PropertyInvesting.net: property investment special reports: 294: Commodities, Dollar Decline and Property Investment

294: Commodities, Dollar Decline and Property Investment

10-31-2009

PropertyInvesting.net team

Dollar Decline Trend

As the Fed pumps in trillions of dollars into the US economy, the dollar value will decline. It has to in approximate proportion to the amount of new money being printed. If current trends continue, by 2020, the US government will be paying half of all tax receipts as interest payments on the massive US debit. It’s not sustainable. This is likely to be a key underlying economic trend that affects other currencies and investments.

handsome man property investing

Countries that are commodity rich (oil, gas, metals, coal, forestry) will see their currencies increase in value in proportion to the dollar and the norm. Countries rich in commodities that export them and have a positive cash surplus will have their currencies underpinned by assets – namely oil, gas, coal, forestry and metals – all assets that developing countries such as India and China need. This is why we believe commodities rich countries in general will have:

· strengthening currencies against the dollar

· expanding economies

· increasing property prices

This is in the short, medium and long term.

China Affect

Beyond any doubt, the gigantic expansion in China will see commodities prices rise as more competition for fewer and often depleting resources will affect the markets. The most politically stable countries with good education, technology and ethical standards are likely to prosper the most. If the country is also harmonious (no tensions) and has a rising population, this will be even better for both the currency value and the property prices. Environmental restictions on building will also drive prices higher.

Olympics Rio 2016 The countries that rank the highest on these measures are:

· Norway

· Canada

· Australia

For high growth and higher risk countries with more chance of losing to nationalization and/or corruption:

· Russia

· Brazil

· UAE

· Brunei

This guidance is nothing new for regular visitors to PropertyInvesting.net – we’ve simply framed it as explicitly as we can. As the dollar declines, oil prices will rise as well – they have to – to compensate for the reduced value of the dollar. Hence if the dollar declines 20%, expect oil prices to rise by 20%. Gold will also follow suit. Eventually, may be in five years time, if the US deficit gets considerably worse which is our expectation, then metals and oil/gas producers will likely shift the sale of commodities into a basket of currencies – such as the Yen, Dollar, Euro, Yuan and Middle East currency baskets. The Chinese will likely also shift reserves to other currencies like the Euro and Yen – this will put further pressure on the Dollar.

Massive US Deficit

If one considers every US citizen has a -$6000 annual deficit for healthcare alone, you will start to understand the extent of the problem. This is more than the average annual earnings of most South Americans. The Dollar decline will eventually feed through also into inflation an San Francisco d GDP growth as exports increase. But it will not be enough to compensate for high healthcare, retirement and oil cost deficits. The problem will only get worse. USA has double the per person annual cost of healthcare compared to the UK, and three times that of France. This is the reason why we do not advise investing in US real estate unless you live in the USA – and are investing Dollars and will retire with Dollars. And can flush out the best investment opportunities.

We expect the Euro and Sterling to strengthen against the dollar. However, this will make European exports more expensive and lead to lower growth from manufacturing - hence Germany will be hit by this (car manufacturing). Despite the UK’s deficit, we believe the fact that the UK’s oil and gas import bill is so low will help it’s currency. Return to GDP growth will see interest rates rise in 2010 and along with this the UK Sterling value will recover and increase – particularly against the US dollar.

Commodities - Wealth Cities of the World

In the longer term it's worth seriously considering where the massive transfer of commodities related wealth will end up – since much of this will find its way into property and general financial and business services. As an example, if Russia produces 9 million bbls of oil a day, and oil is selling for $100/bbl, this is a gigantic $328 Billion oil revenues a year. You can almost double this number when gas revenues are considered. This money does not end up in Siberia where much of the oil and gas is produced. It ends up in Moscow, St Petersburg and possible London, Socha and Geneva. This flood of money drives up real estate prices in these wealthy cities and creates high paid financial, technical and banking jobs. Because of this importance, below we list the countries and cities-towns that will most benefit from the commodities boom we are likely to see with China, Brazil, India and other developing nations’ expansion. In approximate order of the most positively exposed to high commodities prices on a sustainable basis (stable, easy to do property business):

Super Cities

Australia: Perth, Melbourne, Sydney, Gold Coast
Norway: Stavanger, Olso, Bergen
Canada: Calgary, Toronto, Montreal, Edmonton, Fort McMurray
Russia: Moscow, St Petersburg
Brunei: Darussalam
Qatar: Doha
UAE: Abu Dhabi, Dubai
Angola: Luanda
Libya: Tripoli
UK: Aberdeen, London
Brazil: Rio
Saudi Arabia: Riyadh
Venezuela: Caracas
Nigeria: Lagos
Egypt: Cairo
South Africa: Cape Town, Johannesburg
Switzerland: Geneva
Columbia: Bogotá
France: Paris, Monaco
Luxemburg
USA: New York, Dallas-Fort Worth-Irving, Houston, Bakersfield, North Dakota

Avoid Developed Cities with Negative Commodities Exposure and Declining/Aging Populations

Spain – all country area (Marbella is one of the only exceptions)
Italy – all country areas (Milan, Venice and Turin are probably the least badly exposed areas)
Greece – all country areas
Portugal – all country areas
Remote holiday destinations using long-haul flights
USA – Detroit, Chicago

Tax Havens

You may notice that Geneva, Luxemburg, Paris and Monaco are not close to any oil/gas or metals production and make it ono the "positive impact" list. Remember huge commodities funds and foreign wealth end up in these cities – this money then circulates via hedge funds, niche financial services and general wealth management services. So expect property prices to rise in these specific cities as commodities prices rise – money flooding in from Middle East, Africa and Far East. In addition, as taxes rise in western nations, more hedge funds and speciality banking services plus company headquarters will move to these tax havens to avoid high taxes. A good example is that 20% of hedge funds in London that are seriously considering moving to Geneva and other lower tax European cities in the next three years.

Cars The Underlying Cause

So, as car production and oil consumption rises in China, India and Brazil and this drives oil and other commodities prices higher, expect property prices to rise in the cities mentioned above. We predict China will have 525 million cars by 2050 requiring 20 million bbls oil per day even assuming half are power by electricity! Anyone that thinks 1.3 Billion Chinese will not need hundreds of millions of cars is probably optimistic or pessimistic depending on how you see it.

Olympics and Commodities Combined!

Some special global opportunities exist:

London: 2012 Olympics (regeneration)
Rio: 2016 Olympics (regeneration)
Russia: Socha 2014 Winter Olympics (regeneration)

All these cities will be positively impacted by high oil/gas/metal prices because they have the headquarters of commodities companies and banking services – plus they will benefit from massive public and private investment and regeneration in the run up to the Olympics. oil

USA – Oil Drag on Growth

As oil prices rise to $100/bbl, 4% of USA’s GDP will be spent on oil and this will be enough to drive the country back into recession. It has the previous five times >4% of GDP has been spent on oil (this includes from March 2008 when prices rose above $80/bbl). But this time, 66% of the money will be going overseas! So the Fed will have to print more money. So the Dollar will decline further. And oil prices will rise further. Then the Fed will print more money. Get the trend? Yes, it’s a vicious circle. And we just cannot see the current Administration doing anything different than they have been for the last nine months – sorry. So, at least if you heavily invest in real estate in the USA, make sure you find a city-town positively exposed to high oil/energy prices like Houston or Bakersfield! And for goodness sake avoid Detroit!

Insights

We hope you have found this special report objective, insightful and simple to understand. We aim to point our 19,000 daily visitors in the direction of lowest risk higher investment returns in property investment. We really think China will drive property prices in other countries - with the underlying cause being demand for commodities – but positive impacts will only be felt in certain areas-cities. Other places will suffer as the affects of Peak Oil (we believe this was July 2008 for conventional oil) kick in and drive energy prices far higher. And as oil prices rise above $100/bbl - do not be surprized if the USA tips back into recession. But do not be surprized to see property prices rising in Norway and Australia - as they have begun to do in the last few months as oil prices have risen fro $37/bbl in Nov 2008 to $78/bbl today.

More Special Reports on Peak Oil and Energy:

277: Country Ranking in a Peak Oil World with Resources Scarcity

275: Cars - The Absurdity and Necessity

274: How susceptible are countries to high energy prices? Impact for property investors..

270: Turbulance in Property Markets Caused By Oil Price Spikes and Peak Oil

265: How to Profit from Peak Oil - USA, UK and Europe

264: Another oil price spike is just about to hit us...watch out

263: Investing in Property with Energy in Mind "post Peak Oil"

262: Electric Revolution, the Environment and the Next Energy Crisis

257: Property investing, the UK economic situation and oil & gas

251: Peak Everything!

249: What's next?