Sunday, November 28, 2010

Massive Chinese Luxury Spending Shows The Real Estate Mania Is Spreading


Tiffany results give excellent insight into the luxury market mania. At the flagship US store in New York sales were down 3%. It was up a modest 8% in the US as a whole. Japan was up 2%, but the rest of Asia was up a whopping 24%. Growth for sure, but Chinese consumer consumption is $2 trillion, or one-tenth the size of Europe and the US combined. I am not quite sure what to make of the 22% increase in Europe. Sales of items under $500 declined, but high end jewelry and diamond sales drive expensive purchases much higher. That, ladies and gents, is the foundation of the luxury boom of 2010.

The TIF result couldn’t be more clear. This mania is directly correlated to the Chinese speculative real estate mania, which I originally covered in a report in Russ Winter’s Actionable (a subscription service). This one makes the US real estate bubble look like child’s play. The Chinese authorities have taken measures to check this, but the mania has just spilled over into Hong Kong . As with all great manias, people feel that they have hit the jackpot, but in reality there are less than a million millionaires in China, suggesting that much of this fleeting bubble-mania wealth is driven by Wannabees. Wannabees drove the US housing bubble, and we are still dealing with the aftershocks. For those who wished they had played the US bust aggressively, now you have an even bigger mutha to play as China will be much worse.

A prevailing myth is that even in the US the wealthy are now carrying the consumer based economy. Usually when the discussion is centered around the US, the bottom 60% are dismissed as irrelevant, as if the US was really a banana republic of sorts. Nor is there particular concern about how this indebted lower tier affects the holdings (largely bonds and stocks) of the 5% who hold the securities that represent their debts. The belief is that the Fed or the government will take care of most of the risk of holding investments dependent on, drum roll please, debts owed by the lower 60% or 80% in the banana republic. Incidentally, despite the Ministry of Truth barrage going into Black Friday about improving employment, there were 1,651 mass layoff events (at least 50 workers) in October, resulting in 148K job losses – 121 more mass layoffs than in September.

Further aggravating the myth is that the retail sector is full of quasi-luxury retailers like JWN and COH who are getting the luxury bubble bath treatment. Apparently the idea here is that the top 20% are now doing great as well. I would suggest the obvious: excluding the top 5%, the rest of the top 20%, holds a much higher percentage of their wealth in housing rather than in financial assets. Therefore, that group is largely missing in action.

For sake of argument let’s consider that the top 5% are the drivers of this wealth and luxury theme. These people hold 72% of all the financial assets in the country. Obviously with the stock market having recovered a large portion of their 2008-2009 losses, these people are feeling somewhat wealthier compared to a year ago. The only problem with this is that if we use mutual fund flows as a surrogate for where these folks put their money, their participation was muted.


The wealthy have put money into the aforementioned mania induced emerging market bubble to the tune of $83.3 billion in 2009, and $79.9 billion so far in 2010. Connecting the dots, a bust in inflated luxury stocks should correlate well to an emerging market equity and debt bust.

The wealthy have also put money into tax free bond funds ($30 billion in 2010) as part of some misguided derisking play, and to squeeze out a little extra yield. A half a trillion is parked in these funds, although last reported week 1% was pulled out. I suppose a plutocrat opening his monthly statement at the end of August and September and on the eve of QE2 might feel smug enough to engage in some luxury spending hysterics. That has now come and gone, as any benefit or gain from investing in tax free bonds in 2010 has also come and gone.

Thursday, November 25, 2010

Japan's commercial properties have largest debt-funding gap in Asia Pacific

Japan's commercial properties have the largest debt-funding gap in Asia Pacific, at US$70 billion.

This is according to research by real estate firm DTZ.

The funding gap is defined as the difference between the debt secured by a commercial property that is maturing and needs to be paid, and the debt that is available to fill the vacuum.

According to DTZ Asia Pacific Research, aside from Japan, the only other markets in Asia-Pacific with funding gaps are Australia and New Zealand. However, the shortfalls in these countries are only US$500 million and US$100 million, respectively.

DTZ added that despite a development boom in China and India recently, neither has a debt-funding gap as capital values have held up.

As a result, DTZ said both countries have been insulated against any significant downturn.

Globally, DTZ also estimates that US$376 billion of equity capital is available for investment in commercial properties in the next three years.

This works out to more than 1.5 times the estimated global debt-funding gap in the next three years, which DTZ estimates at US$245 billion.

However, DTZ cautions that the debt-funding gap continues to be the biggest challenge in many international property markets.

Friday, November 19, 2010

Consortium Buys Lauren Building in Tokyo

Consortium Buys Lauren Building in Tokyo
Secured Capital Japan and Other Investors Snap Up Outlet in One of the City's Poshest Areas.

In a sign that Japan's moribund real-estate market is coming back to life, a Japanese-led consortium is set to acquire the iconic Ralph Lauren building in central Tokyo for $350 million, in one of the largest real-estate transactions this year.

Secured Capital Japan, a real-estate investment fund, is set buy the property, along with other investors. Deka Bank, Germany's largest manager of property funds, is the main lender. The sale is set to close as early as next week.

Ralph Lauren's flagship store in Omotesando—one of the poshest addresses in Japan, located on Tokyo's version of the Champs Elysees in Paris—is a standalone, white, neoclassical mansion that measures 2,200 square meters. The property, which opened in 2006, stands out on the wide boulevard that is primarily filled with modern glass-and-steel buildings. Ralph Lauren leases the store space.

The purchase of the Ralph Lauren Omotesando building is another trophy asset for Secured Capital Japan, which in December 2009 won a bid for the Pacific Century Place Marunouchi, a top-tier office building located in the central business district adjacent to Tokyo Station, for 140 billion yen, marking that year's largest transaction by deal size.
[ralph] Associated Press

Ralph Lauren's flagship store, shown here in March 2006, is in Omotesando in central Tokyo.

Japanese real-estate transactions have been heating up this year. With prices still near 36-year lows, Tokyo led all cities world-wide during the first half of 2010 with real-estate transaction volume exceeding $10 billion, according to Real Capital Analytics, maintaining a big lead over London and Hong Kong, the Nos. 2 and 3 cities, respectively. Real-estate investment trusts and foreign investors have been active participants in the market, confident that prices have finally bottomed out.

"We're definitely more aggressive about lending compared with a year ago," said Shinroku Wakayama, general manager of real-estate finance at Mizuho Corporate Bank.

Since banks are facing weak loan demand from corporations, there is ample cash to spend in the real-estate market, Mr. Wakayama said.

He said the Japanese market is still an attractive destination for real-estate investment given the stable economy and relatively high yields.

Though defaults on loans have forced many real-estate transactions this year, observers say delinquency rates have already hit a peak and are starting to decline.

Bankers aggressively pushed real-estate loans in Japan from 2004 to 2007, with properties sometimes leveraged as much as 90%. When the real-estate bubble bust during the global financial crisis, the accompanying drop in portfolio valuations led to an increase in loan defaults.

Commercial-mortgage-backed securities loans typically have a shorter life span in Japan, where CMBS loans are usually due in about three years, compared with five to seven years in Europe and about a decade in the U.S.

"There is still demand in the Tokyo real-estate market from developers and real-estate funds if a property is located in the center of the Tokyo metropolitan area," said Takashi Hashimoto, an analyst at Barclays Capital. "For office or retail properties in the area, getting financing from financial institutions is easier."

Daiwa Real Estate to Boost REIT Assets by 25% in 3 Years, President Says

Daiwa Real Estate to Boost REIT Assets by 25% in 3 Years, President Says
Daiwa Real Estate Asset Management Co., a unit of Japan’s second-biggest brokerage, plans to boost assets in its real estate investment trust by a quarter to about 350 billion yen ($4.2 billion) as it bets the nation’s property market has bottomed.

The property unit of Daiwa Securities Group Inc. is seeking to lure investors by arguing that the yield on the Tokyo Stock Exchange REIT Index offers attractive return after the gauge dropped about 60 percent from a 2007 peak. The difference between 10-year Japanese government bonds and REITs stood at 5 percent as of Oct. 31, almost five times the 1.1 percent in the U.S., and about three times the 1.7 percent in Europe, according to an estimate by Credit Suisse Securities (Japan) Ltd.

“When you compare the yield spreads in Japan and those in other international markets, Japan offers the best return ever,” Yamanouchi said in an interview on Nov. 16. “We expect that trend to continue and we are keen to capture growth in this market.”

Ichigo Targets $3.6 Billion in Assets for Tokyo Property Funds

Ichigo Targets $3.6 Billion in Assets for Tokyo Property Funds

Ichigo Group Holdings Co., Japan’s third-biggest publicly traded property manager, aims to boost assets to at least 300 billion yen ($3.6 billion) by February for funds that will invest in Tokyo office buildings.

The increase in assets is the first in three years based on half-year figures from the company. The Tokyo-based firm, which had 266.6 billion yen under management as of August, plans to start “several” funds over the next few months,

Ichigo aims to start new funds after its assets halved from their peak in February 2007 and amid signs that Tokyo’s real estate market may have bottomed. Office building values in the capital declined 40 percent to 50 percent since their 2007 high, while the market for private real estate funds expanded 7.9 percent in the first half of the year, according to CB Richard Ellis Group Inc.’s Japan unit and STB Research Institute Co.

Monday, November 15, 2010

The Most IMPORTANT Video You'll Ever See

Debt is not a problem. The real problem is the irreversible multiplication of debt BY INTEREST'

There is more of that. The future value of money FV=PV(1+i)^n, the favorite formula of the Usurers & Money Changers has Class III of Impossibility in the physical world (Class III - Technologies that violate the known laws of physics) arranging itself next to things like perpetual motion machines and precognition.

In the tangible value of money appears basic SI unit ([seconds], even to some power)

This Is Mind Blowing!

Here' another mind blowing concept -

Just as we can zoom OUT to see the bigger universe, we can also zoom IN to see the smaller universe. Just as outer space seems to go on forever, INNER SPACE goes on forever too!

For example, do a google image search for "atom". Notice how a tiny atom LOOKS JUST LIKE A HUGE SOLAR SYSTEM?

Perhaps SIZE ITSELF is just an illusion!

Gro-Bels's Freeze Recommends Japanese Real Estate:

Gro-Bels's Freeze Recommends Japanese Real Estate:
Curtis Freeze, chief executive officer of Gro-Bels Co., a Tokyo-based property developer, and chairman of Honolulu-based Prospect Asset Management Inc., talks about Japan's economy and his investment strategy. Japan’s economy grew more than forecast in the third quarter as consumer spending increased, shielding the expansion from a stronger yen and export slowdown likely to have a greater impact this quarter.

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Friday, November 12, 2010

Top Asset Managers Rebound Strongly

Assets managed by the world’s largest 500 fund managers rose by 16% in 2009 to US$62 trillion at the end of the year. This is in contrast to a 23% loss the year before, according to the Pensions & Investments / Towers Watson World 500 ranking. The research also shows that although the percentage rise in total assets in 2009 is the second largest since the research began in 1996, asset levels are still below 2006 levels. In addition, during the past five years only half of the fastest growing firms have done so in a primarily organic way, with the other half doing so by merger or acquisition.

Top 10 Global Asset Managers

Barclays Global Investors
1. Barclay's is a leading global wealth management firm, and has offices in 20 countries. The company also provides retail, corporate banking and investment banking.

State Street Global Advisors--SSGA
2. SSGA has 28 locations worldwide, with assets under management worth $1.8 trillion. The company is the world's second largest asset manager.

Fidelity Investments
3. Fidelity Investments was founded in 1969, and provides asset management services to clients around the world. The company manages over $200 billion in assets for private investors and institutions.

The Vanguard Group
4. The Vanguard Group is based in Malvern, Pennsylvania, and manages assets worth $1.4 trillion. The company provides over 200 stock bonds as well as variable annuity portfolios.

JP Morgan Asset Management
5. JP Morgan is a leading provider of asset management services to individuals, institutions and financial intermediaries. The company offers full spectrum asset classes.

Capital Research and Management Company
6. Founded in 1931, the Capital Group provides asset management services in North America, Europe and Asia. The company has 22 offices worldwide.

Deutsche Asset Management
7. Deutsche Bank is a leading provider of financial services, and is headquartered in Frankfurt, Germany. The company specializes in private wealth management, and also provides retail banking services around the world.

Northern Trust Global Investments
8. Founded in 1889 by Byron Laflin Smith, Northern Trust Global Investments has $603 billion in assets under management and is based in Chicago. Through its subsidiaries the investment firm provides a wide array of products and services to United States and international clients.

UBS Global Asset Management
9. Headquartered in Zurich, Switzerland, UBS provides investment services to private, corporate and institutional clients and has offices in 50 countries. UBS Wealth Management is the largest private bank in the world and has over $540 billion in assets under management.

Alliance Capital Management
10. Alliance Capital Management is based in New York and provides diversified investment products to private clients and institutions. The company has approximately $458 billion in assets under management.

Commercial Real Estate USA Ready to Move On Up?

The commercial sector in the US is ready to move on up, according to James McCaughan, of Principal Global Advisors. He shares his view with the Strategy Session crew.

Saturday, November 6, 2010

Akiko - I Miss You

I recently saw Akiko live she played this song.
Akiko is a phenomenal songwriter and musician.
Her voice is best suited for down tempo songs sung slow motion like this track
"I Miss You".
Mesmerizing, romantic and exquisite voice perfect for live jazz club venues.

Japan does not expand its bailout

Japan does not expand its bailout in response to US

The Bank of Japan has decided not to increase its measures to inflate the Japanese economy in response to the US decision to pump a further $600 billion into its economy this week.

However, the central bank is proceeding with unusual plans to buy shares in exchange traded funds and real estate investment trusts as part of a 5 trillion yen asset buying scheme starting next week.

Maintaining interest rates at an ultra-low level of between 0% and 0.1% the central bank painted a downbeat picture of Japan’s economy.

‘Japan's economy still shows signs of a moderate recovery, but the recovery seems to be pausing. Exports and production have recently been more or less flat,’ it said.

‘Business fixed investment is showing signs of picking up. The employment and income situation has remained severe, but the degree of severity has eased somewhat,’ it added.