Posts Tagged ‘Reuters’
The last to the party: Investors and flippers competing for small amount of inventory.
Friday, 24 May 2013 17:38
No Comments

The data coming out on home prices is rather clear. Home prices are moving up steadily in the last year now increasing at a rate last seen in 2006. Of course, little of this is coming from wage growth but more from easy access to debt, investor demand, and historically low supply. One thing that people fail to remember is that during the last housing bubble, people were supplementing a lack of income growth with easy access to debt to add fuel to the housing market. This time, the easy money is being supplied to banks and hedge funds that are simply chasing higher yields. (Read more…) Anyone that has a hand in the housing business, especially in the grind it out rental business understands that it is no hands off endeavor. This is why it is surprising to see how much money is now being funneled into the market by brand new small time investors, especially in places like California. You know things are getting frothy when new money is willing to chase the rental business.

Investing big in Southern California

I saw this interesting post over on Redfin:

“We are a working couple first time buyers in La California. We have 300K$ down and were preapproved for 900K loan.

We never owned property before so we are seeking expertise advice and answers to these questions

1. We were wondering about what people who have gone this route have to say or give advice on that.

2. Is this the right way to go?

3. As we understand how important location can be, we are debating whether we buy it in Burbank N Hollywood Sherman oaks, La near USC or West Hollywood? Investment wise what would make the most sense?

4. Also for maximizing investments and cash flow what’s best 2, 3, 4 units or more is best?

5. What things do we look for when we go see the apartment?

6. What questions should we ask the seller?

7. What to look for in the surrounding? Besides school public transportation and safety obviously?

Any comment and/or advice is greatly appreciated!”

Think about what is being asked here. A first time buyer is looking to dive into a $900,000 investment property (almost $1 million) and has many questions that are basic for most investors even considering a $100,000 investment. So let us just pick a place in Burbank that fits the $900,000 mark:

burbank

283 N Florence St

Burbank, CA 91505

# of Units 4 Units

Beds 4 Bed

Sq Ft

Lot Size 7,379 Sq Ft Lot

Year Built 1947

The above place is a 4-unit property. The place is listed at $895,000. From the income sheet we find that the property will produce a gross income of $41,580 with expenses of $5,633. The expense amount is incredibly low in my estimation. From practical experience by the time all is said in done with taxes, insurance, vacancies, repairs, and just the operation of a mulit-unit you are likely to get a net operating income of something close to 50 percent of your gross income. Even with that said, the rents here are essentially $3,465 per month (or $866 per unit).

Let us assume this investor goes with this property. In more expensive areas of California investors are now buying to flip whereas in lower cost areas like the Inland Empire, more are buying to rent. From the initial notes, this potential buyer will put down $300,000 for the $900,000 property. Let us be generous and say that everything goes well and they manage a 60 percent NOI on their first year (meaning they kept expenses at 40 percent*). What is the cap rate here?

$24,948 / $900,000 = 2.77 percent

*Mortgage payments and depreciation are not considered operating expenses so that does not impact NOI

Keep in mind the above assumes a very optimistic scenario. In the end, this investor is going to be putting $900,000 at play for a 2.77 percent rate of return and they will be working for that money. If not, they’ll certainly be paying someone for that rate of return and this will cut into the overall rate.

Keep in mind we still need to factor the actual $600,000 mortgage payment. It looks like they were pre-approved and with everything said and done, the APR on this thing will likely get close to 4 percent on an investment property. So here is the principal and interest:

PI: $600,000 loan at 4% = $2,864 per month

The place is only producing $3,465 gross per month! Not factoring anything outside of principal and interest, which is big for a multi-unit, you are looking at a gross minus PI amount of $601. Bwahahahaha! What is amazing is they tried to sell this place for $1,000,000 last year:

burbank property

Any seasoned investor looking at this is probably shaking their heads. Even the press now understands exactly what is happening:

“(Reuters) Home prices have been rising since last year, helped by investor demand and tighter inventory. The top five states with the biggest gains in prices were Nevada, California, Arizona, Idaho and Oregon.”

Helped? The market is being driven by this. In SoCal 35 percent of all purchases last month came from the all cash crowd. The only reason you would buy a place like this example is if you believed in solid appreciation. This is what many of the flippers are doing. Buying a place, fixing it up, and selling it into the current momentum for a quick profit. The fact that people are considering diving into the current game in LA and OC for rental cash flows boggles the mind, especially new investors looking to put down $300,000 on a $900,000 property that will throw off a yield lower than you can get in regular bonds.

Saving $300,000 is no small task. I’m curious as to what the perspective would be on buying a place like this?

Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information.

    



 
Frontrunning: May 24
Friday, 24 May 2013 06:31
No Comments
  • The deeper agenda behind “Abenomics” (Reuters)
  • BoJ governor Haruhiko Kuroda promises to stabilise bond market (FT)
  • Obama Sees Sunset on Sept. 11 War Powers in Drone Limits (BBG)
  • Lower CPMs for everyone: FTC Begins Probe of Google’s Display-Ad Business (WSJ)

    • (Read more…)

  • Apple’s Tax Magic Leaves Irish Bondholders Unmoved (BBG)
  • Asia Goes on a Debt Binge as Much of World Sobers Up (WSJ)
  • All hail Gazpromia: UK gas supply six hours from running out in March (FT)
  • Spain’s banks face €10bn more provisions (FT) … and then more, and more, and more
  • Truck strike may have caused Washington state bridge collapse, officials says (Reuters)
  • P&G Says A.G. Lafley Rejoins as Chairman, CEO (BBG)
  • Five Key Things About the SAC Insider Case (BBG)

 

Overnight Media Digest

WSJ

* In a potential major setback for Apple Inc, a federal judge who will preside over a coming antitrust trial that will determine whether it engaged in a conspiracy to raise prices for e-books said on Thursday that the government is likely able to prove its case against the computer maker.

* Goldman Sachs Group Inc said at its annual meeting that it has adopted 39 initiatives aimed at strengthening its business practices in the wake of the 2008 financial crisis as shareholders voted to approve executive pay and backed all of the firm’s directors.

* AT&T Inc has added a new monthly administrative fee of 61 cents to the bills of all of its contract wireless lines as of May 1, a move that could bring in more than a half billion dollars in annual revenue to the telecom giant.

* California’s new health insurance exchange, the largest state-operated marketplace emerging under the federal health care overhaul, will offer consumers premiums that vary widely but often avoid the steepest increases experts had predicted.

* Activist investor group Knight Vinke Asset Management LLC, pushing for a breakup of UBS AG, will meet the Swiss bank’s Chief Financial Officer Tom Naratil next week, according to a person familiar with the situation.

* New Chief Executive of CBOE Holdings Inc, Edward Tilly, said on Thursday that he plans to take its highly prized volatility franchise global and is open to deal making to bolster the company’s leading position in stock options trading.

 

FT

Data on ENRC may have been stolen after a computer hacking attack and a domestic burglary, the miner said.

Banks in Spain will have to set aside up to 10 billion euros to cover loans that borrowers will find difficult to repay.

Google is facing yet another anti-trust probe with the U.S. Federal Trade Commission having launched an informal inquiry into the company’s display advertising business.

EasyJet will buy take-off and landing slots held by Flybe at Gatwick for 20 million pounds.

Britain’s domestic security service MI5 is facing questions over what it knew about the men suspected of killing a British soldier in Woolwich on Wednesday.

Britain came close to running out of natural gas in March with only six hours worth of supply left in storage, a senior energy official said.

 

NYT

* As large companies fight for a cut in the official corporate tax rate, small businesses fear they will pay for it.

* In a Senate subcommittee hearing on Apple’s avoidance of paying taxes, John McCain and others tried to point out how unfair the current system was to domestic corporations.

* In a sign of Wall Street’s resurgent influence in Washington, bank lobbyists are aiding lawmakers in drafting legislation that softens financial regulations.

* Stocks regained ground in New York after global investors were rattled by signs of a slowdown in Chinese manufacturing and a potential easing of central bank support for the economy.

* Four SAC Capital Advisors executives were ordered to testify before a grand jury investigating actions at the hedge fund.

* Apple-1 computers have sold for hundreds of thousands of dollars in recent auctions, a run-up reflecting the Apple’s mystique.

 

Canada

THE GLOBE AND MAIL

* Toronto Mayor Rob Ford’s executive committee is preparing to take the extraordinary step of publicly urging the troubled leader to confront allegations of drug use, and is making contingency plans to run the city in his absence.

* Canadian Prime Minister Stephen Harper admitted “perhaps” he should have acted more quickly after revelations that his chief of staff Nigel Wright dipped into his personal wealth to repay senator Mike Duffy’s improperly claimed housing expenses.

Reports in the business section:

* The Quebec government announced plans to hold its own hearings on Enbridge Inc’s proposed pipeline project to bring western oil to Montreal, a move that could raise roadblocks to Alberta’s efforts to access new markets for its growing oil production.

* Mobilicity’s bond holders are hedging their bets by giving their blessing to a $380 million acquisition deal by Telus Corp , while postponing a separate vote on a backup plan should the federal government end up killing the controversial deal.

* Flexjet, which caters to flyers sharing in the ownership of a business jet, said sales bounced back strongly in the first quarter, indicating a recovery in demand. The division of Montreal-based Bombardier Inc said it reported new business growth of 83 per cent in the first quarter, compared with the year earlier period. ()

NATIONAL POST

* The Canadian federal government threatened “retaliatory measures” against the United States in a dispute over meat labeling that Ottawa and the World Trade Organization (WTO) consider discriminatory. The U.S. government announced new regulations on “country of origin labeling” that would track beef and hogs from livestock right through the meat processing and distribution systems.

* The personal use of illicit drugs, from heroin to crack cocaine, should be decriminalized as part of a federal provincial strategy to tackle drug abuse, British Columbia-based Canadian Drug Policy Coalition said in a report.

FINANCIAL POST

* Ontario Municipal Employees Retirement System (OMERS) Sponsors Corporation, one of Canada’s largest pension funds, is facing a $10 billion pension funding deficit and considering a drastic proposal that would reduce benefits paid to retiring workers, or force them to work years longer for the same retirement income.

* Canadian Finance Minister Jim Flaherty said steps he took to tighten mortgage lending rules over the past four years have helped to moderate price increases in the nation’s housing market.

* Alberta’s bitumen growth prospects could slow on shortages of a much lighter product as companies opt to send crude directly to refineries on the U.S. Gulf Coast and in Asia rather than process the stuff at home.

China

CHINA SECURITIES JOURNAL

– Guangxi Guiguan Electric Power Co Ltd will buy 85 percent stake in LongTan Hydropower Development Co Ltd by offering around 15.15 billion yuan ($2.47 billion) of shares to LongTan’s parent companies.

CHINA DAILY

– Premier Li Keqiang’s visit to Pakistan highlights the friendship between the two countries, said an editorial.

PEOPLE’S DAILY

– The reconstruction of Lushan area in Sichuan province, which was hit by a major earthquake on April 20, will be completed in 3 years, according to the Sichuan Development and Reform Commission.

 

Corporate Finance

* Former News Corp president Peter Chernin and private equity fund Guggenheim Digital Media have placed bids for Hulu, two people with knowledge of the matter told Reuters, triggering a tug-of-war for the online video service.

* Google Inc is considering buying Israeli mobile satellite navigation start-up Waze Inc, which may lead to a bidding war with Facebook Inc, Bloomberg news reported, citing people familiar with the matter.

* Dish Network Corp has added Canada’s Scotiabank to the four banks it had already lined up to finance its $25.5 billion bid for Sprint Nextel Corp, according to two people familiar with the matter.

* Independent refiner Tesoro Corp is expected to take control of BP Plc’s 240,000 barrel-per-day Los Angeles-area refinery in Carson, California, on June 1 as part of a $2.5-million purchase of the energy giant’s southern California assets, according to sources familiar with the deal.

* Belgian grocer Delhaize is looking to sell two of its U.S. businesses as it continues to cut costs in the region, according to two sources familiar with the matter.

* Australian casino company Crown Ltd is selling its entire 10 percent stake in rival Echo Entertainment Group , the operator of Sydney’s sole casino, a source with knowledge of the sale said.

* The proposed new chief executive of National Bank of Ras Al Khaimah, one of two banks which earlier this month were named as victims of a massive global bank card fraud, has quit, two sources within the bank said on Thursday.

* Malaysian billionaire Vincent Tan is exploring an initial public offering of UK football team Cardiff City as early as this year, people with knowledge of the matter told Reuters, in a deal that would follow the team’s recent promotion to the Premier League.

* Lawyers for SAC Capital Advisors called a meeting with U.S. prosecutors and agents from the Federal Bureau of Investigation in April to argue that there should be no insider trading charges filed against the $15 billion hedge fund or its founder Steven A. Cohen, according to sources familiar with the matter

 

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

DDR Corp. (DDR) upgraded to Buy from Hold at Jefferies
Gordmans Stores (GMAN) upgraded to Overweight from Neutral at Piper Jaffray
Pandora (P) upgraded to Outperform from Sector Perform at RBC Capital
Procter & Gamble (PG) upgraded to Buy from Neutral at UBS
Sherwin-Williams (SHW) upgraded to Outperform from Neutral at RW Baird
Wendy’s (WEN) upgraded to Buy from Neutral at Janney Capital
Whiting Petroleum (WLL) upgraded to Buy from Neutral at SunTrust

Downgrades

Centene (CNC) downgraded to Market Perform from Outperform at Raymond James
Cirrus Logic (CRUS) downgraded to Hold from Buy at Canaccord
Cubist (CBST) downgraded to Neutral from Buy at Janney Capital
Gerdau SA (GGB) downgraded to Neutral from Overweight at JPMorgan
Marvell (MRVL) downgraded to Underperform from Market Perform at JMP Securities
Melco Crown (MPEL) downgraded to Neutral from Outperform at Macquarie
Nordson (NDSN) downgraded to Market Perform from Outperform at BMO Capital
Nordson (NDSN) downgraded to Perform from Outperform at Oppenheimer
Salesforce.com (CRM) downgraded to Neutral from Outperform at Wedbush

Initiations

Alnylam (ALNY) initiated with a Buy at Deutsche Bank
Consumer Portfolio (CPSS) initiated with an Equal Weight at Stephens
Credit Acceptance (CACC) initiated with an Overweight at Stephens
Kodiak Oil & Gas (KOG) initiated with a Hold at Deutsche Bank
LKQ Corp. (LKQ) initiated with a Buy at Stifel
Teleflex (TFX) initiated with an Outperform at William Blair

HOT STOCKS

Intuitive Surgical (ISRG) won civil lawsuit that accused it of negligence in training doctors using its surgical robot machines
Google (GOOG) lost bid to block U.S. imports of Microsoft’s (MSFT) Xbox, Bloomberg reports
Google considering acquisition of Waze, Bloomberg reports
Crest Financial reiterated opposition to Sprint-Clearwire (S, CLWR) merger
Sears Holdings (SHLD) evaluating strategic alternatives for Protection Agreement unit
GameStop (GME) CEO told CNBC that digital, mobile supplementing decline in console business
A.G. Lafley rejoined Procter & Gamble (PG) as President, CEO
Campbell Soup (CPB) to acquire Plum Organics, terms not disclosed

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Mentor Graphics (MENT), Infoblox (BLOX), Williams-Sonoma (WSM), Shoe Carnival (SCVL), Marvell (MRVL), Aeropostale (ARO), New York & Co. (NWY), Gap (GPS)

Companies that missed consensus earnings expectations include:
America’s Car-Mart (CRMT), Sears Holdings (SHLD)

Companies that matched consensus earnings expectations include:
TransAtlantic Petroleum (TAT), Nordson (NDSN), Salesforce.com (CRM), Pandora (P), Ross Stores (ROST)

NEWSPAPERS/WEBSITES

  • Fed Chairman Bernanke told Congress that the central bank could start reducing its $85B-per-month bond-buying program at one of its “next few meetings.” But his message has been muddled by a number of other signals sent by the Fed leaving some investors confused, the Wall Street Journal reports
  • Google (GOOG) increasingly appears to be following Amazon.com’s (AMZN) lead. Last year, Amazon rolled out AmazonSupply, an e-commerce site featuring industrial goods, and Google followed suit this January, the Wall Street Journal reports
  • Former News Corp. president Peter Chernin and private equity fund Guggenheim Digital Media placed bids for Hulu ((NWSA, DIS), sources say, triggering a tug-of-war for the online video service. DirecTV (DTV) and Time Warner Cable (TWC) also put in bids, a source added, Reuters reports
  • Apple (AAPL) has operated almost tax-free in Ireland since 1980, welcomed by a government keen to bring jobs to what was then one of Europe’s poorest countries, former company executives and Irish officials say, Reuters reports
  • Fannie Mae (FNMA) is taking potential profits away from mortgage lenders as it posts record earnings that are fueling industry-wide concern the government-backed company is regaining its swagger even as lawmakers plot its demise, Bloomberg reports
  • Lenovo Group (LNVGY) said the company’s cash reserves of more than $3B enable it to pursue an acquisition of almost any size to expand in new business areas, including adding assets to bolster its growing business for smartphones and tablets, and hardware such as servers and storage for business computing, Bloomberg reports

SYNDICATE

Venaxis (APPY) 10M share Secondary priced at $1.25

    



 
Japanese Corporates Are Not Yen Bears (any more)
Thursday, 23 May 2013 08:39
No Comments

Japan’s Economics Minister Amari had initially suggested a few days ago that the correction to the yen’s strength had been corrected. Reports suggested that under criticism from his cabinet colleagues, he softened his comments, now indicating that correction was ongoing. The dollar proceeded to recover and made new multi-year highs yesterday.

Amari was not talking off the top of his head. (Read more…)  A Reuters survey of 400 Japanese businesses, half of which were manufacturers, released on Tuesday, shows that almost half the businesses said the yen’s decline has been sufficient and more than a third would like to see the yen recover somewhat.  Only 15% of the respondents sought further yen depreciation. 

The Reuters survey found 48% of Japanese businesses wanted to see the dollar-yen rate stabilize around JPY100.  Seven percent of the companies wanted to see JPY105 and eight percent wanted to JPY110.  Almost 30% want the dollar to ease back to JPY95 and nearly 10% prefer JPY90. 

The results for just the manufacturing sector were similar.  Many Japanese manufacturers import inputs and the depreciation of the yen boosts costs of these.  In addition, Japanese companies, such as autos, consumer electronics and the like, have moved production facilities offshore, insulating themselves to some extent from the vagaries of the yen.

While Abenomics has enticed foreign investors to boost their exposure to Japanese equities by around $100 bln since the election was called in mid-November 2012, Japanese business and investors seem less enchanted.  The Reuters survey found that only 13% of the corporate respondents planned to boost investment in response the government’s initiatives and only 10% plan to boost wages or employment.  These findings were in line with other recent surveys. 

Japanese investors have not been spooked by the depreciation  of the yen and BOJ’s decision to purchase of the new issuance this year and next.   They have not fled the land of the falling yen and low nominal interest rates.  Instead they have been significant sellers of foreign bonds.  The weekly MOF data indicates Japanese investors have sold JPY5.36 trillion (~$53.6 bln) of foreign bonds this year and another JPY4 trillion (~$40 bln) of foreign stocks. 

They are essentially taking profit on the large stock of foreign assets they have acquired.  This is not the behavior of investors who think the dollar-yen is going to infinity as one fund manager put it.  This is the actions of investors who think the decline in the yen is an anomaly that will not be sustained.

The findings of the Reuters poll also say something about the so-called currency war that has captured the imagination of the media and blogosphere.  Globalization has complicated corporate interests.  A weaker currency is not always beneficial.    A stronger currency is not always harmful. 

The diversity of corporate strategies, the varying elasticities of demand and different competitive environments for their products mean that it is difficult to generalize the currency views of Japan Inc.  Moreover, given turnover, corporate flows are swamped by financial flows.  The 2010 BIS triennial survey of currency market turnover (the next one is due later this year) put the average daily turnover of dollar-yen near $565 bln and eur-yen at another $110 bln. 

This means that while the corporate views of the dollar-yen rate are interesting, it is difficult to extrapolate from it to trade the yen.  Short-term speculators, momentum players and trend followers may be more important for the day-to-day moves than Japanese businesses.