Wikinvest Wire

New strategy: long ammo, short Dubai

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:

Long ammo, short Dubai

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.

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.
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.

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.

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.
IMAGEAnalysts 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.
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.

It seemed that it was only a matter of time for Dubai.

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5 comments:

dearieme said...

Years ago, I found I was shooting only once a year, so I sold my rifle and let my "firearms certificate" lapse. Bugger, bugger, bugger!

Chuck Ponzi said...

Hey Tim,

Did you see this interview on CNBC?

http://www.cnbc.com/id/15840232?video=906877996&play=1

when Mr. Marion was asked about the cost to produce gold, he said

"About $500/oz and that will be reducing over the next couple of years". This will be reducing related to expansion plans (i.e. cheaper to average down on production, or economies of scale I presume)

A while back, you and I disagreed on this point saying that it was closer to $700/oz on average. What do you think? Is his company an outlier, or are they doing something special? What's the disconnect?

Also, this interview seems to be a bit confusing to me... shortage of physical coins, and prices ramping to $1500/oz next year but increasing supply in the face of prices half that and a slowing global economy that seems to last for more than the next 8 months his prediction is extending over.

Is he talking his book, or does he know something that no one else knows? Can you enlighten us?

Chuck Ponzi

Anthony J. Alfidi said...

That development looks ridiculous. Has anyone in Dubai heard of entropy? It will take millions of dollars worth of upkeep per year to keep erosion at bay. With prices spiraling downward, the whole place will be underwater in less than two decades . . . both financially and physically.

I'm Not POTUS said...

Yes, they heard of it before but it was called the Hanging Gardens of Babylon.

Lessons are never learned only repeated.

Property Developers Dubai said...

Property professionals have spoken in favour of the project. Derek Hatton, director of local agency Morpheus Investments, told OPP: “A great number of buyers are rightly being cautious at present and are making sure that before buying a property, for whatever reason, that the area is sustainable and has plenty going on to ensure its resale potential and capital growth in the future.”

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