The G20 Summit is just around the corner and we thought what better time than right now to take a peak behind the curtain to see what these guys and gals will be talking about. When we analyze what asset classes we like to invest into we always come back to real estate ... for many reasons.
Although we're fans of commodities as a valuable asset class, especially over the next decade, and do invest in them ... they don't produce cash flow. We look at them as "wealth preservers" but not "income generators".
And you need income to pay for your daily living costs.
We used to like equities/stocks but the last fifteen years has proven to us that we don't have control of them.
No matter how great a P/E ratio may look you're ultimately at the mercy of what someone else will pay for your share.
And they can shoot up and shoot down on a whim.
Even if we only focus on stocks that produce cash flow via dividends ... we're still not in control.
Dividends can be canceled or reduced without your input. Just look at what's happened over the last few years and for a recent example you just have to look at how BP has halted its dividend payments for the reminder of the year.
We don't like the idea of building our wealth on a basket of dividend stocks that we don't have control of.
What has happened to all of those people who live on the fixed income of their dividends only to have them reduced or canceled unexpectedly?
Doesn't sound like fun to us.
So although equities can play a role for us their never our primary asset class.
We always end up with real estate as an asset class to produce cash flow for us. And, of course, even real estate takes work, requires research and discipline and can throw you curve balls.
But we haven't found a better answer.
There's actually only two ways to build cash flow into our lives that we can figure out.
Build businesses that produce cash flow.
Own real estate that produces cash flow.
That's about it.
So how does the G20 play into this?
Well, to master the art of investing and owning real estate its useful to understand what's going on in the world economy.
It's almost generally accepted across all financial analysts that the world's financial system is now 100% interconnected.
This "new order" of financial markets is unlike anything the world has ever seen.
So how do we monitor these developments?
1. First, we look at the Bank of Canada and what its up to. Its the central bank in Canada ... the bank that backstops all other Canadian Banks. It controls interest rates, which directly affects our real estate...so we watch it closely.
2. We then look at the IMF. The International Monetary Fund acts as the World's central bank. It's the bank that backstops countries. It controls the International Monetary System. Together with the U.S. Federal Reserve, the IMF plays a big role in how the World economy works. The decisions made here can change what the Bank of Canada does, so naturally we're interested.
3. How does the IMF get its power and money to hand out? The G20 gives it to them. Canada is part of the G20, so in effect, you and I are giving money to the IMF.
So naturally we want to keep abreast of what's going on in the corridors at the G20 meetings because ultimately their decisions can affect how much our mortgage payments will cost six months down the road.
The decisions they make have a direct impact "on the streets" in places like Vancouver, Edmonton, Halifax, Toronto, Cambridge, Brantford, Hamilton, Barrie etc.
And forget the formal meetings ... those are great for pictures and press, but like any conferences I've been to, the real business is happening out in the hallways and corridors.
So what's going to happen behind the scenes at the Toronto G20 meetings?
Here's our best guesses....
1. First, China wants to play. If this group of guys and gals is controlling how the world money system works then its natural that China wants a seat at the table. For that to happen someone else has to give up some of their voting powers ... sounds like great drama to us because its highly unlikely any other country wants to give up some control.
2. Second, they'll definitely be chatting about how to get more control over the fragile state of the economy. Although we all read and hear how great everything is, behind the scenes the discussions are very different. No one actually believes anything has been solved in the credit markets ... only postponed. We're still left with 1,000 point plunges in the stock market, countries that run out of money and fear of more of the same.
If you're really interested in the details of the International Monetary System and the suggestions that the IMF is making to the G20 then you'll want to check out this paper that is dated April 2010 and was released to the public on June 4, 2010.
It is the IMF's very latest thinking on how to fix the fragile system ... both short term and long term. You'll learn about U.S. Reserves and "SDRs" as a new possible currency between countries.
Fascinating stuff, if that's your cup of tea.
Here's the actual paper...
Reserve Accumulation and International Monetary Stability
This will definitely be part of the closed door discussions at the G20 meetings in Toronto and will likely lay the framework for some big announcements at the next G20 meeting in South Korea this Fall.
If you hate this stuff and want to focus on buying properties and creating cash flow ... we can't blame you!
But if you want a peak at the inner workings of the discussions that will be going on then this paper will be very insightful.
And as we mentioned earlier, no matter what changes are coming down the road over the next decade we always find ourselves coming back to real estate because we can:
Own it.
Control it.
And Cash Flow it.
And even more importantly, no matter what happens over the next couple of decades we believe a hard asset like good real estate will always have value one way or another. Whether that value is measured in Canadian Dollars, Gold Bullion or IMF "SDRs" really doesn't matter to us.
Onward!
Until next time.....Your Life. Your Terms
