Moscow, China, Wall Street, and London

July 15, 2013 – Post No. 21 – Another week of diverse topics.  There just isn’t much going on, so doing the best I can to find data that is hopefully of interest.

Moscow – No, I won’t be discussing Snowden or anything related to that topic.  Two of the three dozen apartments in an 11-story building on Swedish Blind Alley, near the Kremlin, are for sale at $50MM and $42MM.  The $50MM unit contains 1,000 square meters or about 10,800 square feet.  The $42MM unit contain 846 square meters.  Occupants include corporate CEOs and other allies of President Putin.  Such buildings are often constructed by Russian Presidents so their supporters can all be together and near the Kremlin – and also spied on.  The concierge and other employees are known to be spies.  Keep an eye on your friends as they say:)

China – In the long run, it is obvious China will win all battles.  The person with all the gold rules.  The population not only saves abundantly, all gold purchased by citizens never leaves the country.  If a citizen wants to sell their gold, they must sell it to another citizen, a gold trading business, or the government.  The overall savings rate as a portion of household disposable income has increased from 15% in 1996 to 30.6% in 2012.  Almost 1/3 of their earnings they save!  Decades ago, Americans at one time saved about 10%.  However, in our debt-addicted society, the percentage actually went negative (!) in the 2000’s.  And when the savings rate rose to 4% or 6% or such in The Great Depression Two government officials and economists complained that too much savings was hurting the economy!  As China shows, savings cannot hurt an economy.  In the USA savings is only keeping the public’s money from the greedy hands of corporations and Wall Street.  Which leads us to….

Wall Street –  The SEC (Securities and Exchange Commission…albeit I would rather talk about the Southeastern Conference, football being around 55 days away!) approved a new rule permitting hedge funds, startups, and other companies seeking private investments to advertise publicly to raise money.  For the past 80+ years, advertising was restricted so as to protect small investors from taking inappropriate risks.  The hedge fund industry has reached saturation (over 10,000 funds managing $2.3 Trillion), so they now turn their attention from ripping off the wealthy (the industry has underperformed the S&P 500 Stock Index 8 out of the last 10 years!) to taking money from the middle class and below.  One way or another, they must take money from someone to pay for their mansions in the Hamptons or support their bid for a professional sports team.  I seriously doubt the general public has been begging to invest in hedge funds – especially when they have no money saved up to invest!  Wall Street destroyed millions of families by providing easy financing for buying over-priced homes.  Now, they want to make sure they take any money that the public has actually saved.  Only Wall Street is allowed to have money and riches.  Not Main Street.

London – Some real estate firms performed studies of how house prices relate to various factors.  I would think similar studies could be developed in Chicago, New York, and Washington D.C. where trains are a significant form of transportation.  One study found that location within a five-minute walk of a Tube (as they call subways and metros in The City) station can add up to 20% to a property’s value or rental price.  Rental rates are 30% higher near the best performing schools in comparison to lower-performers.  An interesting nationwide study found that a 10% increase in SAT scores resulted in a 3.3% property price premium.  Properties located one kilometer from a park rent for 25% less than those located with a half kilometer of a park.  Yolande Barnes, Savills’ head of global research, says “It was concluded that the two real generators of value are green space and access to public transport.”

Happy Cow Appreciation Day,  (Have you a hugged a cow today?)

George R. Mann, CRE, FRICS, MAI

Managing Director

Collateral Evaluation Services, LLC




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