You probably are like me and have never heard of Yang Lan, Sina nor Tencent before. Yang Lan is a most beautiful woman and also the "Oprah Winfrey" of Mainland China. In a recent presentation, she discussed the current status of China, social media and the potential future for the next generation of young Chinese.
Sina and Tencent are two micro-blog sites that respectively have 140 million and 200 million daily users and are the Chinese equivalent of our Twitter. 80% of the users are less than 30 years old. From 1980 to 2000, the one-child policy was in effect and most people chose to keep the son and abort the daughter. So there are 30 million more boys in this age group than girls. Imagine the problem there.
The education rate is high with this new generation, with only 1% illiteracy. 80% go to college. Here is the tough part: the average starting salary for a college graduate is $400 per month. But, the cost of an apartment due to ramped up growth is $500 per month. So these young grads entering the job market must share a small space with multiple people to save any money and to buy the goods they desire. They call themselves "The Tribe of Ants".
They also desire the best cars, clothes and all the things of status that will give them self worth. Five million people per month in China are purchasing new cell phones. These numbers are insane to comprehend.
There are 1.3 billion people in China. 100 million are in the ruling class (i.e. the government). 300 million are living in high style, better than the average high income earning Americans, while 900 million are living in poverty. When I discuss these numbers and issues with my Chinese friends and local business clients, they say they fear a political and social uprising in their home country.
The young and educated are Tweeting, or Tencent-ing about social misdeeds, corruption and other things that the government is doing that upsets the general population. Social justice and corporate greed are at the top of their list of concerns.
We have 300 million people living in America. 40-45 million are unemployed today. It is very hard to find a job fresh out of college, and even 50% of the MBA's are unable to find work. The Occupy Wall Street movement that is gaining momentum across the country is calling for an end to corporate greed and government mismanagement. Some want to shut down Wall Street, end capitalism and replace it with a redistribution of wealth, and give everyone free medical care and a living wage without working. I don't know what else they are asking for, but it is a little scary. I think things will get way out of control.
The reality is that our work force is shrinking, which means that the average person’s ability to buy goods and services at their local retailers is diminishing. People are cutting back and even those that can afford to buy all items large and small are also holding back. Companies are not hiring, and even government departments like the Post Office are letting people go. They are also going to stop Saturday deliveries.
Meanwhile, Los Angeles real estate continues to be strong and the market is hot. The top selling products are apartment buildings, and they are trading at very low cap rates (meaning the annual return is low), between 3% and 8% except for special foreclosure deals. We had a bankruptcy auction recently and the property sold for 100% over the asking price with three bidders going at it in court. Land for development of apartments is also in high demand. Corporate tenant-leased investment property is also in demand as investors are looking for a higher rate of return on their dollars than a bank can give them.
Additionally, interest rates are at a all time low. I was quoted 5% interest for a land acquisition and an SBA loan. For an owner/user the interest is at 5% or sub-5%. You can be in business and buy a building for your use and get a 20-25 year fully amortized fixed loan at 5% or less, which is amazing. In Los Angeles, industrial real estate vacancies are at 4.5%, but there are still deals to be had.
The desire to be in Los Angeles is great overseas. EB5 is a prime example of a program where a non-US citizen can invest $500,000 in a real estate deal and get a visa/green card. This is what is funding the deal across from LA Live for the new Marriott Hotel. The developer has partnered with equity promoters to raise the money and I heard it has been done. America is the land of opportunity, and many foreigners want to have their children go to school here and live in the safety of America. They watch our movies and TV shows and want to be in Los Angeles. They want to see movie stars and go to Laker's games, shop on Rodeo Drive and visit Las Vegas.
The average Chinese person cannot purchase quality goods and services due to the low economic value of their labor/work force. They cannot freely travel or realize their life ambitions. But the upper class can spend $500,000 and get into the United States. On the other side of the big pond, the average American is closer to falling into the same boat as their Chinese counterparts. People are struggling just to get by and are not being afforded the “American Dream”. Young Americans, welcome to "The Tribe of Ants".
Prediction Watch:
QE3 any day now.
An American bailout of $1-3 Trillion for Europe.
More hidden inflation with low interest rates, so keep buying the best Los Angeles real estate.
$2,000 an oz. gold is next.
