Monday, October 27, 2008
While it is true that the U.S. dollar has been unstoppable versus the world's other paper money lately (except for the yen, of course), each day the greenback growing stronger and stronger because it looks less and less bad versus pounds, euros, kronas, and others, there are at least two other significant trends that shrewd investors might want to ponder.
Fond of paired trades such as the short dollar-long gold pair that has decidedly flipped the other way over the last few months, another paired trade looks mighty tempting today:
How exactly one would do this via a brokerage account is anyone's guess, but the evidence that this paired trade might have some lasting profit potential was provided in two stories in today's newspapers.
The expected results of the upcoming election are playing a clear role in the recent bull market in bullets, but fear of civil strife amid a rapidly weakening economy are also involved, as explained in this Washington Post report.
Americans have cut back on buying cars, furniture and clothes in a tough economy, but there's one consumer item that's still enjoying healthy sales: guns. Purchases of firearms and ammunition have risen 8 to 10 percent this year, according to state and federal data.A quick look at Smith & Wesson (Nasdaq:SWHC) shows there is little relief to be had there, but surely there are other ways to go long guns and ammo.
Several variables drive sales, but many dealers, buyers and experts attribute the increase in part to concerns about the economy and fears that if Sen. Barack Obama of Illinois wins the presidency, he will join with fellow Democrats in Congress to enact new gun controls.
Gun purchases have also been climbing because of the worsening economy, which fuels fears of crime and civil disorder, industry sources and specialists said.
"Generally, we know that hard economic times always result in firearm sales," said James M. Purtilo of Silver Spring, who publishes the Tripwire Newsletter.
Gary Kleck, a researcher at Florida State University's College of Criminology and Criminal Justice whose work was cited in the District's recent Supreme Court gun-control case, said that although there are no scientific studies linking gun sales and economic conditions, people often buy firearms during periods of uncertainty.
The other side of the trade comes via the city of Dubai, one of the seven emirates that make up the U.A.E., a boom town with little oil but huge aspirations of becoming a cultural, financial, and real estate center for those with oil.
Their aspirations today are decidedly different now that oil fetches only about $60 a barrel versus the almost $150 price of a few months ago.
This Wall Street Journal story has the details.
In Dubai, real-estate agents are seeing what could be the first signs that the city-state's property boom is sputtering. There's no concrete evidence yet of significantly falling prices, and Dubai's property developers have said they remain optimistic. But property investors, who were making big gains buying and then reselling property just a few months ago, are lowering asking prices and increasingly willing to stomach losses to free up cash, brokers said.Those price increases - 42 percent in the first quarter, 16 percent in the second - bring back fond memories of what it used to be like in Las Vegas, Miami, and Phoenix a few years ago. Actually, those price increases make the old U.S. hotspots look rather tame in comparison.
The sudden softening could be an early warning of deeper problems for Dubai, which has fueled its recent supercharged growth through debt. Amid today's financial crisis, overseas borrowing and refinancing are much more difficult, raising questions about Dubai's ability to pay back its loans.
Analysts have been forecasting a downturn in prices for months. Earlier this month, property consulting firm Colliers International said Dubai property prices rose 16% in the second quarter. That was much slower than the 42% price rise in the first quarter. Regional bank EFG-Hermes said last month that it expects prices to peak next year and fall -- as much as a cumulative 20% -- by 2011.
Real-estate agents in Dubai said they're now seeing a clear slowdown. They say speculators, especially those who were financing their property investment, have largely fled the market.
"There are a lot of people who need liquidity, and a few of them are ready to drop their prices," says Mara Firetti, a consultant at AAA Group, a real-estate broker in Dubai.
Investors in new luxury villas at one Dubai development -- each priced at between $1.4 million and $2.2 million -- were reselling property at premiums of 10% to 15% of the original purchase price just six months ago, Ms. Firetti says. Now, premiums have shrunk to zero in many cases. That means investors are willing to sell at a loss, because they've already sunk in upfront fees.
It seemed that it was only a matter of time for Dubai.