Hidden Housing Boom That Still Rages On

by Andrew Mickey

“Congratulations, you’ve just lost $33,000. Good job! You are now a homeowner.”

Do you think this is what new homebuyers hear from their banker and real estate agent after they sign the bottom line? Certainly not. But they should.

Mark Zandi, Moody’s chief economist, declared, “On a national level, the housing market recession will continue through early 2009. [The housing market is] worsening and is already in the midst of its worst downturn since World War II.”

In addition to that, Goldman Sachs expects home values to decline another 15% nationwide. Since the average price of a house is currently $220,800, a decline that size would make the average loss for owning a home over the next year and a half $33,000. Not a time to be buying a house… quite yet.

Even Caterpillar’s CEO, James Owens, said, “The downturn in the U.S. housing market is the worst it has been since World War II and is likely to weaken further next year.”

All this just shows the worst has only begun for the housing bubble, and it’s going to take a few years to get the housing market cleaned up. However, all is not lost.

Granted, the bleeding won’t be over until 2009… at the earliest. The U.S housing market has propped up the U.S. consumer, and with no housing boom, there’s no consumer. With no consumer, there’s no economic growth… and on it goes.

It can all be a little frustrating. But there is one housing boom that still rages on, and investors have been making a mint.

The U.S. housing market is getting all the headlines for falling to pieces, but the Brazilian housing market is growing stronger and stronger by the day. It’s no secret that Brazil has been attracting a lot of attention from the financial community, but the local housing market has failed to really take off like those of China, India, Japan, the United States, Ireland… pretty much every housing market in the world.

All that’s about to change. According to The Economist, “President Lula of Brazil resoundingly won re-election last October, largely on the strength of support from the poor. Their living standards have been soaring. Income inequality has at last begun to shrink.”

Brazil’s poor are starting to earn money for the first time. They can finally buy the things they want. And, as we’ve seen in every other emerging market, one of the first purchases they make is a house.

It all boils down to basic economics. Brazil has lagged behind the rest of the emerging world. It hasn’t been the runaway success that China and India have been.

Brazil’s GDP growth rate over the past four years averaged 3.3%. That’s well behind the 7.3% average for emerging markets as a whole. That’s why I think Brazil is still just really getting started and there’s plenty more growth left in the country.

Brazil isn’t perfect, but it’s getting better. Poor infrastructure, out of control population growth, and a few other factors have kept Brazil down compared to other emerging economies. Basically, Brazil dug itself a big hole that it took a while to get out of.

Now, the ship has been righted and Brazil is about to really start booming. Exports are soaring. The country has foreign exchange reserves of over $100 billion. For one of the few times in its history, Brazil’s inflation is under control at only 3%. The country is finally getting cleaned up economically.

That’s why the Bovespa Index, which tracks Brazilian stocks, is up about 600% in five years. Although Brazil’s stock market has been on a tear, there’s still plenty of opportunity, if you’re willing to look for it.

According to Bloomberg, “Real estate developers’ shares have underperformed the Bovespa stock index.” In fact, real estate stocks have lagged the boom by about 33%. And it won’t be long until the Brazilian real estate stocks catch up with the other high flyers. But you don’t have to go down to Brazil to take advantage of this opportunity.

Gafisa (GFA:NYSE), one of Brazil’s leading homebuilders, is traded on the New York Stock Exchange just like GE and Exxon Mobil. And with the Brazil housing sector poised to catch up to the rest of the world, this one has the potential to deliver gains that U.S. homebuilders D.R. Horton (DHI:NYSE) and Centex (CTX:NYSE) have delivered over the past few years.

Brazil isn’t the only booming growth story in South America, though. The continent is covered with opportunity, mostly in oil. Although the continent has plenty of natural resources, it’s still relatively unexplored.

That’s why my colleague, Christian DeHaemer, is so interested about what he has uncovered there. Christian has been to places like Cuba, Egypt, India, Bulgaria, Libya, Israel, Turkey and Tunisia and developed a knack for turning crisis into opportunity. In fact, during the Internet bubble, he nailed 680% on Broadcom and 572% on Oracle.

But he says, this small oil company found in South America’s “Gunboat Basin” could return even more. The housing boom in Brazil is a pretty safe bet, and with that safety will come a decent return. But that’s not what Christian is looking for right now. He’s looking for the big win. And what he has uncovered could easily trounce that.

Good investing,

Learn about creating wealth for life.

The Only Three Oil Investments You Should Make

by Andrew Mickey

It’s been an interesting year. The world economy is continuing to grow. The bull market in commodities is temporarily slowing down. More and more horrible announcements continue to come from the U.S. banks as they come clean. And oil prices have moved up 46%.

But as oil prices surge, leading oil companies haven’t enjoyed the run-up. Consider this: While oil prices climbed 46% this year, Exxon Mobil’s shareholders have only seen a 20% gain.

Considering Exxon has more than 2 million shareholders, that’s a lot of people that have completely missed the run-up.

But there is plenty of money to be made in the oil markets. Just take a look at what other oil and gas stocks have done in just the past year:

- Fox Petroleum (FXPE:OTC BB) has climbed 220%
- Contango Oil and Gas (MCF:NYSE) is up 160%
- Evolution Petroleum (EVP:AMEX) more than doubled from its lows

Even the $40 billion offshore oil rig-operating behemoth Transocean (RIG:NYSE) has added 80% in value over the past year.

Clearly, there are some big opportunities in oil stocks. But Exxon Mobil, Cevron, BP and the other large oil companies aren’t going to be where you’ll get market-beating returns. You have to go one step further.

Oil Catch-Up Investment #1: With oil hovering around the $90 mark, many different types of oil are extremely valuable. Heavy oil that costs $40 a barrel to produce profitably, oil sands (which could take as much as $60 a barrel to produce on a large scale) and deep-sea oil that is miles underneath the ocean’s surface makes sense economically.

Currently, billions of dollars are being poured into the areas because the oil majors are betting big that these new sources of oil will provide enough oil to offset declining production from more conventional sources.

As a result, anyone that can help these companies get these types of oil out of the ground and to market has years of growth ahead of it. The oil service sector still offers plenty of undervalued opportunities and specialty firms that focus on these areas will be solid investments.

More specifically, in the oil sands region of Canada, the owners of the new pipelines as well as local natural gas producers will play an extremely profitable role in getting this barely economical source of oil to market.

Oil Catch-Up Investment #2:

The other big problem for oil companies is that they simply can’t find much oil. Of course, there are quite a few companies that help oil companies out here, but the most important ones are the seismic data and imaging companies.

With oil prices still near all-time highs, the Peak Oil theorists are back out in force, screaming, “The world is running out of oil! The world is running out of oil!”

It’s not. However, the world is running out of easy-to-find, easy-to-recover oil. And those companies that can keep costs low and help oil exploration companies increase their odds of hitting crude when they drill are highly valuable partners.

Oil Catch-Up Investment #3:

Finally, the potentially most lucrative oil investment that will allow you to get back some of those missed returns is the emerging oil producers. Too many investors consider these small companies in far off places to be highly risky.

However, it’s that misguided attitude that has helped keep these stocks undervalued. After all, a barrel of oil in the United States costs $90 and a barrel of oil in Thailand is worth $90. There’s no difference. Oil companies don’t care. Your house’s heating system doesn’t know the difference. Cars don’t either. Why should you?

There’s no reason to. That’s why when Christian Dehaemer told me about a small oil company that he recently uncovered, I could instantly see the potential. It’s not the type of investment opportunity for everyone, but if you’d like to learn more.

Sticking to these three different subsectors of the oil industry should help keep you enjoying the remainder of the oil boom. The way it’s looking, we could be a couple of years away from the end of the run and, as we’ve explored here before, wind, solar, ethanol… are going to provide the solution.

Good investing,

When Bank Stocks Fall, Buy “Antibanks”

By Andrew Mickey

The housing market is in a rapid state of decline. Aggressive lenders are imploding because they overextended themselves by making risky loans to borrowers without the means to pay them back. The mortgage industry is in decline following a multiyear boom.

The combined weakness in all of these sectors is dragging down the entire economy and stock market with them. However, a few “antibank” stocks are about to heat up.

Overall, the current situation seems pretty familiar, right? Is it the Savings & Loan crisis or the subprime crisis? Tough to tell them apart; they’re both eerily similar.

The causes are the same, impact is the same, and the medium-term outcome is going to be the same… a recession and years of lack of confidence in the economy. Two conditions that do not bode well for the slowing bull market we’ve enjoyed for years.

And just like the S&L crisis, the more we learn about how deep subprime-related problems reach, the more it’s looking like it’s going to take years to get out of this mess. Two decades ago, it took years for banks and banking stocks to recover from the S&L crisis. Meanwhile, the antibanks flourished.

There’s always a good investment opportunity, even in the United States, regardless of how gloomy things look. All we have to do is look back to see what to do now.

Following the S&L crisis, it took U.S. economy about five years to fully recover. And just about the same amount of time for the stock market.

Some of the best-performing investments during that time were in, of all places, the financial services sector. Right now, bank stocks are falling apart. The plummeting share prices of widely held Citigroup, Bank of America, Washington Mutual and dozens of other banks have cost investors a lot of money.

The most aggressive and biggest risk-taking banks, which have been acting with a level of responsibility comparable to hedge funds or defunct Savings & Loan operations, are finally paying the price. And they’re taking the rest of the financial services sector down with them. The fallout has dragged down the S&P Financial Services Index by 20% in six weeks.

When an entire sector falls this fast, there has to be a few values that get dragged down with the rest of the crowd.

There are plenty of businesses that do well when the financial services sector is hurting. In fact, antibanks perform best when the financial markets are at their worst. Antibanks are the companies that do best when interest rates are moderate and stock market values for companies are low.

In 1985, just a couple years before the Savings & Loan crisis really started causing problems, Peter Peterson and Stephen Schwarzman, founded one of today’s top antibanks, Blackstone Group (BX:NYSE).

They started with a mere $400,000 in cash and a small office in New York City. Now, 22 years later, this antibank has amassed more than $91.8 billion in assets free and clear. When you account for additional capital infusions along the way, Blackstone has earned an average 23% annual return for the past 20 years.

Antibanking is good business… and it’s only going to get better. As the Fed keeps interest rates in a holding pattern to combat inflation yet help spur economic growth and the stock market falls, antibankers like Blackstone will seize the opportunity.

After all, in the private equity and takeover game, its about being able to borrow more money at lower costs and take over public companies with depressed, even distressed, values.

So, if we’re right and expect bank stocks to fall even further and want to take full advantage of the subprime crisis, we’ve got to look at the antibank stocks. Here are three of them:

1. Blackstone Group (BX:NYSE) – As one of the leading takeover artists in the world, falling stock prices are about to be a boon for Blackstone. And with China owning 10% of the company and sitting on well over a trillion in foreign exchange assets ready for investment, Blackstone’s not going to have much trouble raising money, either.

2. Berkshire Hathaway (BRK-A:NYSE) – The investment company headed by Warren Buffett has averaged returns of 22% over the past 20 years. This antibank’s value-minded investment strategy, long-term outlook and acquisition-mindedness are likely to keep that impressive average holding up strong. Although, the premium valuation on the shares do limit the potential upside.

3. American Capital Strategies (ACAS:NASSDAQ) – Although by far the smallest of the three, it has just as much upside as the others. A healthy balance sheet and a quickly growing revenue stream are going to pay off well for shareholders of this antibank.

All antibanks are created equal. The “Buffett Premium” is alive and well with shares of Berkshire Hathaway not giving an inch. But two other antibanks have been dragged down with the entire financial sector and offer a much better value.

Antibanks Offering Significant Value

When it comes to the subprime crisis, take a look past all the headlines, multibillion-dollar paper losses, eventual finger pointing, or when Congress will decide to step in and throw some money at the problem… and figure out who’s going to prosper.

It’s kind of tough to have so many losers without a few winners in the bunch. Those winners are going to be the antibanks.

Good investing,