Housing's 'Traffic Jam' Is Creating a Great Opportunity for Investors

"It's really a gridlock, a traffic jam that's playing out in the housing market."
That's what Ralph McLaughlin, chief economist for real estate website Trulia, said about the housing market this spring. It's still true. This "traffic jam" is exerting upward pressure on existing home prices… and encouraging owners to spend more on repairs and remodeling.
That's great news for "pick and shovel" housing stocks. Let me explain…
A former executive from a top public homebuilder recently told me…
There are tons of lots and land available where most customers don't want to be, and almost none available where customers do want to be.
Vacant land suitable for development is the raw material that homebuilders rely on most to conduct their operations. Once they create a subdivision, they build homes on each of the lots, then move on to their next community. Top homebuilders routinely maintain several years' worth of land inventory.
But over the past year or so, it has gotten harder for builders to buy land in top metro markets. Low interest rates and favorable demographic trends are encouraging more and more prospective new homeowners to buy… and forcing builders to add more lots to their existing inventories.
The market for vacant land is no different from any other – when demand outstrips supply, prices rise. And as the prices that homebuilders pay for raw land rise, they compensate by building more-expensive homes. Since 2011, the national average price of a new home has risen more than $100,000 to $358,900.
Because the price of new homes is escalating in top metro markets, the gap between mid-priced and premium homes is also widening in many of these same markets.
When the prices of premium homes soar out of reach, many prospective premium buyers simply opt to stay in their current homes. This is the "traffic jam" McLaughlin was referring to.
With home prices once again on the rise, homeowners are more inclined to spend money on repairs and remodeling (R&R). Because the U.S. housing supply continues to age (roughly 40% of homes were built before 1970), the R&R opportunity could be huge going forward. One study we read estimates that spending on home improvement and repairs could be more than $300 billion by next year.
This is great news for companies with a major presence in the home-remodeling business, like the one we recommended to Extreme Value readers earlier this month. At least one leading home-improvement retailer – Home Depot (HD), a customer of our new recommendation – expects the aging U.S. housing supply to be a source of business for years to come.
In summary, market anomalies – like the current "traffic jam" in housing – often create opportunities for astute investors. But remember, such aberrations never last forever. Scoop them up while you can.
Good investing,
Mike Barrett
Editor's note: It's not too late to profit from the "traffic jam" in housing. Earlier this month, Mike and Dan Ferris recommended a leader in residential repair and remodeling. It's a simple, steady business you've likely never heard of, trading at a deep discount to its estimated intrinsic value. Opportunities like this don't come along often… and now is the perfect time to get on board. Click here to learn more.

Source: DailyWealth

Stocks Hit New Highs – Further Gains Ahead

The S&P 500 hit a new all-time high on Monday.
The Dow Jones Industrial Average followed suit on Tuesday.
This might have you worried. Most folks expected a crash… But we're seeing new highs instead. If this has you confused – or scared – you shouldn't be.
New highs aren't something to fear. They're something to celebrate… especially in today's case.
You see, today's breakout is rare. And based on history, it could lead to a 16% gain over the next year. And that means you should be buying stocks today… not selling.
Let me explain…
The stock market is an odd place. After over a year of going nowhere, stocks finally break out. And investors meet the news with a chorus of "boos."
This is like your favorite NFL team finally winning the Super Bowl… and your response being, "Yeah, but they'll blow it next year."
Past success is a good indicator of future success… especially in the stock market. And today's situation is a good indicator of more gains to come.
You see, stocks just achieved something rare. It has only happened 20 other times going all the way back to 1928.
The S&P 500 just reached its first one-year high in more than a year.
Think about what's going on here… Stocks were either falling or going nowhere for at least a year… and then they broke out.
This is the kind of thing that happens before a major move higher in stocks. History proves it…
The last time this happened was October 2009, coming out of the Great Recession and stock market bust. That would have been a great time to buy stocks.
Before that, the last occurrence was September 2003. That was only a few months after stocks began recovering from the tech bubble.
Looking farther back, we see similar instances in 1995, 1988, 1984, and 1982… And all of these were fantastic times to own stocks.
Over nearly 90 years of data, this has only happened 20 other times. And stocks increased 16% over the next year, on average, during these other instances.
Importantly, only two of these signals led to losses (in 1938 and 1948). Said another way, this indicator hasn't led to losses in nearly 70 years.
We can't know the future. But history tells us this is a signal we want to follow… And a 90% win rate with 16% average gains looks pretty darn good to me.
Today, stocks are hitting new all-time highs… But you shouldn't be scared. You should be happy. Because history tells us more gains are on the way.
Now is not the time to sell… Now is the time to buy.
Good investing,
Brett Eversole

Source: DailyWealth

Three Investment Mistakes That Are Draining Your Portfolio

Editor's note: Today's DailyWealth essay comes from our colleague Dr. David "Doc" Eifrig's excellent Retirement Millionaire Daily e-letter. (You can sign up right here.) In it, he shares three mistakes you might not realize you're making that could be costing you a lot of money…
Most folks just want a hot stock tip…
These folks will likely never truly grow their wealth. And when a crisis comes, they'll be the first to panic.
If you've followed my investment newsletters – my health-and-wealth letter Retirement Millionaire, my income-focused letter Income Intelligence, and my high-end, options-trading service Retirement Trader – you know that in each issue, I not only recommend great businesses at good prices… I also give you a hefty dose of education and empowerment.
Finding investments that increase the size of your portfolio is just one part of being a successful investor. Preserving your wealth is an essential part as well.
Today, I'm sharing three common mistakes people make that drain their money.
If you avoid them, I can almost guarantee you'll be on track to save yourself thousands of dollars in the next decade…

No. 1: Avoid Whole-Life Insurance as an Investment

There's an idea floating around out there that whole-life insurance is a great way to build wealth and income for your future…
The idea is that whole-life insurance policies allow you to save up your own money and get insurance for your family in case of death. Late in life, you can draw down on the cash value of the policy to support your idealized lifestyle… Or if you die early, your family will get paid the agreed insurance amount.
But that sort of protection can be had with much cheaper term-life insurance. And the big trouble with whole life is the fees. Whole life typically takes a big, upfront commission when you start saving. If you understand the phenomenon of compounding, you know that a small change in your savings early on can lead to a big change in your wealth.
Added to that, the most generous whole-life policies pay about 4.5% a year. The stock market returns about 8% a year on average. So you're not only starting behind, you're running at a slower pace.
Also, whole life only works if the insurance company is still able to pay you in 30 years. In this day of low interest rates and low returns for insurance companies, that's a real risk over the next decades. Avoid whole-life insurance products.
No. 2: Don't Pay Front-Loaded Mutual-Fund Fees
Much like whole-life insurance products, some mutual funds have fee structures that take a big chunk out of what you invest on the first day… up to 5.75%.
That means if you buy $50,000 worth of a front-loaded mutual fund, you start off $2,875 in the hole. Over 20 years, this is easily worth the value of a car in retirement.
The argument for front-loaded mutual funds is that they have lower annual fees, so you make out better over the long term. This is sometimes true, but you'd need to hold these funds for at least eight years to come out ahead. And the average investor holds a mutual fund for 3.3 years.
Do what I do and go for the no-load mutual funds and closed-end funds.
And never invest in a mutual fund without reviewing its fees. You can do this quickly by going to the financial-information website Morningstar, entering a fund's ticker symbol, and clicking "expense."
No. 3: Never Use Market Orders
When you buy a stock or any security on your online trading platform, you can use two types of orders: a market order or a limit order.
A market order will fill your order essentially immediately at any price. Using one is like telling your broker, "Buy me this stock for whatever price you can get."
A limit order sets the maximum price you are willing to pay, and it will sit unfilled until your broker can get that price or less (or until you cancel the order). It's like telling your broker, "Buy me this stock, but only if you can get it for less than $10" (or whatever price you specify).
If a stock price is moving higher, you can easily pay too much for a stock using a market order because you've given up control of the price you pay.
Don't use market orders – use limit orders instead. Set your price at the same price you see in the market, and then wait. You never want to be the sucker that pays the worst price of the day.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig
Editor's note: Every month in his excellent Retirement Millionaire advisory, Doc shares his best tips for living a healthier, wealthier retirement. In the July issue, he recommended shares of two cheap companies worth buying today… and provided tips on how to save $162 a year on gas… which popular over-the-counter drugs are dangerous for your skin in the sun… and the best places to live out your retirement. Get started with a 100% risk-free trial subscription to Retirement Millionaire here.

Source: DailyWealth

'It's Too Risky,' Says the Bond King

Last week, Bill Gross – the Bond King – told Bloomberg Television "it's too risky" in government bonds right now.
In short, interest rates have gone down too far, too fast.
While the "smart" money (like Bill Gross) is avoiding buying bonds today, the "dumb" money (like mutual-fund buyers) piled into them last week in the wake of the "Brexit."
(Specifically, bond funds had inflows of $14.4 billion last week, according to EPFR Global.)
Where do you side? With the smart money, or the dumb money?
With so many fears around the world, investors have fled to supposedly safe government bonds… which pushes interest rates lower.
You might not have noticed… But all of a sudden, long-term interest rates have crashed to the downside.
Take a look at this one-year chart of the interest rate on the 30-year U.S. Treasury bond…
Long-term interest rates have fallen from 3.2% to 2.1% in the last year. That's a 34% decline!
And this isn't some obscure number I'm talking about here… This is the U.S. government bond.
This massive fall in interest rates is thanks to investor fear… Investors are now buying government bonds for safety.
We've hit an extreme in the short term. The dumb money is "all in."
The thing is, when the entire herd is putting its money into one investment, there's no money left to be made there.
(For example, when the herd bought property in 2008, there was nobody left to buy. That meant there was no demand… and prices fell. It's the same story in bonds today.)
The dumb money is about to get hurt, likely starting soon, in bonds.
For reference, during similar extremes in the past, interest rates have typically shot higher over the next 12 to 18 months.
You have to go back 18 years, to 1998, to find a moment when investors were as convinced as they are today about lower interest rates (based on bets in the futures markets in 30-year Treasury bonds).
In 1998, the interest rate on the 30-year Treasury bond bottomed at 4.7%. Then it rose more than 2 percentage points higher – to more than 6.7% – in 15 months.
It's not just government bonds…
The "dumb" money has also been piling into high-grade corporate bonds and junk bonds. Just last week, a record $2 billion flowed into LQD – the most popular corporate-bond exchange-traded fund. That's a weekly record – by more than a billion dollars.
I introduced the idea of betting on higher interest rates (and lower bond prices) to my True Wealth readers last month. We still haven't seen the start of the uptrend… So we haven't pulled the trigger just yet. But we look forward to it soon.
Instead of placing our bets today, we are going to wait for the uptrend in long-term interest rates… We are going to wait for confirmation of our idea here before we step in to take advantage of it.
I urge you to do the same – wait for rates to begin moving higher before you consider betting against bonds. But more important, I urge you to NOT buy bonds now – of any kind.
"It's too risky." Chances are good you'll lose money as bond prices fall in the coming months…
Good investing,

Source: DailyWealth

Why Foreign Stocks Will Be the Post-Brexit Winners

European stock markets suffered their worst day in years last month…
Italian stocks fell 13%. German stocks fell 7%. Spanish stocks fell 12%. On the other side of the world, even Japanese stocks took a hit, falling 8%.
The major crash was the result of the U.K.'s decision to leave the European Union (EU).
The decision caused ripples throughout the financial world. And the major decline in non-U.S. stock markets helped push foreign stocks to their lowest level EVER as compared with U.S. stocks.
As I'll explain today, this should lead to massive outperformance for foreign stocks in the coming years, based on history…
Foreign stocks have seriously underperformed in recent years.
The recent crash, thanks to the U.K. decision, is just an exclamation point.
Specifically, the MSCI EAFE Index – which holds stocks in developed markets outside the U.S., mostly in Japan and Europe – is up just 13% in the last five years. The S&P 500 is up 74% over the same period.
This has caused the MSCI EAFE-to-S&P 500 ratio to hit an all-time low. Take a look…
When this ratio is high, foreign stocks are outperforming U.S. stocks. And when it's low (like today), they're underperforming U.S. stocks.
Importantly, foreign stocks tend to dramatically outperform U.S. stocks going forward anytime the ratio is less than one. The table below shows the average forward returns of U.S. and foreign stock indexes during those times…
S&P 500
U.S. stocks have actually lost money (not including dividends) three years after these rare instances. And they've only gained 7%, on average, over the next five years.
Foreign stocks have soared in comparison… returning 35% and 44%, on average, over the next three and five years, respectively.
Now, this doesn't necessarily mean that U.S. stocks have to perform poorly from here. I actually believe they can continue moving higher. Most folks have completely given up on the U.S. market, as we've explained in DailyWealth. That's not how stock markets peak.
But while U.S. stocks still have room to run, foreign stocks offer even higher upside. The major underperformance in recent years proves it.
Uncertainty from the U.K. decision to leave the EU crushed foreign stock markets. But that makes the long-term opportunity even better today.
No, we don't have an uptrend right now. But as a "hold your nose and buy" opportunity, foreign stocks are worth considering.
You can make this trade with one click through the iShares MSCI EAFE Fund (EFA).
EFA tracks the MSCI EAFE Index. And based on history, that's the exact group of stocks that will likely outperform U.S. stocks over the next few years. Check it out.
Good investing,
Brett Eversole

Source: DailyWealth

The Simplest Way to Guarantee a Comfortable Retirement

My goal is to examine and explain every aspect of wealth creation.
Each day, we look at stocks, bonds, currencies, metals, or commodities. We discuss interest rates, inflation, economic growth, business developments, and government policies. We highlight asset allocation, security selection, investment costs, and taxes.
But in my view, we spend too little time discussing the first and most important step in the investment process – saving – and the indispensable habit that makes that possible: delayed gratification…
According to the 2016 Retirement Confidence Survey from the Employee Benefit Research Institute (EBRI), Americans are woefully unprepared for retirement.
It's not that we don't know what we'll do with all that free time. It's that many of us never absorbed the lesson of the ant and the grasshopper.
This is likely to have dire consequences.
The average retired worker receives just $1,341 a month from Social Security. (If you include spousal benefits, it climbs to $2,212.)
According to EBRI, more than a quarter of Americans (26%) have saved less than $1,000 for retirement. Forty-two percent have saved less than $10,000. And the majority has saved less than $25,000.
Anyone who invested $190 a month for 40 years – and earned nothing more than the stock market's average annual return for the past 200 years (10%) – would have accumulated a sum of more than $1 million.
(If $190 a month is too ambitious, even $47.50 a month would have turned into more than $250,000.)
Yet the majority of us did nothing of the sort.
Some were too poor. (Let's be frank. You can't save what you don't have.) Others believed the government or their employer would take care of their retirement. (Hoo-boy.) Others were simply uninformed about the power of equity ownership and compounding. (A big reason we should teach basic financial literacy in high school.)
However, many of us were not indigent, ignorant, or wishful thinkers. We couldn't invest because we didn't save. And we didn't save because we chose immediate consumption over delayed gratification.
Unfortunately, delayed consumption is the essence of saving and investing. No capital means no investment benefits from capitalism.
No doubt some find these words heartless or judgmental. After all, who am I to suggest personal responsibility and thrift? Haven't I listened to Bernie Sanders? The economy is rigged. The system is set up to benefit the rich. The business model of Wall Street is based on fraud. The little guy doesn't have a chance.
I have been an avid saver since I was an indigent young man in my 20s. I worked a crummy job. I drove a beater car. I shared an apartment with friends. I had no health insurance. I had no employer-sponsored retirement plan.
But I saved. (Frankly, I was terrified of what might happen if I didn't.)
I did have a credit card, but I paid it off every month. I decided early on if anybody was going to earn 18% interest, it was going to be me… not the bank.
Yet many of my contemporaries found this behavior quaint or unrealistic, if not entirely misguided.
Millions of Americans believe that government should deliver the material happiness they deserve, sparing them the trouble and discomfort of striving.
It won't happen. There is no Social Security lockbox. Immediate benefits are paid out of current contributions. In the future, there will not be enough workers to cover the burgeoning entitlement rolls.
If you want to ensure a comfortable retirement, you need to save as much as you can, for as long as you can, starting as soon as you can.
And that begins with delayed gratification.
Good investing,
Alexander Green
Editor's note: When it comes to building wealth, Alex is an authority. And his "Pinpoint Profit System" has greatly outperformed the overall stock market since 2000. This system could let you collect $54,301 on your first three trades in less than four months. Click here to see how it works.

Source: DailyWealth

Gold's Biggest Day in Years Should Lead to Further Gains

The U.K. voted to exit the European Union (EU) two weeks ago. Massive market volatility followed…
Volatility and uncertainty are friends to gold. They helped the metal win big after Britain's decision.
Gold soared 4.7% on June 24. And history says this big jump could help push gold 12% higher over the next year.
Let me explain…
Fear spiked after Britain voted to leave the EU. No one knows exactly what to make of the U.K.'s decision.
Uncertainty like this leads investors to buy safe-haven assets… like gold. And as expected, gold soared 4.7% after the decision.
That was the biggest one-day move higher for gold since 2009.
We've only seen 4.7%-plus daily gains nine other times going back to 1990. That makes this recent move a rare extreme.
Importantly, history shows that these large one-day gains tend to be the beginning of larger, long-term moves higher.
The table below shows the average returns from similar extremes going back to 1990. Take a look…
Return after extreme
Average return
These extremes led to minor outperformance in the short term (three and six months). But over the next year, they turned out to be a great sign for gold prices.
On average, gold returned 11.8% in the year after these extremes. That's more than double the average one-year gain on gold since 1990.
The recent gain also pushed gold to a two-year high – another positive sign. That helps solidify my belief that gold is back in a major uptrend right now.
We can't know the future, of course. But the U.K. is causing major uncertainty in the market. And uncertainty is good for gold.
The metal just had its best day since 2009. And history says it'll likely lead to more gains.
Good investing,
Editor's note: Steve isn't the only Stansberry Research analyst who's bullish on gold prices. In fact, Porter Stansberry is so bullish on the precious metal, he recently launched Stansberry Gold Investor to take advantage of the historic bull market we're about to see in gold. To learn more, click here.

Source: DailyWealth

Forget Everything You Thought You Knew About China

This was my second time visiting China. But everything I saw reinforced what I learned on my first trip…
Everything I thought I knew about China was wrong.
And if you're like me and most Americans, everything you think you know about China is probably wrong, too…
During the 45-minute drive from downtown Shanghai to the Pudong Airport, we passed massive housing development after massive housing development. But we didn't see even one single-family home.
Most of the developments were about 10 buildings wide by 10 buildings deep – and often 20 stories or higher. At 10 apartments per floor, a single complex would hold roughly 20,000 apartments. And these complexes rose out of the ground in all directions, mile after mile.
One of our contacts in China confirmed what we saw…
"Shanghai has a population of almost 25 million, and everyone lives in an apartment," he explained. "There are no suburban neighborhoods like you have in America."
Shanghai is one of the world's most populous cities – without a single "house."
Twenty-five million people all living in apartments might not sound luxurious. Especially considering median incomes in China are less than one-fifth of those in the U.S… it might even sound "third world."
But nothing feels "third world" about being on the streets in Shanghai, one of China's major cities.
There was a bright green Lamborghini parked in front of our hotel. Ferraris, Porsches, and other high-end vehicles were all over the road. My experience was that it's actually easier to find a Tesla on the road than it is to find an old junker.
In fact, most things are expensive in Shanghai. Even off the beaten path, it's easier to find an $8 beer than an inexpensive meal. Shanghai's prices are consistent with those you'd see in a major international city… because it is a major international city.
Of course, while Shanghai doesn't feel third world, you can quickly find differences between it and other, more developed cities.
We'd found our way to an underground market. Well, it was really more of a labyrinth, nestled below the Shanghai Science and Technology Museum. The market was fully underground and spanned hundreds of stalls.
"Is this bag authentic?" I asked a saleswoman.
"It's designed like the original," she responded with a sly grin.
I knew the answer to my question before I asked. But her nuanced use of English in answering was better than I expected.
Within a few minutes of arriving at the market, a salesman ushered us into the "secret room."
We walked through two hidden – and locked – doors. He assured us that this is where they kept the "quality merchandise." No joke.
The goods were clearly not authentic. But they were darn good quality. I'd heard about these markets and was curious to look them over myself. The "secret room" was definitely an experience you won't find in New York City.
That was a major takeaway from this recent trip. China is nothing like America… But it's also nothing like what Americans expect it to be.
Shanghai has the same hustle and bustle of any major western city. And there are plenty of folks living there who have achieved a lifestyle that was unthinkable a few decades ago.
My trip to Shanghai reminded me that just about everything Americans think they know about China is wrong.
China is one of the most remarkable growth stories in history… And it's a market that smart investors would do well to keep an eye on.
Good investing,
Brett Eversole

Source: DailyWealth

How to Never Make a Bad Investment Decision Again

It's usually easier to do the wrong thing than the right thing, or to do something poorly than do it well.
This is particularly true when it comes to your money – whether you're investing or spending it.
But asking yourself three questions – before you invest or spend – may help you avoid (or minimize) some of the most expensive mistakes…
1) Why am I buying it/investing in it?
There aren't that many reasons to buy an asset. It might be something you need, like a refrigerator. Maybe you're buying a bungalow on the beach because you want a relaxing place to get away. You might buy a stock because you want it to go up in value or pay you dividends.
Whatever the reason, anything you buy is an investment – even if you don't think of it that way. You expect to get a return from it – whether that "return" is keeping your beer cold, the feel of sand between your toes, or more cash in your brokerage account.
Just be sure to remember why you're buying something. After all, you wouldn't be upset if that biotech stock you bought doesn't keep your wine chilled – that's not what you bought it for. In the same way, if your beach bungalow collapses in value, it shouldn't bother you too much – because remember, you bought it as a vacation getaway, not as an investment.
And take the time to think it through. As famed investor Peter Lynch said, "Invest at least as much time and effort in choosing a new stock as you would in choosing a new refrigerator."
2) When am I going to sell?
If you don't have a goal, you'll never know if you've achieved it… And you won't know to sell if you don't have an idea about when (or why) you're going to sell.
You should sell something when the reason that you bought it is no longer valid. Like if the fridge heats instead of cools, the bungalow is no longer relaxing, or the stock falls in value. If these things happen, your investment isn't providing the "return" that you expected. That's the time to re-evaluate your investment, and decide whether to sell it and put the money to better use.
When you buy an asset, you probably don't know exactly when you're going to sell (and in fact, you probably shouldn't). It's not going to be a date on the calendar, circled in red, someday in the future. But the day you buy something, you should know what your criteria will be for selling – and be ready to sell when those criteria are met.
With stocks, it's easy… You should set a stop loss that will trigger the decision to sell. If the stock falls, a stop loss will limit your losses. And if what you buy goes up in value, a stop loss will ensure that you keep most of your gains.
3) What am I not buying?
There are an infinite number of things that we could buy. But we don't have an infinite amount of money (unfortunately). So whenever we buy one thing, we're making an indirect decision to not buy many other things. And there is a cost associated with that decision – it's called the opportunity cost.
When you're investing in stocks, the opportunity cost is easy to figure out. You can see how other stock prices changed after you made an investment decision and (if you want to torture yourself) how much money you might have made.
But the "cost" of what you didn't buy is less clear with respect to other types of goods. The money you spend on a beach getaway is cash that you're not putting away for your children's education. You're also not buying shares in a stock that could double or triple in price in coming years (or in a stock that could fall to zero).
When you understand what you're not buying, you might change your mind about your purchase. Or you might decide that, given your aims and objectives (see the first question above), what you're buying is the best possible use of your funds.
After you're finished answering these three questions, ask yourself: "If I had the cash in my hand to buy this thing right now, instead of the thing itself (whether it's a refrigerator, beach bungalow, or stock), would I still buy it right now?"
Every moment that you're holding on to an asset, you're using valuable capital that you could put to a different use… So every day you are "buying" something that you already own.
By answering these three questions, you'll avoid a lot of the ways that your emotions can be investment pitfalls.
Kim Iskyan
Editor's note: If you enjoyed today's essay and would like to learn more, Kim and his Truewealth Publishing team in Singapore have created a free special report called "How to Avoid the 10 Investment Pitfalls That Will Cost You a Fortune." Find out how you can receive the report right here. And if you're interested in receiving their free daily e-letter, click here.

Source: DailyWealth

The Typical Businessman's Apartment in Beijing Costs US$1 Million

Editor's note: The markets will be closed on Independence Day, so we won't publish DailyWealth on Monday. We'll pick up with our normal schedule on Tuesday. Enjoy the holiday.
"Song Gao is a rock star," our host Brendan Ahern of KraneShares told us as we entered Song's office in Beijing.
"Few people understand China as well as Song."
Brendan wasn't kidding… Song has his PhD in economics. He studied (and taught) in the U.S. before returning to China. So he understands the U.S., too, which means he can effectively compare and contrast the two global powers.
The great part is, Song can deliver insights on the most complicated issues with a simple story and a smile.
Today, Song is the co-CEO of PRC Macro, an economic consulting company in Beijing.
"We call it like we see it," it says on PRC Macro's website. And Song does exactly that – even when it might differ from the Communist Party's message.
"I thought China was communist…" my wife said to me on the phone. "How can he do that?"
In short, forget what you know about communism. Today, Beijing – China's capital – feels as capitalist as anywhere…
It has been four decades since China started its break from traditional communism. The system has changed to such a degree that it is unrecognizable from where it started. People here in Beijing are free to seek out higher-paying jobs, earn what they want, and spend it how they want.
The only noticeable difference as a visitor here is some Internet censorship. (You can't go to Google, Facebook, or YouTube, and you can't get news from Bloomberg or Reuters. China has its own versions of each of these.)
Song actually does some incredible work on understanding the "man on the street" in China…
His company does a quarterly survey of consumers, for example. Interestingly, his work is not controlled in any way by the Chinese government – these are HIS survey results… that HE publishes.
The PRC Macro surveys give some amazing insights into the typical life of citizens in the big cities. Let me share a few interesting survey highlights…
•   The average income for "urban middle class" households is about US$19,000. (That number was higher than I expected.)
•   The average gross "savings rate" for the urban middle class is 48%! (Can you imagine Americans saving 48% of their paycheck?)
•   The unemployment rate for urban workers is about 6% (which is not that far off from U.S. unemployment rates).
The most interesting number Song shared wasn't in the surveys, though…
I asked him about the cost of living. "What is the price of a typical apartment for a businessman here in Beijing?" I said.
"A typical 1,000-square-foot apartment for a typical businessman would cost about US$1 million," Song told me.
Wow. A million dollars for a 1,000-square-foot place in Beijing…
Song knows that is A LOT of money. He knows the American perspective on this. He has lived in the U.S., so he knows what money can buy in the States. But that doesn't change the fact that a decent apartment in Beijing will cost you a million dollars today.
It sounds like the making of a property bubble at first… But it could be more like New York or San Francisco, where there's more demand than supply in the city center.
"The Chinese people have a strong attachment to property," he explained. "You would be surprised – there isn't nearly as much debt as you might think. First-time homebuyers have to put 30% down as a down payment, for example. And many put much more down."
Getting back to the big picture… Stop putting the words "China" and "communist" together in your head… It was shocking for me to discover, but Beijing feels as capitalist as any city in the world…
This is not your father's China… If that's what you think China looks like, change your thinking, right now…
Good investing,


P.S. For more on Song Gao and his "we call it like we see it" opinions on China's economy, visit www.PRCMacro.com.

Source: DailyWealth