March 09 ~ Are you hanging in there?

Believe it or not, this next little pile is $1 million dollars (100 packets
of $10,000). You could stuff that into a grocery bag and walk around with
it.

While
a measly $1 million looked a little unimpressive, $100 million is a little
more respectable. It fits neatly on a standard pallet…

And
$1 BILLION dollars… now we’re really getting somewhere…

Next
we’ll look at ONE TRILLION dollars. This is that number we’ve been hearing
so much about. What is a trillion dollars? Well, it’s a million million.
It’s a thousand billion. It’s a one followed by 12 zeros.
You ready for this?

See the guy hard left!!

Notice those pallets are double stacked, and remember those are $100
bills.
So the next time you hear someone toss around the phrase “trillion
dollars”… that’s what they’re talking about.

So where are we headed this year??

Well my usual disclaimer that we are all guessing big time but based
on my research and some common sense here’s a market up date for
you.

Global Economy:

Cooked, roasted, basted and served cold.  The world has pretty much
followed the US lead and spent quite a few years now on an unbridled credit
experiment that is failing.

Expect the USA and England to get into more and more trouble as they
deleverage. I believe they are making their lives even worse by printing
so much money.

The likely outcome of this is a prolonged, VERY prolonged recession instead
of a painful but much shorter depression.

What should be intuitively clear is that spending is no way to repair
the USA. Indeed, spending irresponsibly is exactly what got them into
trouble.

If your family had large debts and annual expenses exceeding its income,
would you accept advice from financial experts beseeching you to spend
even more, and borrow further? That sounds absurd, and it is.

The definition of insanity is doing the same thing again and again, expecting
different results. Why then are they trying to get out of this hole by
digging further with the same shovels of consumption and debt?

Probably the biggest concern is the kickback when the spending solution
fails.

It is called hyper-inflation.

While Obama is doing his best, the most likely outcome of his methodology
is hyper inflation. It happened every other time a government has tried
what he is doing, why should this time be different?  In fact this
time it could make the 70’s, (remember 28% mortgages anybody?) look
like a soft landing.
Bollard has started to mention the H word as well now.

And of course the spin off is that the USA will affect virtually every
other nation on earth

So all I can say is watch and see as nations possibly declare themselves
bankrupt and there is a likelihood of massive control shift to one or
2 nations.

China may emerge as the world’s savior financially.  (For those
of you with a Biblical world view we may be witnessing the beginning of
one world government and common currencies: (Revelation 13) )

Local economies:

NZ and Oz are still the safest places to be in my opinion. The IMF has
just come out and said the same. Our lack of addiction to debt, sound
government and low gearing (comparatively) all will help to insulate us
going forward.  Now insulate may mean we have 20% unemployment instead
of 50% but we will be in a RELATIVELY good position.

The fact that mortgage rates are now rising whilst our OCR is still dropping
proves that much of what is going on is beyond NZ government control.
So the risk averse position in NZ is get out of debt, put your cash into
high income producing assets and HANG ON!!

Property:

Basically my comments from January
and February
have been bang on and I think we can predict with increasing accuracy
the likely way forward with property.

Values will continue to decline or stay flat in some cases.  There
will never be a way to accurately predict how much etc. because we firstly
rely on historical data and secondly property is such an emotional beast.
So there are always people who will pay over the top for a property and
also plenty who try to pinch them. The nature of property is such that
valuing it can never be a science.

Generally though we are unlikely to see any growth in our market. And
frankly Bernard (and other pessimists) views of a further 20 to 30% drop
could also happen. We just don’t know.

One of the perplexing things for me in terms of trying to provide any
sensible advice is that as a result of the global situation is that the
fundamental building block of house values is having the goal post moved.

Many of you have thanked me for explaining complex subjects simply so
I’ll need a bit of space here to unpack this for you.  If this bores
you silly just scroll down to the joke at the end of the newsletter

Replacement Cost

The most reliable measure of housing value is replacement cost. It isn’t
talked about much in NZ, except by me, but internationally it is the foundational
principle of value.

So in theory as the cost to buy the materials and build a house increases
then the underlying housing market value must increase by a similar amount.
I’ve discussed this in previous issues so I won’t flog it
to death here but the point is that the replacement cost indicators are
changing.

Take steel for example. Steel prices have HALVED since June 2008.

This article from Bloomberg this week……

“March 23 (Bloomberg) — Nippon Steel Corp. and JFE Holdings
Inc. Japan’s two largest mills, negotiated a 57 percent cut in the
price they pay BHP Billiton Ltd. for hard coking coal, said two industry
executives with knowledge of the deal.
The mills will pay $128 to $129 a metric ton for the coal for the fiscal
year starting April 1, down from $300 a ton a year earlier, said the executives,
who declined to be named as the agreement is confidential. The deal was
reached with BHP Billiton Mitsubishi Alliance, a joint venture between
Melbourne- based BHP and Japan’s Mitsubishi Corp.

Steelmakers in Asia and Europe are slashing output as a global economic
slowdown curbs demand from builders and carmakers. Prices of hot-rolled
coil, an industry benchmark, have more than halved since June to $505
a ton, according to U.K. industry publication Metal Bulletin. Japan’s
five blast furnace mills have all forecast fourth-quarter losses.
“We estimate falling raw material prices will push down costs by
30,000 yen ($311) a ton, but if steel prices fall further steelmakers
will have difficulty securing profits in fiscal 2009,”

In other words, one of the big 3 costs of building has dropped in real
terms by 50% in 9 months, with more drops coming.

This REDUCES cost of replacement.

How about concrete (cement).  Same story globally. This is just one
example from India, (a global leader in cement production and consumption):

“The bear phase in cement stocks began much ahead of the deterioration
of financials of cement companies.

The current cement industry scenario is hardly exciting, due to the situation
of demand slowdown and anticipated oversupply.

Most cement companies have been trading in the $20 – $110 (EV / tonne)
range, well below their replacement cost or cost of setting up a green-field
cement plant, estimated at $120/tonne, i.e., at a discount of 17% -96%.
“

And even our beloved timber:

I had to go back to 1992 to find domestic prices as low as we currently
have!!

True!!  This is not being reflected at your timber merchant yet,
these are the mill prices.  But the trend is down, down, down with
prices.

And the international market won’t save us even with a low dollar:

“Winstone Pulp International announced on Monday it will cut
nearly two-thirds of the 105 workers at the Blue Mountain Lumber mill
in the Otago town of Tapanui.
The company says the redundancies are needed to keep the plant viable.
Mr Hayes says the lay-offs aren’t surprising given the state of the industry,
but they will hit the area hard.
Mr Hayes, who also owns a sawmill, says the job losses won’t be the last
and he too is considering redundancies.
He says he knows of exporters who have had timber orders cancelled when
the ship delivering them was half-way to its destination, forcing producers
to dump the timber at low prices.”

So let’s say we have a 50% drop in steel, 30% drop in cement and
timber.

This means that a house that last year cost $2000 a square meter might
now cost $1200 to $1400 a square.
Add in the lower cost of labour because of rampant unemployment and a
50% drop in house construction cost is possible.

So the new benchmark for replacement cost may reduce by 50%.

Unheard of, unbelievable, but potentially true, and already happening.

Now this is no need to panic as there is no sign of rents following suit.
So as long as you invest safely and intelligently now is a great time
to jump in.   In fact considering the alternatives property
is just about the only thing worth doing with your money at the moment.

Money is likely to get harder to find for a while yet. The NZ banks are
paying premium for long term money, hence our increasing long terms rates
so get used to tight credit and only being able to borrow if you don’t
really need it for a bit.
The upside, the banks will get sick of bathing in cash in their vaults
so the tap will get turned back on eventually.

Gee Dean you’ve cheered me up no end!!

Well my apologies if you feel that way, I’m just trying to help you understand
what is really going, then you can plan to succeed.  So what is

Pent up Demand

No matter how you slice it, NZ and OZ are building way too few houses
and with consents almost flat lined there will be a huge lag before construction
can start and we get catching up. So when the worm turns, and it surely
will, look out. Values are going to go off the dial.

On top of this we have kiwi’s returning to NZ from OZ and the UK in droves,
even if they are unemployed, they will all need somewhere to live.

It may seem a distant glimmer at the end of a long tunnel right now,
however we are positioning our selves for a phenomenal boom when we do
turn out of this mess.

Trading

One of my forum members asked recently what people were buying and it
bought these examples from Massive Actioners around the country regarding
current deals they are doing.

Purchased 100k  sold 140k contemporaneously
Purchased 208k  sold 262,500 contemporaneously
Purchased 140k sold 165k contemporaneously

5 brm brick and tile in Auckland 4 years old bought for 285K sold same
day for 330K

3 bedroom do up in Manurewa, bought for 190k, sold 265
4 bedroom Glen Innes, bought 300k, sold 370k

All these deals were done in March!!

If you’d like help getting similar results then join myself and the others
who are doing these deals by joining the Massive Action forum here.

One critical thing about trading in this market is to get into bed, (figuratively
speaking), with a good local agent. In Auckland some areas are doing well,
others are terrible. Certain price ranges are hot, others are dead. Only
a good active agent can tell you what people are enquiring about and buying,
so he or she should be on your daily phone call, lunch at least once a
week list.

Buying power

Most distressed buyers now have a sign on their forehead and a sharp
razor blade in each hand so buying well is not something I need to teach
you, if you can walk and chew gum at the same time then you can buy at
a discount.

A friend of mine last week just dipped out an a minor dwelling-able property
in West Auckland that sold for 215K!!  Would have been 315K 6 months
ago.

We are unlikely to see a time like this again in our lifetimes, so if
you are lazy it will never be easier than now.  And if you’re REALLY
lazy, we’ll even help you find something HERE

Yield

On both sides of the ditch there are some great opportunities currently
to secure good property with very high yields, and this too we may never
see again. I am working on a farm in South Australia with a friend of
mine returning nearly 19% NETT for example and things like home and incomes
in Auckland are seriously cash positive thanks to interest rates and price
suppression.

Do you need to Get sorted?

Now if you’ve got problems currently so you can’t take advantage of any
of this god news, DON’T JUST SIT THERE.  Get sorted, come and see
me or someone else who has a clue and find a solution.  I’ve
been working with some people with m y solicitor and other professionals
and it’s amazing what you can do or get done if you apply yourself.

A friend of mine who I was certain was going to fall over has managed
to get through with a lot of help from stroppy professionals like me pushing
their barrow.

EVERYTHING IS NEGOTIABLE.
except the space you take up, EVERYTHING.

But be honest and ask for the help you need.  I’ve had quite a few
people come for consults recently and they have never actually opened
up and said, “Actually Dean, I’m screwed, what do I do”.
If you beat around the bush instead of laying your cards on the table
no one can help you.

There are plenty of solutions, because EVERYTHING
IS NEGOTIABLE.

BOOK
HERE if you want me to have a look at your situation
with you.

A Principled life

I received an email today from a client/friend of mine that reminded
me of just why I love sharing my life and knowledge with others.

The person had written wanting to honour a commitment they had made to
me 2 years ago. I had completely forgotten about it , so the fact that
they had “promised themselves” they would do it was a sign of
a principled life.

They then went on to say:
“What a year. I was so close to giving up many times, and honestly
if it hadn’t been for your encouraging blogs and newsletters Dean
I would have quit.

Your voice of moderation and encouragement amongst the constant chatter
of doom and gloom in news reports was what kept me going.”

Hearing things like that mean more to me than anything.  To have
made a positive difference in the life of another is second only to pleasing
God I believe in the field of human endeavour.

So thanks CW for being an example of a principled life AND someone who
chooses to bless others, even when life ain’t perfect.

So understand that putting others first, standing up for what you believe
is important and pays dividends.  You may make less money, but you’ll
be fulfilled in ways that money can never buy you.

A
short Joke

According
to a news report, a Secondary School in Billingham, was recently faced
with a unique problem.

A
number of 12-year-old girls were beginning to use lipstick and would put
it on in the toilets. That was fine, but, after they put on their lipstick,
they would press their lips to the mirror leaving dozens of little lip
prints.

Every
night the caretaker man would remove them and the next day the girls would
put them back.  Finally the Headmaster decided that something had
to be done.. He called all the girls to the toilet and met them there
with the caretaker.

He
explained that all these lip prints were causing a major problem for the
caretaker who had to clean the mirrors every night. To demonstrate how
difficult it was to clean the mirrors, he asked the caretaker to show
the girls how much effort was required.

He
took out a long-handled squeegee, dipped it into the toilet and cleaned
the mirror with it.

Since
then, there have been no lip prints on the mirror.

There
are teachers….and then there are educators.

Thank you once again for your incredible support in a difficult environment,
keep smiling and know that Raewyn and I are praying for you that this
year will be full of love, wonder, joy and genuine success.

Stay Safe ~ Dean, Raewyn and the Massive Action team

The
information presented in this email is for educational purposes
only. Any information given by Dean Letfus and or any associated
party or employee of Massive Action Ltd, is given purely as illustrations
and should not under any circumstances be construed as specific investment,
financial or legal advice. Whilst every care has been taken to ensure
the accuracy of the material presented, Massive Action Limited and their
representatives will not bear any responsibility or liability for action
taken by any person on the basis of information presented from this email.
The information presented is based on Massive Action Limited’s own
views as Property investors and advisors and as such it is HIGHLY
RECOMMENDED that
no person make an investment decision until such time as their individual
needs and desires have been assessed by qualified financial advisors and
specialist professionals that are totally independent of Massive
Action Ltd and Dean Letfus and any associated party.