The Greatest Era of Wealth Creation is Coming

Today’s Daily Reckoning gives you a bullish take on world events. Don’t be misled by the events in Greece or elsewhere. Things are on the up. We’llstart in Australia and end up in Europe.

Here’s why. There’s plenty of money to be had in both, if you know where to look. That was the conclusion Boston Consulting Group came to about Australia anyway.

Their latest report, cited yesterday in the Australian Financial Review, says that private wealth in Australia grew 16% in 2014 to hit $3.5 trillion.

A trillion of that came in the last two years. Not only that, we’ve been outpacing the rest of the word in terms of the growth in wealth. Boston Consulting Group attributes it to the compulsory saving and compounding of Australia’s super system over the last 25 years.

Not only that, The Daily Telegraph reported in late May that Australians had ‘leapt’ 28 months ahead of their mortgage repayments. The savings from falling interest rates are being used to either run down the loan principal or is parked in offset and redraw facilities. That’s a heady buffer.

We’re not alone when it comes to a large cash pile either. At the end of the March quarter 2015, Apple’s cash at bank stood at $193 billion. The bottom 485 listed stocks in the S&P 500 don’t yet even have that figure as their market capitalisation.

Apple’s current bank balance is after already having returned $112 billion to the shareholders by way of dividends — which the company only just started paying since 2012. This is in addition to the $140 billion Apple will spend for its share repurchase program through to March 2017.

Apple’s CEO Tim Cook summed it all up recently when he said: ‘I’ve never seen as many people coming into the middle class as they are in China and that’s where the bulk of our sales are going.’

Apple’s not alone with the good news. Ford in the US decided to halve the summer break for its North American plants from two weeks to one week to keep up with demand.

Speaking of the US, the Wall Street Journal reported this week that the pace of existing home sales rose 5.1% last month. That’s the strongest it’s been since November 2009. First homebuyers are being drawn back to the market. Their numbers have risen 5% in a year to reach 32% of the buyers’ market. Historically they average around 40%. Sounds like more room for growth to me.

But you don’t have to believe me. It’s in the stats. Analyst John Burns reported just last week that household formations will boom in the US over the next fifteen years.

He wrote,

Look at the US population today, shown by decade born below. Those born between 1989 and 1994, who are currently 21–26 years old, are the largest 5-year cohort out there.

‘Yes, their struggles to gain full-time employment at a fair wage and to pay off student debt have been well documented. What has not been sufficiently documented is that the majority of them will still leave the nest, marry, have children, and need a place to live.’

He included this graph…

He summed it up this way: ‘My home builder clients have been complaining for 3 years about a shortage of qualified labor, both blue collar and white collar. Our research shows that the industry will grow 50 percent over the next few years, and demographic housing demand will maintain that level for a very long time.’

Over in the UK, cash is king in the prime property market in London and the South East of England. Estate agent Savills said earlier this month that more than half of homes valued around one million pounds were bought with no debt. There’s plenty of money in the world.

What’s even more interesting is this. According to the Financial Times,

The proportion of cash buyers recorded by Savills in the prime market is higher than the ratio for the UK market as a whole, but not drastically so.

‘In estimates published this week, Nationwide, the second biggest mortgage lender, said the share of cash purchases reached an all-time high of 38 per cent in the first three months of 2015. The figure was slightly higher than in 2014, at 36 per cent.’

Even Spain, one of the PIGS of the Eurozone crisis, is startling everyone with its recovery, including the Spanish. The birth rate of the country has risen for the first time since 2008. There’s actually a correlation between economic growth and babies. See for yourself…

They say people vote with their feet. I’ll take this as even stronger endorsement! Foreign money has already driven a recovery in the Spanish property market. Now domestic sales are starting to kick in. According to the FT, Spanish banks signed nearly a third more mortgages in the first quarter of 2015.

Ok, so how do I take advantage of all of this? Well it’s easier than you think. Timing is the key.

Over at Cycles, Trends and Forecasts, in our early May issue, we told readers to plan for a June low in the stock market and put some money aside for it. It’s a consistent pattern — tax loss selling mainly.

We also say amidst all this wealth creation, buy the dips. And here we are, it’s June and there’s been a lot of tax loss selling, with a few Greek nerves thrown in. It’s buying time.

Despite whatever else you may think, we say the world is on the verge of the greatest era of wealth creation that has ever been seen. Find out how to take advantage of the opportunities the world’s presenting you here.


Callum Newman+,
For Markets and Money, Australia

Join Markets and Money on Google+

Originally graduating with a degree in Communications, Callum decided financial markets were far more fascinating than anything Marshall McLuhan (the ‘medium is the message’) ever came up with. Today Callum spends his day reading and researching why currencies, commodities and stocks move like they do. So far he’s discovered it’s often in a way you least expect.

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