In trading on Friday, general contractors & builders shares were relative laggards, down on the day by about 2.6%. Helping drag down the group were shares of KB Home (KBH), down about 8.1% and shares of Standard Pacific (SPF) down about 5.1% on the day.
Few investors realize that the IRS has always permitted real estate to be held inside IRA retirement accounts.
There’s no telling if we’ve finally reached rock bottom with home prices, but the numbers are beginning to look a little better. Demand seems on the rise – especially for distressed properties on the low end of the market.
The big players of the hedge fund and private equity world are also diving into the market with all the cash they’ve been hoarding over the last few years.
The Oracle of Omaha himself, Warren Buffett, told CNBC last month:
“Equities are still cheap relative to any other asset class — but they’re not — I would say single-family homes are cheap, too… Single-family homes. If I had a way of buying a couple thousand single-family homes and had a way of managing them, the management is a problem because they’re one by one not like apartment houses.
“But I would load up on them and I would take mortgages out at very low rates. If anybody is thinking about buying homes, five years ago they couldn’t buy them fast enough. Interest rates are far lower.
“It’s a way, in effect, to shorten the dollar. You can take a 30-year mortgage. You can refinance lower. If it’s too low, the other guy is stuck with it for 30 years. It’s an attractive asset class now.”
Is there any way those of us who don’t have a couple of billion dollars lying around can take advantage of this market? The answer may be an Individual Retirement Account (IRA).
There’s something to Buffett’s statement. Look at it this way: There’s a strong rental demand and relatively little supply of single-family homes, and it could be far less risky than the stock market. Unlike four or five years ago, you’re not looking for the home to appreciate in value. Your return is coming from rent.
Now self-directed IRAs are the accounts most of us are accustomed with. Most people mistakenly believe that their IRA must be invested in bank CDs, the stock market, or mutual funds. Few investors realize that the IRS has always permitted real estate to be held inside IRA retirement accounts.
Keep in mind that all firms acting as he custodian of your IRA don’t offer the ability to hold property and deal with all associated expenses. This will require a little research.
The property can only be used purely as an investment, with all the income going directly back into the IRA. The owner may not occupy the home or even use it as a second home. The owner can manage the property, doing maintenance and supervising the renting, or can hire a rental management company, which would be paid for out of the IRA.
There are two different types of IRAs where which this is possible:
The Roth IRA maybe more advantageous for real estate investment because all income and gains resulting from real estate transactions would be tax-free. Yet most people have the traditional IRA. Although the income from the traditional IRA isn’t “tax-free”, it is “tax-deferred.”
Good Investing,
Jason Jenkins
Article by Investment U
The Fed is looking into a new type of quantitative easing that will try to jump-start the economy without jumpstarting inflation. But will it work?
It was November 2010 when the Fed launched its last quantitative easing program, which we lovingly nicknamed QE2. It fell on mixed reviews – mainly dependent upon how you like your monetary policy.
We all know the pros and cons of easing. You get elevated asset prices with the fear of inflation. But what if you could keep your cake and eat it, too? What if you could keep this fledgling recovery going without driving up the price of oil?
Well Mr. Bernanke believes he can do just that.
The Fed is looking into a new type of quantitative easing that will try to jump-start the economy without jumpstarting inflation. Analysts said the new approach would allow the Fed to move despite high oil prices.
And here’s the plan. The Fed would make new money to buy long-term mortgage or Treasury bonds, but in essence tie up that money by borrowing it back for short periods of time at low rates. This particular new twist in QE has been dubbed “sterilized” quantitative easing and it would use reverse-repurchase agreements to keep the money from flowing to bank reserves.
QE will be delivered via purchases of mortgage backed securities (MBS) and Treasuries, with a bias for the former, and will be sterilized in order to appease inflation hawks and critics, the Nomura Group has stated.
Ben Bernanke has hinted around that more easing is around the corner if needed. Remember, the Fed’s outlook on the recovery is a little less rosy than everyone else’s.
With housing prices still looking for a bottom, meager job growth, record-high oil prices, and the probable resurgence of the European sovereign debt crisis in the near future, Bernanke must deliver an “insurance ease” to make sure the economy maintains its “escape velocity,” Nomura’s analysts argue. In other words, the Fed needs to “pump the economy to a high enough level to weather the […] storms that sill lie ahead for the nation.”
Along with Nomura, Goldman Sachs’ Jan Hatzius believes the Fed will deliver additional quantitative easing over the next three to six months.
The Fed has been meddling in the bond markets consistently over the past four years, and would be scared of what would happen if they did an immediate full-scale evacuation from them.
The Fed’s latest venture called Operation Twist – where they sold short-term assets and bought longer-termed securities – ends this June.
Sterilization, which will occur via a small extension of the Twist, term deposits and reverse repos, will “keep the hawks at bay because a slight rise in front-end rates should support the dollar and reduce oil inflation,” explained the analysts.
Under current circumstances, where growth is picking up but the recovery remains fragile, the Fed will prefer “a more nuanced and targeted sterilized-easing approach, which has a lower impact on commodity prices and helps appease inflation hawks in the FOMC,” concluded Nomura’s analysts.
QE3, then, is around the corner.
Good Investing,
Jason Jenkins
Article by Investment U
By 2015, countries along of the Gulf of Guinea are expected to supply one-quarter of the United States’ oil imports.
I’m one of those “dividend guys.”
I believe dividend stocks should be the foundation of everyone’s portfolio. The reasons are simple: They’re constantly churning along, throwing off income and are typically less volatile than non-dividend paying stocks.
Plus, dividend-payers, and those that increase their dividends every year, have completely beaten all sectors of the market over the long term.
So, I’m always on the lookout for solid, dividend-paying companies to buy on dips. That way I can get in at a discount, snag a premium on the dividend yield, and catch the wave back up as the share price normalizes and momentum carries it even higher.
But there’s another facet to my strategy…
And that’s to use some of the money spun off by my dividend-payers to invest in more speculative plays when an opportunity comes along. By doing this, I can make those dividends go even further. Then the returns I get from the more speculative plays I roll back into dividend-paying companies. And the whole cycle starts over again.
But as always, my same tenet applies – I want growth, but also value.
With oil prices securely above $100 per barrel at the moment, there’s still a mad dash on development.
There are a lot of regions – both onshore and offshore – that are booming. And one of the parts of the world piquing considerable interest is Africa.
Africa is truly a rough and tumble frontier market. There are plenty of resources to develop, but also plenty of political and social instability in some regions.
Northern Africa was the spark of the sweeping Arab Spring movement last year. And we’re all well aware that the governments of Tunisia, Egypt and Libya were overthrown, while Sudan officially separated into two countries.
Those northern African countries are continuing to rebuild. And there are a host of ongoing ailments.
On the E&P side, East Africa is home to one of the jewel discoveries in 2011. Mozambique’s Rovuma Basin natural gas finds by Eni (NYSE: E) followed on the heels of huge hits by Anadarko (NYSE: APC).
East Africa oil and natural gas development is still in its infancy really. But Somalia is off limits, Ethiopia’s situation is rocky and Mozambique continues to mend.
On the West Coast of Africa, the situation isn’t necessarily more stable. But the oil and gas industry is more mature. At the moment, western African countries – namely Nigeria – produce three million barrels of oil per day.
But here’s the kicker: By 2015, countries along of the Gulf of Guinea are expected to supply one-quarter of the United States’ oil imports.
Early last year, while at lunch with a few other editors and our publisher, the discussion turned to Kosmos Energy (NYSE: KOS). The question was, do you buy Kosmos on its initial public offering (IPO) or wait. I was in the camp of the latter. And it goes to show it sometimes pays to be patient.
The company’s shares are down nearly 30% since its IPO in May.
Kosmos is an independent E&P company, primarily focusing on under-developed areas in West Africa, and it just recently moved into South America with acreage in Suriname.
With the buzz over North American onshore finds, potential in the North Sea and the return of Iraq, Kosmos fell through the cracks. Because of that, shares are now at a discount.
Now, it’s nowhere near as large as the companies it partners with – like Anadarko or Tullow Oil. Or even on the same scale as other international oil companies operating on Africa’s West Coast.
But those companies – even though they’re strong and there’s room for their shares to move up – don’t offer the prospect of doubling your money in the next 12 months.
The average analyst consensus on the price target for Kosmos is $18.94 – 44% above what it’s trading at now. The high water mark in analyst consensuses is Credit Suisse, which has a price target of $25 on Kosmos – practically double what it’s currently trading at.
Let’s just stay with the 44% gap between its current price and the average analyst estimate. If we compared that to the S&P 500 stocks with the largest gaps between their current price and analyst estimates, Kosmos would rank fifth.
Kosmos’ main moneymaker is the Jubilee field, off of Ghana’s coast, where it holds a 25.8% stake. This field is in production, netting the company almost six million barrels of oil last year.
In the deep waters of the Tano Block offshore Ghana, Kosmos is increasing its stake by buying Sabre Oil & Gas Holdings’ share of the projects there. This means, once the deal is completed, Kosmos will hold a 22% stake in the field. And last week, the company announced better-than-expected drilling results in its Tano holdings.
These wells are projected to net Kosmos 100 million barrels of oil equivalent (boe).
If we look outside of Kosmos’ Ghana plays, it has 10 more prospects in Cameroon. And this will likely net another 150 million boe.
And finally, there’s Morocco – where Kosmos is the largest deepwater acreage holder with 14 million acres. There are 19 prospects offshore Morocco. The company plans to release pre-drilling estimates for these holdings by the end of the year as it crunches the numbers.
So, there’s a lot of potential here. And we’re sitting at the lower end of the range shares have traded in.
For 2012, Kosmos’ capital expenditure budget is $600 million, with more than 90% of that going to its Ghana assets. The first drilling in Morocco is being eyed for early 2013 while drilling in Suriname will begin in 2014.
By the time development in Suriname begins, Kosmos’ revenue is projected to have increased more than 73% over 2011.
I like it. There’s a lot of upside for the dividends we maybe collected from larger oil and gas companies.
At the moment, we’re coming off the pop we saw last Friday – when Kosmos reported better-than-expected drilling results in the deepwater Tano. Oil’s brief slide took the whole oil and gas sector with it. But that’s okay, because instead of paying $14-plus, we’re sitting below $13.25 with Kosmos.
Good Investing,
Matthew Carr
Article by Investment U
KB Home (KBH) announced that it lost $45.8 million, or 59 cents per share, down from $114.5 million, or $1.49 per share, in the same period last year. Revenue increased by 29 percent to $254.6 million.
London Gold Market Report
from Ben Traynor
BullionVault
Friday 23 March 2012, 09:30 EDT
THE WHOLESALE MARKET price of buying gold bullion climbed to $1658 an ounce shortly after US markets opened on Friday – matching the level it rose to four hours earlier when London began trading – as European stock markets edged lower and commodity and government bond prices rose.
The cost of buying silver meantime hit $31.87 per ounce – 2.2% down on last week’s spot market close.
Based on PM London Fix prices, it was unclear by Friday lunchtime whether gold would record its fourth straight weekly loss. Last Friday’s PM Fix was exactly $1658 per ounce.
A day earlier, spot gold touched a 10-week low when it fell to $1628 per ounce at the start of Thursday’s US trading.
“Sentiment towards gold is as low as it has been for many years, possibly since the rally started,” Kamal Naqvi, head of commodity investor sales at Credit Suisse, tells the FT.
“For virtually the first time this cycle, buying gold is a contrarian trade.”
Spot gold is down over 7% from its February peak on the final day of last month, but “investors are not using this as an opportunity to buy cheaper gold” says Edel Tully, precious metals strategist at UBS.
“Instead, more are looking at the potential to short it.”
“In the past month gold prices have been strongly negatively correlated to the Dollar,” says the latest precious metals note from French investment bank Natixis.
Natixis cites the recent rise in 10-Year US Treasury bond yields, which have risen around 25 basis points (0.25 percentage points) since the start of March.
“Higher interest rates increase the opportunity cost of holding gold, and are therefore a further negative factor for gold prices.”
The US Federal Reserve may need to raise its interest rate next year – rather than leave it on hold until late 2014 as projected by most Federal Open Market Committee members back in January – Federal Reserve Bank of St Louis president James Bullard said Friday.
“Overcommitting to the ultra-easy policy could well have detrimental consequences for the US and, by extension, the global economy,” said Bullard, who attends monetary policy meetings but is not a voting FOMC member this year.
US economic data continue to show signs of improvement, with manufacturing activity and private sector employment rising in recent weeks.
Fed chairman Ben Bernanke warned yesterday however that “consumer spending is not recovered” and remains “quite weak relative to where it was before the crisis”.
“In terms of debt and consumption and so on we’re still way low relative to the patterns before,” Bernanke told students at George Washington University during the second of his four lectures on the role of the Federal Reserve.
Over in Europe, “the worst is over, but there are still risks”, European Central Bank president Mario Draghi said yesterday in an interview with German tabloid Bild.
“The situation is stabilizing.”
European banks borrowed over €1 trillion at the ECB’s two longer term refinancing operations (LTROs) held in December and February.
“Is the ECB jumping the gun?” ask Standard Bank currency strategists Steve Barrow and Jeremy Stevens in their Friday research note.
“We think it is. We believe it is premature to think that stabilizing the banks automatically saves the Eurozone economy as well.”
Preliminary data released yesterday suggests the Eurozone’s manufacturing sector has accelerated its rate of contraction this month.
Here in the UK, the Bank of England’s Financial Policy Committee revealed some of the policy tools it is considering implementing in order to improve stability in the financial system when it published its latest minutes on Friday.
One option under consideration is imposing a maximum leverage ratio to limit the amount institutions can lend relative to their capital base.
“The Committee agreed that it would advise HM Treasury that the statutory FPC should have powers of Direction to set a maximum ratio of total liabilities to capital — and to vary it over time,” the minutes report.
“A leverage ratio limit would constrain financial institutions’ ability to increase the overall size of their exposures relative to their capacity to absorb losses.”
Many gold dealers in India today continued their strike begun Saturday in protest at last week’s gold import duty hikes, despite today marking the Gudi Padwa festival, traditionally an auspicious day for buying gold.
“As of Tuesday this week, it was estimated that the local gold market had suffered a loss of business worth $800 million,” says Natixis.
“Historically, changes in tax and other regulations have not had a material impact on Indian demand for gold. As an integral part of Indian culture, gold traders have typically found a way to work within or around any restrictions…[so] we would not expect the new measures to have a significant impact on Indian demand for gold.”
Turkey meantime is considering plans aimed at encouraging its citizens to deposit privately-held gold with commercial banks, the Wall Street Journal reports.
Like India, Turkey has experienced significant exchange rate and balance of payments problems over the last year, which has seen those countries’ governments turn their attention towards gold.
Gold value calculator | Buy gold online at live prices
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Angola, Nigeria and South Africa have endorsed the nomination of Nigerian Finance Minister Ngozi Okonjo-Iweala, a respected economist and diplomat, as a candidate to take over the bank when Robert Zoellick steps down in June.
“It’s hip to be square.”
–Huey Lewis and the News
It’s a funny world we live in. Investments that would have been considered the domain of widows and orphans a decade ago are now downright trendy.
I’m talking, of course, about dividend-paying stocks. During the raging bull markets of the 1980s and 1990s and the housing boom of the 2000s, investors gave very little thought to the income being thrown off by their investments. When you could flip a tech stock—or a house—in a couple of months and walk away with a 50% gain, earning a couple extra dollars from dividends seemed a little petty.
Two bear markets and a housing collapse later, investors have come to appreciate the certainty of getting a regular dividend check rather than waiting—and hoping—for the market price to rise. In a volatile, uncertain world, dividends may be the only return you get. This was certainly the case for investors who held S&P 500 index funds last year. Not including the 2% dividend, their return would have been exactly zero.
Today, some of the highest yields available are in the telecom sector. In prior articles, I’ve written at length about Spanish telecom giant Telefónica (NYSE: $TEF), which is still one of my favorite stocks to hold for the rest of this decade (see “Don’t Sing the Income Investing Blues”). In this article, I’m going to take a look at one of Telefónica’s European rivals, British-based Vodafone (NYSE: $VOD), and its American partner, Verizon Communications (NYSE: $VZ). The two companies jointly own Verizon Wireless, the largest mobile phone operator in the United States. (Verizon holds 55% of Verizon Wireless, and Vodafone the remaining 45%.)
I’ll start first with Verizon because the investment case is more straightforward. You buy Verizon for the dividend stream; end of story.
Verizon currently pays out $2.00 per share in dividends, which works out to a yield of 5%. That’s a great yield in a world where the 10-year Treasury barely yields 2%. Importantly, Verizon also has a long history of raising its dividend. That $2.00 dividend investors enjoy today was just $1.50 ten years ago.
Investors should not, however, expect much in the way of capital gains. With the exception of the smart phone and tablet data plans sold by Verizon Wireless, all of the company’s businesses are mature and in more or less saturated markets. The home landline business is in terminal decline, and home internet and video services are no longer a growth industry. Growth in business telephony is dependent on growth in business employment, which has been a little less than stellar these days.
Furthermore, Verizon is an American company with very little exposure to faster-growing emerging markets.
Verizon is also far from cheap. It trades at 14 times estimated 2013 earnings.
For all of these reasons, Verizon investors should look at their stock the same way they would look at a corporate bond—as a source of current income and nothing more.
Vodafone is a more intriguing investment opportunity. Though it yields slightly less in dividends than Verizon (3.6% vs. 5.0%), Vodafone is priced at only 10.3 times forward earnings.
Vodafone also happens to benefit from the areas of Verizon’s business that still have growth potential—those operated by Verizon Wireless. Verizon recently authorized Verizon Wireless to pay a dividend to Vodafone for the first time since 2005. The one-time dividend amounts to $4.3 billion—which is not particularly large for a company of Vodafone’s size (Vodafone had $74 billion in sales last year). Still, $4.3 billion is nothing to sneeze at.
Vodafone suffers from the same problem Verizon does in its home market—the United Kingdom and Europe are mature markets, and outside of smart phone data plans, opportunities for growth are slim. But unlike Verizon, Vodafone has incredible growth opportunities outside its home markets.
My biggest reason for liking Vodafone is its exposure to emerging markets, a characteristic it shares with rival Telefónica. Vodafone has 134 million customers in India alone, and over 75 million in Africa.
Mobile phones are clearly no longer a novelty anywhere in the world, but market penetration in most emerging markets is less than half that of Europe. And even within their existing customer base there is enormous potential. Prepaid customers can be converted to more profitable post-paid subscribers, and both can be upsold to higher-minute plans and data plans. There are years (if not decades) of high growth rates to be enjoyed in Vodafone’s primary emerging markets.
How can I be so sure? Let’s take a look at the numbers. 62% of Vodafone’s customers are in emerging markets, yet they only account for 27% of the company’s revenues. This gap may never fully close, but you can rest assured it will get a lot closer as emerging markets continue to grow and thrive.
Vodafone is also a proud member of the International Dividend Achievers club, meaning that the company has a long history of raising its annual dividend, and a holding of the PowerShares ETF that follows the International Dividend Achievers strategy (NYSE: $PID).
Bottom line: For a high yield today, buy Verizon. For a longer-term growth story that also pays a respectable and growing dividend, choose Vodafone.
Disclosures: TEF and PID are held by Sizemore Capital clients.
Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.
Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.
