Yesterday's hunt... Steve still buying real estate... Shale gas powering the American Industrial Renaissance... Our one-stop shop for getting started as a real estate investor...
Editor's note: The S&A Alliance conference is in full swing – with several hundred people turning out. Once again, today's Digest will be short. We'll update you on a few of the best ideas from the conference next week.
Before getting into the markets, a quick personal note... One of our Atlas 400 members (the same one who got Porter into the clubhouse at Augusta National) took me on a private tour of an exclusive, 24,000-acre hunting property in south Georgia. We're looking to book the property next year for a private hunt.
After a light lunch of crabcake sandwiches and homemade mac and cheese, we hopped into a golf cart for a tour. The lodge has a golf course designed by renowned pro golfer Davis Love. And we saw a roped-off section where the grass had been ripped out. It was destroyed. Wild hogs had taken over that patch of the property.
Wild hogs are a bane to property owners. They destroy everything.
So after our property tour, the management put us "to work." We sat up in a tree stand for two hours, surrounded by Spanish moss and the beautiful low-country scenery waiting for pigs...
Let's just say we did our part to control the population.
Steve Sjuggerud, editor of True Wealth and True Wealth Systems, kicked off our Alliance meeting this morning by reiterating his bullish call for U.S. housing. He believes the average house in the U.S. is undervalued by $100,000 today.
He told the story of a property that sold for $12 million in 2006... He thinks he can purchase it today for a little more than $1 million.
He also recently purchased a piece of industrial property in Florida for less than $1 million. The bank-owned land was listed for sale at $3.5 million. After closing the deal, a "land flipper" – someone who specializes in buying property and quickly reselling it for a profit – offered Steve double his purchase price. Steve turned him down.
And the data continue to support Steve's thesis. The latest data show new U.S. home sales in September rose to the highest level in more than two years. September sales of single-family homes were up 5.7% from August to 389,000. And sales were up 27.1% from September 2011.
The Wall Street Journal reports cheap natural gas produced from the U.S. shale revolution has transformed America into "the low-cost industrialized country for energy." Savings from reduced input costs can go straight to manufacturers' bottom lines.
This gives U.S.-based manufacturing a huge competitive advantage. German and French manufacturers are now paying three times as much for gas as U.S. plants pay. Japanese companies pay even more. In 2008, one family-owned U.S. company paid $10,000 per month for gas. It now averages $3,500 per month.
Gas-fired power plants can lower all manufacturers' electricity bills... But industries that utilize natural gas as feedstock – like plastics, chemicals, and fertilizer – are reaping incredible rewards. The price of natural gas accounts for 25% of the cost of making many plastics. It comprises 70% of the cost of producing fertilizer. This has resulted in a startling renaissance in the U.S. manufacturing base. Companies the world over are scrambling to open new manufacturing plants in the U.S.
Last month, Egyptian fertilizer manufacturer Orascom Construction Industries announced plans to build a $1.4 billion fertilizer plant in Iowa. It will be the largest domestic fertilizer plant built in 20 years. Dow Chemical and Chevron Phillips Chemical Company both plan new multibillion-dollar chemical plants in Texas and Louisiana. Royal Dutch Shell is finalizing plans to open an ethylene (a base plastics component) plant in Pennsylvania.
Fertilizer maker CF Industries plans to spend $2 billion boosting its U.S.-based production through 2016. The company's CEO, Steve Wilson, says cheap domestic manufacturing has been "a complete 180-degree change in our thought process." Regular Digest readers haven't had to make such an adjustment. They know Dan Ferris, editor of Extreme Value, predicted the "American Industrial Renaissance" based on cheap natural gas back in August 2011...
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Wham-O recently moved 50% of its Frisbee production from China to the U.S. I don't know Wham-O's proprietary plastic blend. But I do know the primary use of ethylene is plastic resins, which account for more than 80% of ethylene consumption. Wham-O may also be taking advantage of better ethylene supplies. With the U.S. still being a big market, and with cheap ethylene feedstocks coming online, it makes sense to bring manufacturing back to the U.S. |
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The American Industrial Renaissance is already boosting other industries. For the first time in decades, a new steel plant is going up in Youngstown, Ohio, in the Utica/Marcellus area. The plants cost $650 million to build, and 400 construction workers are currently building it. The one million-square-foot plant will make 500,000 tons of steel tubing per year, the kind used to produce natural gas from shale. |
In the October issue of The 12% Letter, Dan added a new stock to his portfolio based on this American Industrial Renaissance thesis... This company specializes in a vital area of the energy boom that doesn't get a lot of attention. Buying this company secures a healthy income stream... one that Dan projects will grow 6%-10% annually over the next few years.
To learn more about The 12% Letter – and access Dan's latest natural gas recommendation – click here.
New 52-week highs (as of 10/24/12): Guggenheim China Real Estate Fund (TAO).
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"I'm 75 this year and my experiences might not apply today but for what they're worth, I'll pitch in for backup.
"I did borrow some money so I could finish college, BS Eng. Carnegie-Mellon Tech. I paid it off on time and in full. After I got married, to a sweet young thing who agreed with my frugal lifestyle, we had four children.
"Each child, as soon as they recognized that a nickel was not worth more than a dime because it was larger, we started an hourly wage for chores around the house. The exceptions were, no payment for cleaning up their own messes, and I only paid for co-operative work. Regardless of their opinions, the work was going to be done, but if it was done swiftly and well and with a good spirit, they were paid. As a result, my children could tell time (hourly wage), and calculate dollars (or cents in their case) per hour for each hour or part of an hour of labor, to be paid each Sat. night, before they entered school.
"Each fall, before school started, management (me) and labor (the children) sat down and negotiated for a wage schedule for the next 12 months. The older ones got paid more than the younger, but everybody got their say and agreed on the pay schedule. They were free to spend half of their earnings but the other half had to be saved.
"With birthday money or other gifts, and the other half of their earnings that were put into the bank (or stocks when the account was worth enough) each child had about $10,000 by the time they were ready for college. Rather than use that money for a single year of education (remember there has been a lot of accumulated inflation between now and then), we used the money for the down payment on houses near the colleges and used them for student rentals. The children picked out the house and shopped for mortgages. I supplied the credit, formed a partnership with an IRS tax number, kept the books, and did the taxes. Each child picked his/her renters, collected the rents and sent them home to me.
"I banked the money and paid the mortgages. I paid each child $10 per hour for any labor they did at the house. i.e. Porch painting, window replacement, redecorating, lawn mowing, leaf raking, etc. and this was listed as an expense against earnings. In addition, the children were paid 10% of the rentals for management fees. College tuition was borrowed on the student loan program, and expenses were paid from their earnings. i.e. Want a new dress or go to a movie? Work! There's always work to do around a house.
"When the children graduated, the houses were sold, in some cases to me, and the money divided. My children graduated with degrees (business, PhD in computer science, engineering and teaching certification), but learned more from managing the houses than from the universities. In addition, when finished, each had the ownership of a house with timely payments on their credit reports and enough money in hand to almost pay for their college loans. We had a little help from a favorable market but even so, it still would have been worth it without extra help from the market.
"Today I have 13 grandchildren (ages 3 to 21) and four (still married to the same spouse) children. Each child owns their home and three own more than one. Work hard, save, and be frugal.
"Today, you can still be successful but be careful! Make borrowing pay for itself. There's nothing wrong with credit used to make income enough to pay for the credit and yourself." – Paid-up subscriber Mr. Haverstraw
"What a thoughtfully conceived, well-presented, and valuable tool [the ValuableProperty website is]. Kudos to Steve and team. I could not even begin to guess the amount of time that was expended in its creation; and the presentation simplicity further disguises the effort. You do serve your subscribers well. Thank you." – Paid-up subscriber Bob Gilmour
Goldsmith comment: We're glad you enjoy the new feature, Bob. If you don't subscribe to True Wealth, Steve's ValuableProperty website tells readers how to collect income through buying the best properties in the U.S. The website outlines exactly how to buy these properties and how much money you can expect to receive. It lists all of the best publicly traded ways to buy trophy real estate.
If you believe real estate is a bargain today – which we certainly do – this is an invaluable tool. But it's only available to True Wealth subscribers. If you'd like to learn more about the work Steve has done on real estate and sign up for True Wealth (which will give you access to this website), click here...
Regards,
Sean Goldsmith
Sea Island, Georgia
October 25, 2012