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  1. JBTC

    2016 Letter

    What are those comments?
  2. Perhaps the most renowned geographer in Canada, Ley has been cranking the foreign-money siren for years, most notably with his 2010 book “Millionaire Migrants”, in which he described a 94 per cent correlation between immigration and home prices in Vancouver over a 30-year period. http://www.scmp.com/news/world/united-states-canada/article/2048798/vancouvers-mayor-never-dreamed-foreign-funded
  3. My guess is that for most people, their most successful investment in life in terms of dollar amount could be their primary home. The reason could be that they buy one when they need it, and go on to live in it for decades. If they try to be clever on timing the market, then there could be lots of reason not to buy. Given home prices don't fall often, the wait can be long and the loss of the compounding effect can be huge. Thankfully most people don't put their life on hold just to wait for a good deal. So maybe the old saying "it's time in the market, not timing the market" does apply.
  4. I just want to mention one point - in earlier years I made the mistake of using the US prices as a benchmark when comparing housing prices in different parts of the world. And I found housing bubbles in every country. It took a while for me to realize that the US prices are abnormal. If Middle America is at one extreme and Hong Kong at another, the world seems to be moving more toward HK than to Middle-America.
  5. This is critically important to prices, but rarely discussed on this board. Builders respond to incentives. If there's no incentive to build, there are likely perverse government policies at work.
  6. The average apartment price (not my preferred statistic, but it's hard to find median price) is $562K. The median household income is around $76K, so that makes a 7.4 times multiple. I'd guess an average 2-bedroom apartment would rent for around $2000/mo. So if you assume the average apartment is the average 2 bedroom (which I imagine it's not), you're getting a 4.3% unlevered return on a rental, before you factor in taxes, depreciation, and special assessments. In 2002, that average apartment was sub $200K. It first broke $400K in 2007, and a year ago was just under $500K. Thanks Richard. Assuming the average price went from $200k to $562k in 14 years, the CAGR is 7.7%. This would seem a very good return for apartments, but is it outrageous? I don't know. So while future returns should be lower, it's not clear to me that apartment prices need to adjust a lot, unless there is a vast amount of supply coming up soon. (In Australia, there's a huge amount of apartments being built in key cities.) Price/income of 7.4x also seems ok. Gross rent yield of 4.3% looks ok. If there is a major city in the world where one can get a 4% net yield, I'd be interested in hearing about it. So it seems while there is a bubble in single family homes, apartments are more affordable. If apartments account for a large portion of the housing stock, then risk to the overall economy may be limited. Also, could it be possible that the sub-$200k price back in 2002 was too low? Is there a way to conclude one way or another?
  7. Question for the locals - it seems prices of single family homes are too high in Vancouver, but what about the apartments? Are they pricey relative to income, rents, and historical prices? Prices in Sydney and Melbourne remain very strong. Prices in many cities in China are up about 40-50% in the past year but now have slowed post numerous purchase restrictions since Oct. Hong Kong prices will probably cool, but tough to know the extent. The HK government first raised stamp duty in 2013, which caused prices to fall by single digits over a few years but the fall was essentially reversed this year. Part of what triggered the panic response by the government two weeks ago was a Mainland developer bidding almost twice the amount of those local developers for a piece of land, leading to fear that prices may soar in Mainland fashion.
  8. It may be difficult to really hurt those companies, but can they grow?
  9. From what I understand about the insurance industry, this is basically correct. But unlike a bond-fund, the fixed income securities are held to maturity (if you have prudent management) to match future liabilities. So even when in a falling rate environment you get some unrealized gains in comprehensive income (mark-to-market), they will not be realized or paid out ("virtual" gains). In a rising rate env. you have the opposite: falling mark-to-market prices but no realized losses. On the other hand, in the meantime the new float can be invested in higher yielding bonds. So all in all a net-positive on the investment-side, if prudently managed. But I'm not an expert. Thanks. In terms of the balance of the two offsetting factors, how do we know if it's going to be a net positive or a net negative? I suppose whether the bonds are held to maturity or not doesn't really change the economic outcome.
  10. Hi, can any of you please compare banks vs. insurance in a rising rate environment? Similarities and differences? Thanks. So insurance profits are the sum of underwriting and investment income. Insurance demand is not that volatile so underwriting profits are driven mainly by industry supply rather than demand. The second part is investment. Underwriting generates float which gets invested - mainly in bonds. In a dropping interest rate environment profits tend to be artificially high as they're collecting higher than market interest and also scoring mark to market gains on their bond portfolio. Their future investment income will decrease as they replace high interest bonds with lower interest ones. In a rising interest rate environment the insurance co's profitability will be understated because they're collecting lower interest rates on their legacy bond positions and also taking mark to market losses but profitability will increase as the replace lower interest bonds with higher interest ones. Thanks very much rb. So if we leave the underwriting side of the insurance business aside, is the investment side of insurance similar to a bond fund (with a small amount of equity)? And if that's the case, how can rising rates be good for insurance? I suppose one factor is how fast the float grows, which will be invested at higher yields and partly offset the decline in the value of the bond portfolio. I asked the question with MKL in mind - it has done very well in the past due in part to strong returns from its equity and bond portfolios. Does a rising rate environment mean that its past returns simply cannot be repeated?
  11. Hi, can any of you please compare banks vs. insurance in a rising rate environment? Similarities and differences? Thanks.
  12. Totally concur on the complexity of the issue. But curious why you suggest it's linked to the current monetary policy of the world? I cannot think of any topic that's harder than China. I have heard no China expert who can make sense of it - neither the bulls nor the bears. I don't think Chinese themselves know where it's headed. I have to assume the Chinese leaders think they can exercise a fair amount of control in the near- or perhaps medium-term but the long-term is anybody's guess. But there are people who have made a lot of money in China. They must be good. Or just buy property. Plenty of cities are up 40-50% in the past year.
  13. http://www.visualcapitalist.com/vancouver-real-estate-mania/ Some information in here, but it seems hard (to me) to tell if they describe a bubble or simply a boom...
  14. Never mind massive returns, any decent returns would be nice. Do you see anything in the developed world that is cheap or decent? Japanese real estate seems cheap but they are losing a million people a year.
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