welfare state and creates generations of institutionalized dependency that is difficult to reverse. Generations of Peronism have destroyed the culture of work that once existed in Argentina. The country’s problems aren’t simply economic, a matter of a rapidly depreciating currency and high inflation. They’re also deeply rooted in cultural norms around work.’

Happily, the US is not quite there…yet. There are approximately 257 million adults over 18 in the country. About 150 million are employed — or around 60%.

That leaves a little more than 150 million adults with no visible means of support. How do they pay the rent and their Netflix subscriptions?

Transfer payments!

‘Transfer’ — what a marvellously lobotomised description. Value-free. Judgment-free. Information-free. On the transferee end, people are not criminals…who have knowingly received stolen goods. Nor are they objects of pity and shame for being ‘on the dole’. Nor should they be embarrassed by being too gimpy, too dumb, too old, or too fat to work. No...no…much of what is transferred is called an ‘entitlement’ as if they had a right to the money.

Entitlements…welfare…Medicare…Medicaid…unemployment…

‘Disability’…with these ‘transfer payments’, millions of people are bought off...pacified…idled by small amounts of public charity and a large dose of government larceny. Peter is paid. But the money must be taken from Paul.

A genuinely disabled system

The amounts paid to the poor and middle classes are trivial — at least, compared to the US$35 trillion transfer to the wealthy via the Fed. But the effect is huge. A stimmie cheque here…a disability payment there…a Fannie Mae subsidised mortgage…soon, you’re talking irresistible temptation…and undying loyalty to the grand viziers who provided it.

And then, instead of tending their flocks and fields, the transferees can pass their long, slow days in front of TV and social media, where the elite make sure they don’t get any ‘misinformation’ that might call ‘the system’ into question.

In the early ‘70s, about one out of every $10 of income came from government-managed ‘transfers’. Now, it is $1 out of every $3. In gross dollar terms, that’s an increase from around US$30 billion to more than US$3 trillion.

There are now some 80 million people — up from 20 million in the 1980s — receiving free meds from the Medicaid program. The roster of Medicare and Obamacare beneficiaries adds up to some 65 million. There are 40 million getting ‘food stamps’.

Back when it was set up in 1935, the ‘disability’ part of the Social Security system was meant to give support to people who couldn’t work. And back then, most work was physical. People who couldn’t see or couldn’t walk were practically unemployable.

The minimum payment in 1936 was just US$10 a month. Now the average is US$1,385 per month, with top recipients getting as much as US$3,345.

And now there are said to be eight million people — five times as many as in 1970 — collecting SSDI benefits. This is remarkable since it’s much harder to be genuinely disabled now than 50 years ago. Today, millions of people ‘work’ in comfortable chairs, using only their fingertips. Advances in medical science and technology have overcome many former disabilities. Now, you can talk to your computer…and it will answer you. And ‘voice generators’ will transform written text and numbers into spoken words.

Tipping the scales

If the standards of 1970 were applied today, there would be fewer, not more, disabled people.

But standards have changed. Now, psychological, mental, and self-inflicted infirmities fatten SSDI rolls. A Baltimore politician even suggested that being Black should be enough to get onto disability rolls.

Obesity is not a sufficient cause for a ‘disability’ rating, but it can be combined with other impairments to tip the scales in your favour. A skinny person with a bad knee might still be able to get around. A fat one with the same joint issue might be ‘impaired’.

The incentives are perverse. If you could get US$3,345 per month simply by eating more desserts…and being unable to work…why not?

And of course…the elite are there to help. Here’s a typical ad:

‘It’s Time to Get the Benefits You Deserve

‘Suze Orman shares how to get disability benefits in less time—with no out-of-pocket costs.’

‘You get what you pay for’, said Milton Friedman famously. The US spent an estimated US$60 trillion on transfer payments from 1970 to 2020. What it got was approximately 90 million more people who do not work.

But wait…then…what do they do? What happens to them? And what happens to the country that harbours them?

More to come…

Regards,

Bill Bonner,
For The Daily Reckoning Australia