The REIT Way
How to Earn Up to 8.50% of Yield
"Every improvement in the circumstances of society tends either directly or indirectly to raise the real rent of land, to increase the real wealth of the landlord."
Adam Smith – The Theory of Moral Sentiments
As we sit on the aft deck of a 160-foot super yacht enjoying an early evening cocktail off the coast of Sumatra, conversation strays to the current state of world markets. It has been a perfect day of snorkelling, kayaking, and strolling through remote villages. The gin and tonics are flowing. So why, you may ask, ruin it with talk of financial markets?
My friend, a former colleague and experienced investment banking hand, and I often use such moments to reflect. I enjoyed working with him for years and value immensely his wise observations about the workings of markets.
On this occasion, the conversation turns to interest rates, yields, and how the savings, pensions and income of millions of middle class people around the world are being wiped out by central bank policies.
Low and negative interest rates threaten to impoverish millions of hard working, frugal families who have done the all the right things – putting money aside for pensions, savings in bank accounts and insurance policies, not gorging on debt or spending beyond their means.
These people are being crushed while we, as owners of financial assets (stocks, bonds, real estate), are making out like bandits. The US stock market is at record highs, and many others have done very well in recent years. Bonds have also been great investments with yields at record lows and prices at record highs.
Property markets in key cities in the developed world have recovered, and that recovery is spreading. So much so, that bubble conditions are existing or feared in many markets. Anyone with his or her investments in these areas has done very well in the past few years.
I make the point that we, the bankers and people like us, have been bailed out by central banks at the expense of the savers of the world. My friend's response shocks me.
“Well, it is their own fault,” he states. “They should have switched tack and done something else. They are stupid for not changing their savings and investments to reflect the new reality.”
Ok, he says this rather more eloquently, but that is his message. I am surprised to say the least. This from a senior managing director of a bank that was less than 24-hours away from being swallowed into the abyss, with all his stock options, brokerage accounts, and job going with it. But the taxpayers bailed out him and his bank; the same people who he is now saying are stupid for their caution and fiscal rectitude. I have had to hold my tongue.
On further reflection, however, I have to think that he was not all wrong. We ALL have to adapt to changing circumstances. After all, the only constants in life are death and taxes, or so the saying goes.
It is not easy to change one’s saving habits, or find new wealth and income protection and enhancement vehicles. But an inability or reluctance to change, to seek out new alternatives, may destine us to a pattern of losses for years to come.
The millions of savers, investors, pension funds and insurance companies that have relied for decades on interest or dividend income are struggling with the new era of zero interest rates. This new reality means we HAVE to change our habits, and our investments.
The latest dismal US jobs data brings the need for new cash-generating investments into even greater focus. The markets, from having priced in a 40% probability of a June rate hike by the FED, have suddenly reversed that thinking in one of the sharpest turnarounds we can remember. Markets were right. The Fed did not move in June. Markets are now pricing less than a 10% probability of any hike at all this year.
This tells us the economy is weak and interest rates will likely be going lower in the short to medium term.
Where do we find reliable, regular dividend income now that many traditional sources have dried up? Read on…
In this edition of The Churchouse Letter, Peter digs deep to uncover investments with reliable income streams, even in the face of rocky economies and faltering markets.
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