By
Tom Dyson, publisher, The Palm Beach Letter
Tuesday, December 2, 2008
The mall was so busy, the crowd kept jostling me. It was like entering a football stadium 10 minutes before kickoff...
The mall's stores were aimed at teenagers and 20-somethings. There were no furniture or baby clothes shops here... just trendy boutiques carrying the latest zany fashions from Japan, beauty products, and video games.
The manager was showing me around. He was trying to explain some of the financial metrics of his business to me... like price per square foot and occupancy rates. But there were so many people, it was impossible for us to walk side by side. Plus loud music was pulsing from almost every store, different music coming from each one. I couldn't hear what the manager was saying...
I came to Hong Kong to give a speech at a conference held each year by the publisher ofDailyWealth. But because it's such a long way to travel, I took the opportunity to do some research on the local real estate market.
First I met with analysts from the major investment banks. On the 65th floor of the Goldman Sachs building, for example, I watched gargantuan container ships slide in and out of Hong Kong's port every few minutes as I chatted with the analysts about REITs. I also met with UBS and Daiwa Securities.
Then I met the companies themselves and got a tour around some of Hong Kong's landmark properties. The mall I described above is owned by one of the largest property REITs in Asia, Champion REIT.
"We don't sell luxury products here... and this isn't for tourists," said Champion's CFO about his shopping center. "We cater to Hong Kong's younger generation. So we think retail sales and rents will be much more resistant to recession here than in the high-end properties owned by our competitors."
In addition to the mall, Champion also owns a large office building in the heart of central Hong Kong. This building is named the Citibank Plaza. Rents are among the highest in Hong Kong... even though the building is 18 years old.
Citibank Plaza should also resist this recession quite well. The four largest tenants in the building are Citigroup, Merrill Lynch, Industrial and Commercial Bank of China, and Barclays Bank. Together, they occupy 60% of the structure.
You'd think these customers would represent a major risk to the landlord. After all, Citigroup has said it will cut 50,000 jobs. The other major tenants will also have to make major cutbacks in staff. But here's the thing: Champion REIT got lucky. All its major tenants renewed their rent contracts in 2007 and 2008. In other words, Champion has 90% guaranteed rental income through 2009 and into 2010.
One more thing, Champion does not carry a heavy debt burden. It has assets of HK$45 billion and debt of HK$15 billion.
You can buy stock in Champion REIT on the Hong Stock market. The stock comes with an 18% dividend yield and is trading at an 80% discount to net asset value. In other words, you're buying Champion's properties for 20 cents on the dollar right now.
What's crazy is that all the property stocks in Hong Kong have valuations like Champion REIT: double-digit dividend yields, 50%-90% discounts to NAV, and low debt ratios. I just picked Champion to give you an example of the incredible values I found here.
If you have access to a broker that can trade foreign stocks, I recommend you take a look at the Hong Kong property sector. You can earn big dividends from companies with real assets producing real cash flows. There's no new supply of real estate coming on the market, and Hong Kong's importance as a financial center isn't going to decline. Yet the stocks are priced as if they're all going out of business...
Our advice for traders looking to play a rebound in the stock market: Check out infrastructure.
You'd be hard pressed to find a worse investment this year than the companies that design and build the world's roads, bridges, refineries, pipelines, and ports. After all, if the global economy enters a recession, business should dry up for engineering and construction firms like Fluor (FLR), Foster Wheeler (FWLT), and Shaw Group (SGR). Power-plant specialist Shaw, for instance, fell from $65 per share to $15 in just four months.
Well... the world has a habit of not coming to an end. And it's a no brainer that Obama & Co will throw hundreds of billions at improving America's infrastructure. It's politically irresistible. You can argue against wars, drug laws, and censorship... but what kind of unpatriotic scum doesn't support new roads, electrical capacity, and bridges?
Put the likes of Shaw, Fluor, and Foster Wheeler on your watch list. If the general market goes into rebound mode, these beaten-down builders have huge rally potential.
The final book I want to mention today is the most relevant to the financial world right now. Not one person in a thousand understands what this book talks about. This ignorance is why millions of Americans are in dire financial straits. I think it's absolutely crucial to your family's future that you understand what is in this book...
This combination – incredibly cheap stock prices and incredibly high premiums in the options market – creates a once-in-a-lifetime opportunity for smart investors. Right now, you can literally earn more than 50% on an annualized basis selling insurance on stocks that are trading near their liquidation value. You're selling insurance on a risk that doesn't exist.
The situation is particularly acute for income investors. Not only will companies cut dividends, investors will demand higher dividend yields to make investments. What's the use in buying a stock for its 10% dividend when its price could fall 50%?
In light of the situation, today I'm going to show you the ONLY safe way to generate income in bear markets like we're in now.
Coins are the best way for individuals to buy gold. They come in small denominations, they're portable, and you can exchange them for cash anywhere in the world at gold's international spot price.
Here's the thing: Right now, gold coins are hard to find. Even if you can find them, they're more expensive than usual.
