Profit From The Meltdown:
Part 1 - As The World Averts Financial Disaster
By Imran Anwar
As I sit writing these lines in New York, on this October day, fall weather is upon us. The view outside my window is a curious mixture of an early (native) "Indian Summer", as well as autumn. Much of the shrubbery in my backyard nature preserve has already turned red, with some shades of green and orange adding a magical glow in the reflected light of the setting sun. A few trees have changed color to shades of golden and red, though most have simply taken the dreary shortcut to demise and desolation - from bright, shiny, green to dull, dry and dead - their leaves falling off at the slightest breeze. A chill is in the air at night, and careless people, or countries, can catch cold.
At this stage in history, as America is sneezing, the rest of the world is catching flu this time. Pakistan is facing an economic pneumonia on top of that. Once again "mareez ko dawa kay saath saath dua kee bhee zaroorat hai". ("The patient needs medicine alongside lots of prayers"). In this case, whether Pakistanis get "ilm" (knowledge) from China or not, we are desperately seeking economic medicine (read Cash) from China. Ironically, in this Pakistan is not alone. Facing the winter of (voter) discontent, and an economy shedding more jobs than a tree in New England, America is facing its own economic autumn, and looking for a Chinese ((Spring) Roll?) dough! {Sorry for the triple bad pun!}.
It is interesting how the weather in the Northeast (of America) right now is symbolic of the state of the United States of America - as a nation, as a global superpower, and as a nation whose economy is still facing serious meltdown. Of course, the United States is not alone, as the rest of the world is also in the midst of the potential total economic meltdown.
On the one hand, the roller coaster moves of the New York Stock Exchange in particular, and others around the world in general, could easily give a run for the money to any adventure ride that Disney or Six Flags can offer. On the other hand, just like the falling leaves and desolation of winter are always followed by the spring of new opportunities, this is absolutely the most incredible buying opportunity for anyone with a bit of money to invest.
Sure, I have no guarantee that the market has hit bottom yet. But there is no way that I can believe that we are not already touching the lower extremes of the fluctuations of 2008. I am no economic adviser or investment guru, but I strongly feel that a strong recovery will start in 2009.
Thus, a historic buying opportunity actually exists in almost every segment of the market, especially in America. For example, if I had $1 million to spare, I would most definitely start buying up stocks in financial institutions like Citibank, Bank of America and others. America and other world governments just cannot afford to let such big banks go under. The US government is already an equity investor in them, and will continue to be as needed. The opportunity for others to step in is huge.
I also consider technology stocks to be the forerunners of the next economic upturn in America. This includes lots of new companies that are being created by entrepreneurs as well as existing innovative companies.
So, I would invest a large sum of money in the stocks of Apple, which appears to be firing on all cylinders. This includes a huge sales opportunity in the Christmas buying season for its latest and greatest models of the iPod music player, which commands almost 75% of the MP3 music player market here. Then they have the hottest gadget of the year, the iPhone 3G (which has already sold Ten Million units). Add to that the rapidly growing market share of the Apple laptop and desktop computers, which was raising revenues, profits, market share and respect for the company - even before the launch of the sexy and truly exciting new line of laptops, this week.
But, these are not the only companies or stocks that are desirable. I dare say almost anything (which has sound fundamentals, and a strong market presence) that is off more than 35 to 40% off its highs from last year is a huge buying opportunity.
If I had $1-5 million to invest, or if I were an institutional investor (or a large organization with a large bank account earning next to nothing in the bank), I would be targeting the huge opportunity that now exists in real estate.
Yes, there had been a bubble. Yes, we may have not seen the bottom. Yes, things will go down a bit at least until through part of next year. But, very few of us can be sure we can perfectly time the market and only buy at the lowest possible point.
Even with some downside potential, some significant short term volatility, there are significant long term opportunities to buy excellent pieces of property now, while they are depressed, and sell them at a profit when the market turns around in the next year and more.
Of course, I would not encourage anybody to invest in real estate indiscriminately or without significant research. I would not suggest betting your last Dollar or Rupee on it, if you don’t have financial cushion for one year.
My opinion, and it's only an opinion, not financial advice, is that there are special or particular kinds of real estate that are always going to be the first ones to recover. What I am talking about going after initially are the types of land and properties always in high demand, regardless of the kind of market we are in.
In particular, having spent a significant part of my life living on or facing the water, I have always been partial to waterfront property, especially if it happens to be bay front or oceanfront. In that sense, possibly the state of Florida offers the best opportunity to invest in waterfront or oceanfront real estate, including condos, that can be purchased at great bargains. Other places to look include Las Vegas and even California, where the next technology boom will again take place in 2 years.
The reason I would personally not jump into the condo market right now is because there is still a possible great risk of a builder or a building going into foreclosure, because many of its homeowners go into foreclosure.
On the other hand houses, standalone, or single-family homes as they are called, especially if they are on the water, or facing the ocean or come with any kind of lifestyle element are great investment opportunities. They are very desirable to those with disposable income, or those who will have disposable income more than others or before the rest of the market, so they would be great investments when the market is down about one third from its peak.
The way the market and many current investors, including small investors, in the stock market are responding is as if the Great Depression of 1929 is upon us again. Nothing could be farther from the truth.
Yes, there is a risk that the United States, and the rest of the world, could go into a painful recession, which could last a long time. But, even at its worst, it's not going to be anything like the Great Depression of 1929.
This is not some Version 2.0 of that great depression, when it took the stock market in America nearly 25 years to recover to pre-crash levels because no one knew what to do.
We are living in a very interdependent and very communicative world. We are now citizens of the World far more than any time in history. The speed of communications and the rapid response of citizens to their governments’ actions and inactions ensure that even incompetent leaders in any capital, Washington or Islamabad, Delhi or London, are quickly questioned and challenged.
That makes it far more likely that by design or by accident, coordinated problem solving approaches come from around the globe, all meant to save the world from falling into total financial ruin. That has started happening. Even Communist countries are following Capitalist policies, while hubs of Capitalism like America are literally “nationalizing” banks (actually a "recapitalizing" in exchange for equity stakes, with a potential upside), and injecting liquidity into the markets at a shocking but needed rate.
Just like the end of George H. W. Bush’s lame Presidency and Bill Clinton’s ascendance to power saw a bad recession turn into the biggest economic opportunity for everyone, nearly 16 years ago, I foresee the end of the George W. Bush’s absolutely disastrous and embarrassing Presidency as the start of a massive recovery in 2009.
Are you going to be ready to take advantage of it when it happens soon? Let me know.
To Be Continued
Imran Anwar is a New York and Miami based Pakistani-American entrepreneur, Internet pioneer, investor, writer and TV personality. He is not a financial adviser and doesn't even play one on TV. He can be reached through his web site http://imran.com and imran@imran.com
5 comments:
Very well written and lucid piece.
regards
Interesting points that are stated well and exhibit knowledge and thought.
The soaring prices in the real estate and the rise in construction activity had been supported by the steady arrival of foreign remittances. The real estate sector grew to new heights as cities like Kochi started implementing infrastructure projects like the Vallarpadom transhipment terminal and LNG terminal. It was the NRI segment that sustained this growth. A meltdown in the real estate sector would mean that the sale of the building materials would decline, resulting in a fall in the tax revenues to the government.For more view- realtydigest.blogspot.com
Great article.
It is refreshing to read something positive about the current economic conditions. The majority of the pundits and main stream media, including some of the ‘financial experts’ seem to enjoy looking into the abyss of a world wide economic depression, spew all kinds of negative ideas, doom and gloom, and relish the panic they create. Having lived through the Gerald Ford WIN (Whip Inflation Now) campaign, Jimmy Carter’s era of 17% - 20% interest rates, the October 1987 debacle, the dot com bust, and the current situation, it all comes down to cycles. You have been able to put this into understandable terms. Undoubtedly, such obeservations will be met with skepticism, and ridicule. You are to be appluaded for trying to enlighten those who are blind to the realities we are living.
However, there is one area were we differ. You seem to place the blame for this ‘financial opportunity’ at the feet of the current Bush administration. No one is foolish to think the situation could not have been handled in a more effective manner. But, the seeds for the difficulties with the lending institutions were sown several decades ago. As early as 1977, the liberals in this country began the slide down the slippery slope [sorry, but it had to be used] towards socialism, by helping those in need with the opportunity to purchase and own their own home through ACORN. An ideal which even the most hard-hearted would be proud to support. But, it became a political tool. People with no visible income were afforded the luxury of obtaining a mortgage via an aptly named vehicle called the “NINJA” loan.
The anacronym stands for No Income, No Job, Approved . Financially, every person responsible, from the lending institutions to those applying pressure to the institutions should be held accountable.
Please do not misunderstand, any person capable of paying off a mortgage should be able to receive such. The brow beating, cajoling and political pressure placed on lending institutions to approve mortgages to individuals and families with no conceivable expectations of being able to pay them off is not the responsibility of the Bush Administration. When warnings were voiced three and four years ago about such practices at Fannie Mae and Freddie Mac, measures should have been taken. They weren’t. That certainly falls on the shoulders of the current administration, and Congress.
Other factors, including lax or non-existent regulatory oversight of investment banks, specultation, and over building have contributed to the ‘financial opportunity’.
As one pundit said, “This happens once or twice a generation.”
Let’s hope some measure of financial prudence returns to the market place.
I agree that Apple really booming the mobile phone market.
Nice article :)
iPhone Users
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