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There are bargains out there in real estate that you ought to buy right now.
No, no, stop laughing. I'm serious. All right, wipe that smirk off your face. Give me some credit. Of course, I don't mean shares of home builders. I still wouldn't touch them with a 10-foot pole. And I don't mean mortgage lenders, big banks or Wall Street mortgage traders. Those are toxic and likely to get more so.
No, the kind of real estate I mean is the kind you can walk on but can't bundle into a tranche and resell. Real assets that don't evaporate when the rocket scientists on Wall Street get it wrong. You know, the earthy stuff they're not making anymore, except in the Netherlands.
The stuff that overseas investors with U.S. dollars burning holes in their pockets will buy to diversify their portfolios away from U.S. Treasury bonds and to protect their holdings from any further decline in the dollar.
Land, I believe it's called.
Buy ahead of the herd
Today, you can find some great bargains on land in the U.S. stock market, if you know where to look. Buy now, and you'll collect a dividend in many cases that will give you some income while the stock market works its way through the current mess.Land also offers some downside protection in case stocks as a whole head further south. Buy now, too, and you'll own these assets ahead of the herd of overseas investors that will discover this asset class, once panic passes in the wake of the meltdown in the U.S. market for mortgage-backed debt.
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In my previous column, "5 ways to ride out the market's storm," I described how the falling dollar and the mortgage crisis make up a perfect storm that has left overseas investors in U.S. stocks and bonds facing unattractively low interest rates and unattractively low (or negative) returns on stocks. The dollar's fall will cause them to lose money in their home currencies even if U.S. stocks hold steady.
An increasing number of overseas investors are joining the global search for alternatives to dollar-denominated investments, looking to stocks in China, India and Brazil; real estate in Hong Kong; Australian dollars and Icelandic krónur; gold and silver; and commodities and commodity producers.
- Discuss with Jim Jubak: Do you think land is a smart investment now?
At some point, though, those same overseas investors will realize that U.S. real estate is a great hedge against what they fear most: an attack of runaway inflation in the United States. A physical asset such as land goes up in value when inflation soars. At some point, those overseas investors will notice that land in the U.S. is cheap enough that any recovery in the American economy will produce windfall profits.
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Jubak's Journal: Market moves to ignoreWall Street has been rocked by short-term market volatility in recent weeks. But MSN Money's Jim Jubak suggests that investors ignore these fluctuations and instead look at long-term trends: the aging world population, increasing inflation and the rise of developing economies.
And land is a particularly attractive investment for investors looking for long-lived assets to match long-lived obligations. That's a group that includes all of the world's pension funds, the entire insurance industry and the new sovereign investment funds set up by Russia, China and other developing economies with big foreign-exchange balances to invest. The group also includes anybody -- yours truly, for example -- who's planning for a retirement 10 years or more away and that, we all hope, is likely to stretch on for a decade or two or three.
In my Aug. 10 column, "How Wall Street got into this mess," I argued that the root of the crisis that has engulfed Wall Street was the global shortage of high-quality, long-term debt -- mostly bonds, which pay a relatively safe and steady stream of income:
"The global investment community wanted to believe that Wall Street and other centers of financial engineering could manufacture investment-grade, long-term debt to meet the huge demand of insurance companies, pension funds and central governments for predictable, long-lived and safe interest-paying investments. Because the need for this paper was so great, these investors were willing to suspend disbelief. They knew in their heads that you can't manufacture investment-grade debt. But in their hearts, they wanted to believe. They needed to believe. They had to believe."
Continued: A solution -- with a catch
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