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163: Making serious money as asset prices plateau - resources and property

10-06-2007 team

Different asset classes, products and services boom at different times. Some will crash and burn. During these cycles, the smart investor seizes on a down market to purchase low prices assets and steers clear of the top of the market so they don’t get their fingers burnt at the end of an asset bull run. Many investor put money into assets, but sell when the think they are on a high – hence they “get their money off the table” – and the most inexperienced investors or institutions are left high and dry. Business is the transfer of wealth from one entity to another – you need to make sure it’s from someone else to you rather than the other way around. If you are a shop keeper, you sell a product for a profit. You transfer wealth from the person shopping to yourself. This is how you should consider buying property. You need to transfer the wealth from the seller to you. If you buy your property at say 20% below true market value you will be achieving this. This is why many people in the USA specialize in purchasing foreclosures – and make a handsome profit doing so. They are very active at thsi time - there are many opportunities in 2007. That is why the best and most experienced property investors will avoid buying after a market has been very hot for a long period and a peak has been reached – this is when the risks are at their highest.

This is also why we advise property investors to tread very carefully at present. The waiting game might be best in most of the UK and USA at present. Until year end 2007.

But what if you are flush with cash and are itching to put it to some good use? A few ideas for the people who have made serious money from property but believe their may be something better out there at present:

·         Oil and gas – oil prices are rising – investing in oil companies and oil services companies is worth considering (we predict oil prices will rise to $125 / bbl by end 2008, from it's current level of $80 / bbl)

·         Oil sands – this will create a sustainable oil sands boom in Canada – any oil sands company is worth taking a serious look at and any land or real estate near oil sands projects (e.g. Fort MacMurray in Canada is a focus area, also Calgary for the oil HQs)

·         Gold – watch out for the declining dollar – but in times of inflation and global insecurity, gold is a good place to invest. We expect gold prices to rise from $730/ounce to $1000/ounce by end 2008. This will be in part be led by Chinese, Middle Eastern and Indian demand plus supply constraints. The Chinese and India's love gold - 400 million new Middle Class Chinese and Indian's in the next ten years will fuel demand for gold. Oil rich nationals will also look to hedge against currency fluctuations with gold  

·         Food – shortages are occurring because of water shortages, land shortages, climate change and land being given over to corn (ethanol) production. Wheat is a good example of a market likely at the beginning of a long bull run.

·         Water – the global population is booming, water consumption is rising dramatically – water costs will increase. Investing in water companies or water rights is worth considering, particularly if returns are well ablve normal utility rates 

·         Coal – demand will keep rising to fuel electric generation around the world – coal will make a strong come-back to mitigate against damaging electric supply disruptions. If cars convert from oil/gasoline to electric, the power will have to come from somewhere - it's likely to be coal. The best coal mines in the world are in the Green River area of Wyonming - invest in property and commercial in this area could be a long term winner 

·         Metals and Mining – company that specialize in mining have seen their stocks double in value in the last few years. But we believe there is more to come – China and India’s demand for copper, iron/steel, uranium, lead and other metals for their development will lead to massive shortages. Supply will be constrained by environmental issues and demand will continuing rising.  Mining is a good place to invest. Anglo-American, BHP and Rio Tinto are three big companies worth considering investing in. Countries heavily exposed to metals mining are: South Africa, Chile and Australia. Investing in mining towns is the most pure way of investing in property with high exposure to the metals mining boom.  

There is a common theme here of course – these businesses are all natural resources businesses. We cannot see with environmental constraints being to pressing and the population of the world exploding, that natural resources will not be a winner. Our two most favoured investment apart from property is oil/gas. Its all to do with rising demand, reducing demand caused by massive increases in global wealth and rising populations. This trend is likely to continue for the next 15 years, with India’s role increasing after 2015. 

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