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Spain wrecks while Fannie gets better

May 10, 2012

When a Country in economic dire straits like Spain is obliged to nationalise a moribund bank (Bankia…It just happens today) while it could spend taxpayers’ money in much better ways, it doesn’t bode well for its image and credibility. The EU had actually enough to worry with Greece, which is on the (high) way not to form a government, which will, anyway, be unfriendly to European “ingérance” in its finances.

As it looks now, Greece can only get out of the Euro or default on its debt. I can understand why nobody wants the latter. Too many institutions are still full of Greek bonds, and Spanish too…who’s next?

As to the former, it would simply mean  “getting out of the EU”. According to polls, 70% of the Greeks want their country to remain in the currency union. Something’s gotta give then, and it starts with Central Banks being softer…as the rates can’t go much lower, they will have to be creative. The Bundesbank’s announcement this morning that it would not seek price stability as a priority is a clear sign of its willingness to accept some inflation in Germany to allow for other European countries to catch up a little with German competitiveness. So we agree Germany is competitive. German equities look better then Spanish and French. It is clear economic growth comes from either productivity improvement or from demographic change. As productivity improvement in the EU ex-Germany is only possible through dramatic structural changes in labour rules etc… and that the EU can’t enlarge its population (outside of accepting Turkey in), Europe has to spend in infrastructure, new energies, R&D, training of its workforce, and allow its lower-middle classes a higher purchasing power and push them on the streets to resume consumption. France will try just that. Let’s see if it works. The legislative elections in June will give already the tone of the easiness if this process…or else.

In the meantime, a small and angry country under the sun couldn’t care less about consuming more…Back to square one: Greece defaults while Spain wrecks further in slow motion.

By the way, if you think we can’t afford these investments, why don’t we cut drastically in defence spending?

At the same time but on the other side of the Atlantic, Fannie Mae recovers from its wounds back in 2008. The residential mortgage giant posted a hefty profit of US$ 3.1 billion, thanks to much lower credit losses in the first quarter. Maybe it’s time to buy property back in the US. And US equities should follow. 

From → Markets view

  1. nevinsanli permalink

    The turmoil in Europe is affecting US public equities markets. Many investors are worn out by the volatility of stocks. It has been a roller coaster ride for a while now. On the other hand, most US real estate markets have bottomed out or are near that point. A slow but noticeable upward trend is apparent.

    Mutli-unit rental apartment buildings are seeing low vacancies, increasing rents and higher valuations. From my perspective, the rental housing market has left port and is sailing towards a good recovery. Opportunities in that space are gone.

    Retail real estate is still the big unknown: when will Americans start spending again? And how? At the mall or on-line? Predicitng the future of American retail is perhaps the most challenging assignment we face. Even if shopping centers are selling at big discounts, I tend to think that even those prices may be too high. The malls of the past are totally outdated and time will tell who has the best model. Obviously, a very risky environment that I will not touch for a long time.

    The US office market is also going through a repositioning due to technology, the changing nature of jobs, and very fast evolving business models. Also, this is a market that I do not have much experise in; so, I stay away.

    My favorite is light industrial properties occupied by the owner-user, especially if the properties are located near large population centers. This is the market with the most upside potential because the last-mile provider (delivery) will always be needed to those millions of people. And, as consumers increase their spending, these businesses will grow noticeably. They will assemble and deliver more, they will store more, they will design and create more products for consumers and other companies. This is the market where I see the most increase in value for the nest 3-10 years. This is where Astrum is investing: light industrial properties where the owner-users need growth capital. We free up their capital by doing a sale-leaseback-buyback with them. we end up owning these properties for a while until they are ready to buy us back. We make the rent and the capital appreciation.

  2. Thanks very much, Nevin. Crystal clear.

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