Real Estate, The Economy, and News: Foreign Investment

Showing posts with label Foreign Investment. Show all posts

Friday, July 15, 2016

Long-Term Government Bonds Seen as "Safest" Investment

Although the global economy's struggles have made success more difficult for investors this year, many are trying new, riskier methods to multiply their money. Some, however, have decided to take the safe route, since very few investment opportunities remain with high payouts. So, the majority of "safe" investors have been going after utilities and bonds, which have the most stable profits, albeit slow ones. Tom Petruno, in his L.A. Times article, discusses some of the options that investors have been left in an economy with ever-dropping interest rates.

Options like utility stocks provide at least some semblance of "certainty," which has investors paying higher prices than they would expect to earn back in the short-term. All appearances seem to point to many investors playing the long game, more willing to take less profit than risk losing money. Additionally, because many investors have been focusing more on high-yield bonds as a safe haven for their money, government-backed bonds have been suffering. In about half a year, the US Treasury note yield has dropped from 2.27% to 1.37%.

Even in Japan and several countries in Europe, government bonds, which are known for being safer than most investments, have taken a hit. The market is so shaky in those countries that yields on bonds are somewhat negative, which means a bond owner is losing money on their investment. Because of this phenomenon, Japanese and European investors are looking to US bonds. While the American bonds only have a rate of 1.5%, it's better than losing money, so investors are rushing in.

According to economists, owning bonds is a representation of an investor's belief that the economy is improving. By holding onto one's bonds, an investor can be suffering through low-yield years in order to benefit greatly in the long run. Long-term bonds are described as an "insurance policy," no benefits for years, but great to have at the end of the road. Stocks have begun recovering again, and while stocks may hit all-time highs in the coming months, some companies fear that profits will still take a while to get back to normal levels.

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Friday, May 6, 2016

Bitcoin's True Founder - Revealed at Last?

Bitcoins are a form of electronic currency first introduced to the public in 2009 by a creator who goes by the pseudonym Satoshi Nakamoto. The "mining" of these Bitcoins is performed by computer software following a mathematical proof. The software is open-sourced, which means anyone can use it and check it out to see how it works. Recently, as discussed in Samantha Masunaga's L.A. Times article, an Australian businessman and computer scientist named Craig Wright came out of the shadows and provided evidence showing that he may, in fact, be the elusive Mr. Nakamoto.

Bitcoin's protocols make it impossible to churn out an endless supply of Bitcoins; only 21 million coins can ever be produced by "miners." That's one of the things that sets the electronic currency apart from more "traditional" currencies. With dollars or Euros or any other form of government-backed currency, an unlimited number of bills and coins could theoretically be printed. Sometimes it is done to provide a shock to try to start a stagnant economy, but, more often than not, it results in massive inflation and more economic downturn than before. There is a limit on the number of Bitcoins in the world, which means their value is pretty stable, and inflation doesn't really exist.

Additionally, while central banks can charge exorbitant fees to someone trying to open up an account or someone trying to send funds internationally, Bitcoin cuts out many of those fees. A Bitcoin account can be created in a matter of seconds, with no fees. The decentralization of Bitcoin's network means that there is no bank to default on any loans, so you know your "funds" are safe. Best of all, the network is extremely transparent since every transaction is recorded in a secure "blockchain" that can be added to, but never changed. Unfortunately, most normal retailers don't accept Bitcoin as a form of payment. Over recent years, however, Bitcoin has become much more prevalent, especially with online retailers, so it is expected to come into more widespread use.

Although Wright, an entrepreneur with several masters' degrees and a couple of doctorates, came out with some proof showing that he may be the true creator of Bitcoin, there are still many doubters. In his digital messages claiming to be "Satoshi Nakamoto," he signed off using certain cryptographic keys that could be found in Nakamoto's work in the early days of Bitcoin. He also published a very technical post on his blog with information that no one but Bitcoin's true creator should have. Wright claims that he has chosen now to reveal his identity because he is tired of the misinformation being spread about Bitcoin and its stability. Additionally, the media has long suspected Wright's alter-ego, and he wanted to put an end to the investigations into him and his family. While he hasn't provided undeniable proof, it seems very likely that Satoshi Nakamoto's secret identity has finally been revealed to the world.

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Monday, July 20, 2015

Foreign Purchases of Some American Businesses Face Government Examination

7/20/15 - The Committee on Foreign Investment, an agency through the United States Treasury Department, is responsible for deciding whether to approve or deny any attempted purchase of an American company by a company based in another country. Some such buy-outs are simple and easily approved. Others, like the purchase of Micron Technology Inc., as discussed by James F. Peltz, in his L.A. Times article, require much more discussion and consideration.

The Committee on Foreign Investment only tends to take issue with purchases when they may affect national security. For example, in 2005, a major Chinese oil company called CNOOC Ltd. made an offer of $18.5 billion to purchase Unocal Corp., a California-based oil company. Politicians took issue with this proposed buy-out because they feared that foreign ownership of the American oil provider could possibly cause major problems for the future of American energy security. Eventually, due to complaints and protests regarding the deal, CNOOC Ltd. decided to retract its offer.

More recently, another Chinese company, Tsinghua Unigroup Ltd., has reportedly been preparing a $23 billion offer for the purchase of Micron Technology Inc., a major manufacturer of dynamic random-access memory chips. While Micron claims that no offer has been received yet, Peltz’s sources believe that the deal may not go through anyway, even without interference from the Committee on Foreign Investment. Micron’s stock prices in December were at $36 per share, and while those prices have dropped throughout the year, analysts still believe that the expected offer of $21 per share will not be enough to convince Micron to sell.

Were such an offer proposed by Tsinghua Unigroup and accepted by Micron, it is unlikely that the sale would be approved without a struggle. The Committee on Foreign Investment would have to come up with some pretty compelling reasons to grant approval for a state-owned Chinese country to gain control of one of the only major American producers of memory chips, found in so many devices from smartphones to personal computers. Memory chips are everywhere, in the public sector and in the government, and the change in ownership could pose a security risk, especially after the large number of recent cyber-attacks that have been traced back to China.

Having spent over $200 billion, last year alone, on importing integrated circuits, China, like other Asian countries, wants to become more independent and work on developing its own network of memory chip production, rather than continuing to purchase from America and other countries. Unfortunately for them, they will probably not achieve this goal through a purchase of Micron. Between the Department of Defense’s responsibility to protect national security and Micron’s high stock prices, it is more than likely that this Micron deal will end the same way as Unocal Corp.’s did.

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Tuesday, May 19, 2015

Global Economy Feeling the Effects of America's Powerful Dollar

4/13/15 - Over the past nine months, the value of the dollar has increased dramatically, and Americans are loving it. While the average person is now able to get much further in other countries with the same amount of money as in previous years, Tom Petruno's L.A. Times article predicts that the dollar's raised value will have negative repercussions for the global economy and even the American economy in the long run. Devaluation of currency is becoming a trend around the world, and that will be bad for everyone.

The value of a euro has decreased by 25%, now at just $1.09, from $1.37 a year ago. In countries that don't use the euro, the difference is even greater: 30% in Sweden, 40% in Brazil, and 61% in Russia. This causes more Americans to change their vacation plans, leading to a preference for foreign, rather than domestic, travel destinations. While this is helpful in providing revenue for other countries, American tourist destinations like California and New York find it harder to bring in foreign visitors, as costs are rising from their perspective.

Petruno's research shows that the rising value of the dollar may not be due to an improvement in the American economy, but rather a devaluation of comparative currencies. When the currency of a country lowers in value, prices of goods go down, which causes consumers to purchase more of these “on sale” goods. Petruno believes that this phenomenon of devaluing currency is actually being assisted by federal governments in an attempt to increase demand and aid economic growth. Unfortunately, if this continues, each country will have to devalue their currency more and more to compete with each other, and America will be one of the only consumers in a sea of low prices, which will in turn harm the selling power of American companies.

Fortunately for Californian companies, a large amount of foreign investment comes from China. Since the value of China's currency has remained relatively steady compared to that of the dollar, Chinese tourists to the L.A. area have maintained a consistent degree of purchasing power. U.S. imports are up, and although the costs for these imports have lowered, more importing means less investment in domestic production.

U.S. companies lose money by reduced competitiveness against foreign companies, but more immediately, lose money due to the conversion factor between currencies. As the dollar's value goes up, and the value of foreign currency goes down, American companies are forced to accept less money from a sale than would have been earned previously. However, this has a lesser effect on the American economy as a whole, since the U.S. economy does not rely heavily on exports.

Although the value of the dollar is up, businesses are making less money because of the aforementioned competition and reduced foreign sales. Because of this, quarterly earnings are down, and stocks may begin to plunge because of it. Even in the European stock market, which has been on the rise, American investors receive reduced returns on their investments as the falling value of the euro removes some of the value of the stock.

Petruno concludes that the devaluation game is a slippery slope. Best-case scenario is that demand will move to other countries, improving the global economy without hurting American companies enough to start another recession. Worst-case scenario is that the currencies will be forced into a downward spiral, leading to debt defaults by foreign governments and leading to trouble in the economies of every country. Devaluation is a wild card, according to Petruno, and it can be difficult to predict exactly what will happen because of it. He concludes that it all may come down to whatever China decides —whether to give in to devaluation or keep up the value of its currency.

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G-20 Leaders Present Ideas For Economic Reform

11/28/14 - A group composed of the leaders of twenty of the world's largest economies, also called the G-20, held a meeting in Brisbane, Australia, recently, to discuss ways in which each country could contribute to a future restoration of the global economy. An article, by Don Lee of the L.A. Times, summarizes each of the issues addressed by the members of this group, and their plans for change around the world.

The leaders of the G-20 have long been criticized for being slow and ineffective; but, their newest proposition, including over 800 projects designed to add new jobs, may actually cause some positive stimulation to the currently sluggish economies found in most major countries. Sure, these projects may not be perfect, and they will require political support in their respective countries to be enacted, but some plan is better than nothing. The G-20's current plan aims to increase global output by 2% - over $2 trillion and millions of jobs – over the next five years, a hefty goal in and of itself.

While the main focus of this year's G-20 summit was the aforementioned 2% increase in global productivity, several other topics were broached that are usually viewed as less important to the economy, such as anti-corruption legislation, health issues, and climate change. This year's summit in particular made sure to address the fact that there is more to the economy than just jobs and productivity.

The leaders agreed to work on limiting greenhouse gases and other such pollution, while also making commitments to help contain the current Ebola outbreak, both of which have devastating effects on various economies around the world. Tensions at the G-20 summit were stretched thin, as leaders verbally butted heads based on their differing viewpoints regarding such “unrelated” economic principles.

Altogether, though, the G-20 summit seemed to be successful, to a point. No, most of the proposals will not have a dramatic effect on the global economy immediately, but such projects as those suggested at the meeting will definitely have a major effect on the economy of the future. Only these countries and their political leaders can really determine how far away that future lies.

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EB-5 Investment Visas in High Demand

10/3/14 - Some foreigners visit and/or live in America on a student visa, others on a work visa, and still others through diplomatic pathways. However, there is another way, not so well known: investment visas. According to an article by Frank Shyong, of the L.A. Times, Chinese citizens that holds a majority of these visas, which are awarded to those investors who put anywhere between $500,000 and $1 million into various United States businesses.

These visas, called EB-5 visas, which allow wealthy foreigners to immigrate into the United States in exchange for a hefty investment, are unfortunately being stretched too thin. According to Shyong, so many of these visas have been claimed in recent times that they have all but run out. While this program has been around for 24 years, this is the first time in its history that investors had to be turned away, simply because there weren't any of the EB-5 visas left to grant. Even after the beginning of the 2015 fiscal year with new visas available, changes to the system could make the application process much longer, and thus drive away potential investors.

Shyong's statistics show that 85% of EB-5 investors come from China, likely pursuing such immigration opportunities due to economic and environmental downturn in their home country. California, where approximately 25% of such investments are carried out, is filling up with new projects that both contribute millions of dollars into the economy and create jobs for many of our unemployed workers.

While EB-5 visas are helpful, both for the investor and for the American economy, the new restrictions being placed on such visas will have quite an opposite effect. Wealthy investors would be forced to wait up to three years for paperwork to be completed, and even then not know whether they would get the visa or not. Those American businesses relying on EB-5 funds would have to grind to a halt, unable to continue work without the investment money they need. Many politicians are pushing for decreased restrictions in the granting of EB-5 visas, due to the incredible amount of good these investments due for the American economy. While bills have been submitted for approval, all we can really do is wait and hope: Americans, hoping for continued investment in our economy, and Chinese investors, hoping to make it off the waiting list and finally be allowed to hold a visa.

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High End Home Sales: On The Rise

8/15/14 - Recent housing statistics show that, while the housing market as a whole has been at a bit of an impasse, home sales on the upper end of the spectrum appear to be steadily increasing. In the aftermath of the Great Recession, lenders have become more cautious, preferring to fund mortgages for borrowers with cash on hand and access to credit, as compared to the average American home-buyer. This split between buyers has led to a split in housing sales, thus resulting in this recent trend of increased million-dollar home sales, especially in California. In an L.A. Times article, writer Tim Logan discusses this phenomenon and what it means for attempted rebuilding of California's housing market.

Logan looks into how first-time buyers, what with much stricter loan regulations and a not-so-stable jobs market, are having trouble taking their first step into the realm of home ownership. On the other hand, wealthy investors, with available cash, are more able to benefit from current low interest rates. While average California housing prices are getting toward the high six-figures, it appears that from the San Francisco Bay Area to Southern California, seven-figure home sales have become more common than ever.

Even for older home buyers, of the “Baby Boomer” generation, purchases of homes with seven-figure price tags have become all the more prevalent. For these buyers, looking to downsize, the cash that they gain from selling a large house goes into the purchase of a high-end condominium, such as those produced by City Ventures, which go for around $1.5 million on average. However, while these buyers pay all cash for such properties, Logan presents statistics showing that 70% of recent million-dollar home sales in California were accompanied by a mortgage, illustrating the way in which buyers are taking advantage of historically-low interest rates.

Logan shows throughout this article how beneficial the current housing market is – at least, for wealthy, high-end buyers. Even for the average buyer, although they have more difficulty getting loans, these low interest rates can help them to purchase homes on the upper end of the housing spectrum, since low interest rates mean more affordable monthly payments over the course of a mortgage. Thus, while this article shows that lower interest rates have been helping those with cash on hand, individuals looking for a fancier home or an investment property, perhaps lenders will soon enough loosen their grip, allowing for the average home-buyer to also benefit from these lower interest rates.

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Southern California, Attracting Investors

7/18/14 - While it is common knowledge that China, as a country, controls a large portion of American debt, it may come as a surprise that Chinese citizens, individually, are having their own significant effect on the American economy. According to an article by Tim Logan, of the L.A. Times, there has recently been a dramatic influx of Chinese investment in Southern Californian real estate.

While this interest has been mostly focused in such areas as Los Angeles, San Francisco, Irvine, and the San Gabriel Valley, statistics show that real estate sales to foreign investors have reached $92 billion, approximately 7% of total national sales — quite a hefty sum given the considerable crash in real estate sales that has accompanied the Great Recession.

According to the sources quoted in the article, there are a few explanations for this drastic increase in foreign investment. From California's coastal location and moderate climate to its world-class universities and global renown, such investors view the Californian market as a safer bet than the currently “overheated” Chinese market.

This interest in California, as well as the United States in general, is helping to improve the real estate market, especially in areas that have historically been popular with foreign buyers. Investors are looking for real estate in Los Angeles, Irvine, and San Francisco — cities they know.

Since this trend of foreign investment first began, businesses have been changing their game plan. Real estate companies have been opening offices in other countries, expanding their outreach, and incorporating design elements in new buildings popular with a more “international clientele.”

Although this article mainly discusses Chinese investment in Californian real estate, it also mentions how California's weather, economic stability, and fame have been attracting investors from all over the globe: from Europe, Russia, and even Latin America. In concluding the article, Logan states that although this new interest of wealthy investors is helping to improve the market and drive up prices in select areas, foreign investment will have little effect on the average American home-buyer in an average American neighborhood.

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