A Brave New World
Posted on 28. Sep, 2007 by Chris Lang in Economic Issues, Global Scene, Investment Opportunity, Property Cycles, Using Debt, Your Exposure
Given the recent financial turmoil overseas, there are several questions that seem to be continually surfacing.
Can the world live with a ballooning US trade deficit? Are asset prices currently too high? Does anything good actually come from outsourcing to China and India? How will all that's going on affect you as a Property investor?
To fully address these questions, you first need consider the change in the way Western companies are now operating.
Historically, you have expected a company to follow a simple process to ... design a product; manufacture it; and then, sell that product to the market.
However, in their book "Our Brace New World" ... GaveKal Research set out to explore today's new business model.
This Spring Bulletin has (in part) attempted to summarize sections of a Special Report by FN Arena [April 2006], which helps to interpret this new model for you.
You can now read the complete eBulletin ...
I have raised the concern about asset valuations before; though your interpretation of the trend to platform companies eases my concerns on one hand; and gives me new distinctions on the critical assessment of tenants in my properties.
I do believe there are still traditional companies that are able to maintain a strong position in a local market, and of course now we are on the lookout for platform companies. More importantly, we can watch for and avoid companies at risk of losing out to the platform company trend.
Right now, I am concerned in general at the asset prices of just about any asset in the market - shares, commercial property, residential property (prime), listed property, ..., gold ... need I go on ? I believe that protection can be gained with a combination of careful tenant selection (or "purchase" with lease) and suitably long leases (eg. 5-7 years or more). The long lease ought help to ensure reliable payments to cover financial commitments through the trough of another cycle. Of course there are never any guarantees.