By Chloe Lutts
I wrote about the Dutch tulip mania
of the 1630s, still one of the most dramatic and instructive
investment bubbles the world has ever seen.
I pointed out a few similarities to the recent housing bubble,
the most striking of which was the emergence of financial
instruments that allowed unqualified buyers to enter the market.
Coincidentally, just as I was writing about the inflation and
popping of those bubbles, another bubble was imploding in
As you know by now, that was silver.
The immediate catalyst for silver's plummet was CME Group's
announcement of several imminent increases in the margin required
to purchase silver futures contracts. In the next few days, as
higher margin requirements were implemented, silver futures
prices plummeted 27%.
The higher margin requirements certainly posed problems for some
small- and medium-sized silver futures buyers, who were forced to
either increase the capital tied up in their silver trades, or
reduce the size of their bets on silver. Some inevitably chose
the latter, and silver prices slid, then tumbled.
However, as with the tulip and housing markets, the real story
about silver's collapse probably isn't about margin requirements,
but about prices and buyers. When silver's fall is over--which
could be now, or many months from now--I expect you'll hear the
same story I told last week. It's a story about prices that rise
so far, so fast, that they seem invincible, and of
under-qualified buyers who are drawn in by the fantasy of getting
rich overnight. Eventually, those buyers either run out, or they
can no longer afford the ever-pricier object of their desire
(silver is often called the poor man's gold, but at nearly $50 an
ounce last week, it wasn't exactly cheap).
Finally, prices crash. The same sequence of boom and bust has
occurred over and over again in virtually every investment market
throughout the world for centuries.
Some analysts already are telling silver's sad story. Shortly
after the margin increases were announced, on May 4,
American Wealth Underground
Editor Michael Robinson wrote:
"Remember, I warned you that 'hot money' runs scared. I'm talking
about day traders, momentum investors, speculators--the short
hitters who just wanted to jump on the metals bandwagon. We've
had so many amateurs getting into silver in the past few weeks
I'm actually glad that many of them will get flushed out. Then
the serious investors can get back to work."
The main question now is what price the "serious investors" can
support. With tulip bulbs, the answer was many times lower than
the price level hit at the top of the mania. But the
non-speculative demand for tulips--i.e., demand from people who
were actually planning on planting the bulbs in their
gardens--was always fairly limited. With housing, the answer so
far depends largely on region--it turns out there's not actually
that much demand for McMansions in the Arizona desert, but there
are still plenty of real buyers for New York City apartments.
As for silver, there will always be some demand for jewelry and
industrial applications, and investment demand will hardly
disappear. The fact is, emotion always colors the market's
expectations, because economic value depends on the subjective
opinions of people. There's no exact formula that proves what
silver should sell for ... but I wouldn't be surprised if this
precious metal continues to lose more and more of its luster.
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Speaking of post-bubble real estate markets, there are a few that
are turning into great places to invest--and not just for
bottom-feeding penny stock speculators. The latest
Dick Davis Dividend Digest
, which came out last Wednesday, featured a bumper crop of Real
Estate Investment Trusts, or REITs, operating in niche markets.
REITs own rental properties, so many of them bounced back from
the real estate crash, as buyers turned into renters. REITs are
structured to pass on the majority of their rental income to
shareholders, making them great for investors seeking regular
income. Of course, the amount of income they pass on depends on
how much they take in--and many were forced to cut their
distributions sharply during the Great Recession. But a few years
of gradual improvements in some rental markets have allowed many
U.S. and Canadian REITs to begin increasing their distributions
again. In the
, I quoted Barclays Capital REIT guru Ross Smotrich, who recently
wrote: "Some raised dividends in 2010, and we expect most REITs
to face upward pressure on payouts this year. Across our coverage
universe, we forecast a 2011 average dividend increase of 9%."
Of course, all is still not well in real estate land, so you have
to pick the right REIT in the right market. The ones featured in
last week came from several of the most resilient sectors,
including multi-family apartment communities, Canadian shopping
centers, New York City office space and medical facilities.
Today's Investment of the Week comes from the latter category. It
was recommended by Jack Colombo, editor of Richard Lehmann's
Forbes/Lehmann Income Securities Investor
Senior Housing Properties Trust (
is a real estate investment trust, or REIT, which owns senior
independent living and assisted living communities, continuing
care retirement communities, nursing homes, wellness centers, and
medical office, clinic and biotech laboratory buildings located
throughout the United States. The majority of their properties
are leased to unaffiliated tenants. As of December 31, 2010, they
owned $3.8 billion of primarily senior living properties with
approximately 27,000 living units located in 36 states. For their
fourth quarter and full year 2010, Senior Housing Properties
reported net revenues of $97.3 million and $339.1 million, well
above the $87.3 million and $297 million reported for the same
periods in 2009. Net income fourth quarter and full year 2010 was
$33.9 million and $116.5 million. Fourth quarter and full year
2009 net income was $32.1 million and $109.7 million. Funds from
Operation (FFO) improved in both the quarter, $57.2 million vs.
$52.4 million, and full year 2010 $218.8 million vs. $206.8
million. ... This is a good security for a low- to medium-risk
growth and income portfolio. Buy at or below $24.00."
to learn more about SNH and other high-potential recommendations
Dick Davis Dividend Digest
Wishing you success in your investing and beyond,
Editor of Investment of the Week