The big short becomes the big long

This blog has been arguing for a while that US housing is the next big thing that should be on investors minds. Forget gold, it has had its day in the sun and while it may not go down too much it should not provide the same stellar returns it has over the last four years.

US housing has been popping up more and more, to the point that it has nearly become mainstream. The US are a few years ahead of Europe on terms of a bottoming of their property market and plots are starting to move over there. Housing is attractive for a few reasons. There will always be demand for a roof over one’s head and its human nature to either want more space or a nicer place so its usually the first thing on most people’s agenda once they have warm food in their stomach.

If you have been listening intently you would be aware that US interest rates are at an all time low and cant really fall much further. If you have access to capital in a low interest environment then it can pay handsomely to invest that money especially when the “risk free” rate of return is also at an all time low of say 1.6% return for 10 years.

The US banking system is also better capitalised now after the last four years of very aggressive deleveraging and recapping of its ” too big too fail” institutions, the same institutions are currently in a flux as impending legislation and regulation is creating an ambiguous environment  as to how they are going to provide a ROCE ( return on capital employed) that even comes close to what it was in the “good ol’ days.” So these banks have an incentive to invest in housing also.

Inflation is the enemy of the stagnant wage packet but generally the friend of “hard assets” such as commodities or housing. Like I say I think the stellar returns from gold the more traditional hedge to inflation has outplayed itself and the investor would be better off chasing the returns from an asset class at the lows rather than the highs.

This pick-up in housing will be a complete out-performer relative to its European peers. European banks still have not delevered enough and we still mulling along at a relatively slow pace thanks to the inefficiencies of the EU political system. Until European banks have restructured their massive debt holdings and some of the economies made themselves more efficient housing for me will always be a home and not an investment.

http://www.economist.com/news/21567388-new-generation-investors-betting-americas-housing-market-big-long

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One Response to The big short becomes the big long

  1. Vconomics says:

    You’ve got some great posts on here, keep up the good work.

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