This article was posted on Saturday, Feb 01, 2014

Americais becoming a giantDetroit… our government’s current fiscal policy is destroying our nation.

Everyone in the financial media was focused on who will replace the Federal Reserve Chairman Ben Bernanke when he [stepped down at the end of 2013.] In reality, it makes little difference who follows him.  The only true way to save our economy is to abolish the Fed, stop printing money and set an interest rate that encourages people to save.

But, that path seems unlikely.  Assuming we continue on our current path of quantitative easing, I think we’ll seeAmericaget hollowed out – even more than it already has.

Our middle class is getting destroyed as the government’s taxes and inflation drive real wages lower.  You’re going to end up with a country that’s full of poor people and a few very rich people.

The very rich people take advantage of the inflation because they have access to credit.  And they know how to buy real assets and good businesses.  Meanwhile, inflation will wipe everyone else out – and this will lead to problems.

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As soon as people can no longer pay their bills or feed their families, you’re going to have massive unrest.  So far, we’ve dealt with all those problems simply by increasing the amount of people on Social Security, disability and food stamps.  We’ve been paying off the poor people, but what happens when those policies fail?  What happens when inflation robs the government of its ability to even provide that social safety net?

The government can try “redistributing” wealth simply taxing the rich even more.  But people will just leave.  Then basically, you’ve just got a giantDetroit.  You’ll have a bunch of poor people fighting over the scraps of society. That’s whereAmericais heading.

And the main reason we’re heading there is because we don’t have policies that will stabilize our money or our government’s spending – it’s that simple.  By the way, the rich people are already leaving.  Applications from expatriates to renounce theirU.S.citizenship are up around six times from last year and up from almost nothing five years ago.

And the government will respond to this pressure by doing more things that take away people’s liberties and their property.  It will try to redistribute wealth, spend more money than it has and borrow still more money that it can’t repay.

A free society cannot function with a government that takes up more than 40% of GDP.  We just can’t afford it.  There’s no way it can work.  And rather than try to radically cut the burden of government, all we do with each new election is add to it.

You see, the number of people who are on the dole greatly outnumber the number of people who are paying for the dole.  And this is how all democracies eventually break down and fail.   And we are absolutely on that path.  If anyone thinks we’re not, just look at the numbers.  Explain to me how our country can possibly live up to the promises that we have made to our citizens.

If you take the present value of all the obligations that the government has promised to taxpayers – it works out to $1 million per taxpayer.  So our politicians have gotten elected by promising to make millionaires out of every voter … and that can’t happen.

One Landlord Defends the Rental Business

A version of this article first appeared on November 18, 2013 in the S&A Digest, Premium, published by Stansberry & Associates Investment Research, an independent investment research firm.  You can visit them at www.stansberryresearch.com. 

In another Digest Premium, we discussed the huge amount of money institutional investors are pouring into the rental-home market and how some investors question private-equity firms’ ability to manage tens of thousands of these properties.

Michael Stein, the real estate professional we recently interviewed, is one such skeptic.

David Neithercut, DEO of apartment Equity Residential, a real estate investment trust (REIT) that owns apartment buildings – is another skeptic of the single-family rental business.  “I think that they will be more challenging to manage than people think.  I think that it’s likely they will underestimate tenant credit quality, turn costs (i.e. cleaning, painting, repair), re-leasing expenses, capex (or capital expenditures) and maintenance,” Neithercut said during his company’s second-quarter conference call.  “Not that it can’t be done.  But the notion that it can be done as efficiently and with the same profit margins as apartments is comical.”   

That’s strong language from a corporate CEO.

Remember, the managers of apartment REITS are “talking their book” when they point out the shortcomings of the single-family rental business.  It’s a competitor to their business.

Edwin Tucker is Porter’s newest analyst.  A landlord himself, he provided key research behind Stansberry’s Investment Advisory’s recent recommendation of single family home rental company American Homes 4 Rent (AMH).  Edwin offered his thoughts on negative pieces filtering through the media about the single-family rental sector:  “One thing I notice is most critics have the tone of ‘This is a joke – you have to be kidding – this can’t be serious,’ etc.  Any time the overwhelming opinion of a sector is negative and there is widespread name-calling, it gets my attention. 

The fact is, no business has ever tried to do this on a big scale.  The reason is that there has never been a time in history that we could buy this many houses below replacement cost.  So there was never a time when cash flow would justify the attempt. 

Another common grenade hurled at the sector is the management and maintenance criticism.  Usually the critics cite an experience with one home they tried to rent and how great a hassle it was.  There has never been a system put in place to do this.  And while apartments are located in a fixed spot, they do spend about 25% of rents on employees to manage and maintain those properties.”

American Homes 4 Rent announced that it signed 4,602 leases in the quarter and occupancy is over 96% for homes that have been rent-ready for 90-plus days.

AMH also initiated its first dividend payment of $0.05 per share in January 2014.  The stock was flat on the news.  Edwin had this to say about the announcement:  “American Homes 4 Rent’s total portfolio is still in rehab/rent mode and 67% occupied.  Fourth quarter has always been a slow leasing season because nobody likes to move during the holidays.  But, the numbers are improving and the loss was much wider in the second quarter with only 10,000 houses rented.  Another quarter brings more units online and should continue to improve the numbers.”

A version of this article first appeared on August 21st  2013 in the S&A Digest Premium, published by Stansberry & Associates Investment Research, an independent investment research firm.  You can visit them at www.stansberryresearch.com.

 

 

 

 

 

 

 

 

 

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