Blow up 1 million US houses
‘One of the wisest men I know has this serious but admittedly impractical solution: have the Government buy one million new/unoccupied homes, blow them up, and then start all over again. Absent that, he’s not quite sure what to do, nor am I.’ says Bill Gross managing director of Pimco in his August Investment Outlook.
Gross says, ‘The current conundrum facing the US is ‘how to make the price of 120 million U.S houses stop going down in price and then to make them go up again.’ The problem lies in the cost of credit. ‘The yield on a 30-year agency mortgage-backed loan has actually risen since the Fed somewhat unexpectedly began to lower Fed Funds in early September of 2007.’ ‘ Financial asset prices, as well as those for homes, are really the discounted present value of what investors believe those assets will be worth far into the future. When the discount rate - in this case a 30-year mortgage - rises faster than the expectations for home prices themselves - then the price of a home falls.’
In light of these factors and falling short of blowing up 1 million homes, Gross suggests ‘lowering the cost of mortgage credit via the omnibus housing/GSE bill now placed before the Congress and the President is the best way to begin the long journey back to normalcy.’
New (and not so new) alternative investments
Recently GLG, a hedge fund headquartered in London and listed on the New York Stock Exchange, injected $30m in a Christian version of YouTube - GodTube - as part of a $150m fundraising. GodTube claims to be one of the fastest growing Christian online video sharing and social networking sites. GLG’s move comes on the back of other Web 2.0 sites like Facebook and Myspace that are attracting a lot of financial interest.
Two hedge funds are now focusing on opportunities related to the forecasted death of the baby boomer generation by taking stakes in companies that operate funeral home and cemeteries, which can expect to see their business grow in the coming years and decades. SAC Capital Advisors recently acquired a further 2 million shares in Houston-based Service Corporation International, the biggest funeral home, cremation and cemetery operator in the US, taking its stake to 2.2 per cent. Quantitative hedge fund firm AQS Capital Management is also reported to have increased its stake in Service Corporation.
And, in a move reminiscent of an Irish thoroughbred fund launched in the late 1980s by (then) Dermot Desmond’s NCB Stockbrokers, International Equine Acquisitions Holdings (IEAH), a New York-based Corporation, is turning itself into a hedge fund. It is raising $100 m to buy, sell and breed horses, and will operate like a hedge fund, collecting management and performance fees. IEAH investors will each own a part of all of the firm’s assets. The firm will have an independent auditor value the fund each quarter, and will offer its investors quarterly liquidity.
Investors are also seen buying into agricultural land to exploit rising food prices and commodity prices. Hedge funds and investment banks are betting on rising food prices by buying farms. |
