Investing for stable, steady growth

When people are interested in improving their investment results, what do they want more of? Typically, they want more of two things: stability and total gains.

Stability means that the total value or account balance will consistently rise with only very small declines. (That is also known as “wealth preservation” and the most common strategy for preserving wealth is diversifying across the most stable trends and markets.)

Total gains of course means that whenever you choose to withdraw money from your investment accounts, there is a lot more money there then what you put in. So, in summary, we value gains that are not just consistent, but also large.

Now, for some added perspective, let’s look quickly at the best-performing group of stocks in the US stock market last decade: the HUI sector. Note that most investors and even investing professionals have never heard of that group of stocks (because most people including financial professionals have not been focusing on the best results that are easily available to them- they either try too hard or not hard enough).

The above chart shows the performance of the stock prices of that group of 15 US companies. From a low of $35 in late 2000, the price of the HUI sector increased tenfold by 2006, gaining over 1600% by 2010.

Did your stock market investments grow that much last decade? Most investors (including in the US) experienced little or no gains overall in their stock investments last decade. In the case of US investors who had been heavily concentrated in US high tech companies such as are found on the US NASDAQ stock exchange, typical returns for the decade were losses of 50% or more. (See chart below.)

In other words, rather than witnessing consistent gains, many investors experienced continuing losses. Still, many of them continued to stay invested in losing methods and strategies for most or even all of the decade.

In fact, you may even be one of them. Whether or not you experienced disappointing investment results last decade, you may be quite interested in producing investment results that are both more stable and more profitable.

However, you may not know how to produce the results that you would value enough to alter your investing method. That is why you are reading this, right?

Before I say more about a simple strategy to consistently produce large gains (while maintaining a stable balance), let’s combine the two charts above to make something very clear. Here are the two charts shown together:

While the large gains of HUI (the tan line) are obviously far better than the large losses of the NASDAQ composite index (“COMP”), we can notice periods when HUI did quite well and periods where it did not gain. In the years 2000, 2004, & 2008, HUI lost value for the year (especially in 2008).

Why do I emphasize this? Because even when investing in 15 companies (which might seem like a lot more diversification than investing in only 1 or 2), there can still be long periods of no gain or even large losses (just like when investing in a bundle of 100 or more stocks like in the US NASDAQ).

Diversification itself does not provide for stability or wealth preservation. The specific method of diversification must fit the goals of the investor, or else that method should be discarded or at least revised.

So, if you want a stable balance or market value (with only very small declines), that requires WISE diversification. Further, that may even mean avoiding illiquid markets like real estate (markets that can be very hard to quickly sell, often taking weeks or even months to exit from the investment).

Wise diversification means having a group of investments that are all consistently increasing in value. If one or two of them briefly fall a few percent or even more than that, that still will not effect the total balance much. Why? because the majority of the investments are still making consistent gains!

Imagine a real estate investor who loses even 10% or 15% in a particular year. If that investor is also investing much more net worth in other investments that are all making large gains (like the best stocks, the best commodities, and the best currencies), then even losses as large as 10% in a year in one investment will not produce an overall net loss. Why? Because that investor was wise enough to diversify in ways that profited from consistent trends in other markets besides real estate.

Now, let’s review my personal background a bit. Then I will reveal the other issue besides diversification that is essential for vast improvements in your investment results. Let’s read a paragraph from an investment commentary published in 2003 on March 3rd:

“Yes, we can profit from the collapse of the credit bubble and the subsequent stock market divestment. However, real estate has not yet joined in a decline of prices fed by selling (and foreclosing). Unless you have a very specific reason to believe that real estate will outperform all other investments for several years, you may deem this prime time to liquidate investment property (for use in more lucrative markets).”

I wrote that. Here is the link to the full article: http://www.gold-eagle.com/editorials_03/hunn030303.html .

Is it interesting to you that in early 2003, I was referencing that real estate markets would eventually decline in price because of an increase in foreclosures? Is it intriguing to you that I was referencing a collapse of the credit bubble (which means a decrease in the total amount of borrowing and lending, like for mortgages)?

I referenced it being “prime time” to liquidate (sell) property. I emphasized that other markets might be “more lucrative” (more profitable).

What investment markets were I emphasizing in early 2003 as more lucrative than real estate? If you click the link above and scroll down to the end of the article, here is the last image you would see:

That is a chart of the performance of the HUI sector in the two years prior to March 2003. That sector, which went on to gain over 1600% last decade, is the one that most investors ignored in favor of things like real estate and stocks from the US NASDAQ (both of which had their worst decades in a very long time).

I strongly recommended against real estate. I emphasized the gains of over 200% in the prior two years in HUI (which I knew would accelerate if commodity prices continued to outperform most stocks).

What else did I recommend? I noted the multi-year rallies in commodities like Gold and Oil. I also emphasized why I expected most US stocks to do less well than commodities.

“easy credit fed the stock market hysteria…. Many even rushed to refinance homes again (trading equity for cash) to create the final wave of the 90s stock mania.”

Of course, that wave of real estate borrowing did not end in 2003. As it continued, many US stocks eventually recovered from their declines- but not all.

Except briefly before crashing in 2007, the high tech sector of the US NASDAQ exchange was down more than 50% from it’s 2000 peak almost the entire time last decade. The housing sector plummeted in 2005 (“HGX”) and the financial sector (“XLF”) plunged in 2007 (shown below).

So, that is a little background on why you might be especially interested in what I personally can tell you about extraordinary investment strategies. In addition to diversifying, the other simple key to consistent profits is to analyze trends and exit from trends as soon as they weaken.

As an example, let’s look at HUI in 2003. First, here is the “raw” chart:

Here I add one trendline:

 

Here I add another:

The two lines are obviously parallel, right? That is called a trendchannel. They form very frequently in many price charts, including for bundles of stocks like the HUI sector of 15 US companies.

To a trend analyst, I would notice that when HUI rebounded in early October, that rebound was at a parallel slope (angle) to the three weekly highs from mid-August to mid-September (the green line). So, I would buy HUI and hold it as long as that established uptrend continued.

I would buy between 190 and 200 in early October, then hold and watch very closely in the first week of November for a possible exit at 200. That was the second test of the lower (red) trendline.

In late November, I would exit between 245 & 255 when HUI “broke” out of the trendchannel. I might sell “conservatively” when HUI reached the green line (depending on what other opportunities I noticed in other markets). Or I might hold on while HUI surged up above the trendchannel briefly and only exited when HUI penetrated back in to the trendchannel.

In any case, that would be a gain of over 20% in several weeks. That is better than most people do in a year. Are you interested in results like that?

Then, in December, when HUI reached the lower trendline again, I would be looking for buying in again- but ready to exit with a small gain or even small loss if prices did not continue the upward trend. Here is the same trendchannel plus the next two years of HUI:

Depending on what I saw in other markets, I might not be interested in HUI again until mid-2005 when HUI fell toward 160 (a prior low) or even in November 2005 when it broke above 250 (the brown line).

Maybe you understand the trend analysis referenced above. I picked a relatively simple example, but the point is that there are lots of trends happening all the time. If I find a few of them and trade them conservatively, I will keep my account balance growing steadily. Any particular day or week, there could be a small loss in one or two of the positions, but with several positions all in clear uptrends, the account balance would consistently increase with occasional slight declines (triggering “trailing stop orders” to protect the prior gains).

Why don’t more investors do this? Because it is unfamiliar to them- even complicated and stressful. The research of comparing several markets can be time-consuming and tedious.

Why don’t more professionals offer this? Most investment professionals earn commissions from selling investments, not a percentage of any gains. They have no vested interest (profit-sharing), so their motivation to perform well is minimal if any. They do not suffer any great loss when their clients lose money. They are salespeople, not business partners.

What is different about me? I am open to offering you access to being a partner in my trading business. I am so confident in my results that I only ask for a share of the profits that I will consistently generate for you. Contact me if you are interested in partnering with me so that you can watch your investment account balances consistently multiply.

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“Who should I blame next for the results of my actions?” – The Devil

JR: wow- some investments that were $3 the other day (earlier this week) and then yesterday ranged from $7 to $11… are $35 right now. BUT, I sold them yesterday at $10. Oh well, I take a conservative gain sometimes and miss an even bigger one.

SB: Holy smokes! And of course you are so zen about it. I guess you are the perfect person to be playing the market.

• 

JR:

• Trading (at least short-term trading) is a rather simple activity in terms of emotions. There is curiosity, excitement, fear, disappointment, and gratitude. All of those will come up. Short-term traders are speculating and they know it.

  It is the people who do not know that they are speculating that end up blaming a US President for their foreclosure (or glorifying a President for their 401k gains). Those folks are gambling and seem not to know it, so they do very little research and are very shocked when they suddenly learn that their $200,000 investment of borrowed money is an extremely high-risk speculation. Naturally, realtors and mortgage brokers tend not to emphasize the immense risk of foreclosure and bankruptcy that goes with gambling hundreds of thousands of dollars of borrowed money.

  

  Official photographic portrait of US President Barack Obama (born 4 August 1961; assumed office 20 January 2009) (Photo credit: Wikipedia)
• So, unlike with credit cards where people understand that they are promising to pay back the borrowed money, real estate speculators tend to presume that the real estate itself will cover the debt (which is quite ridiculous really- like think about buying a car on borrowed money and then expecting the car NOT to depreciate- how crazy is that- of course assets tend to depreciate as new construction methods make old buildings… seem just plain “old-fashioned” – and of course there will be significant upkeep expenses, especially on real estate!).
• But besides all of those facts which even a person investing cash in real estate will recognize, keep in mind that a $200,000 mortgage will typically cost more than $300,000 to pay back. Unless there is a huge appreciation in the resale value of the real estate (which most speculators simply assume will happen across 15 or 20 years), borrowing may be much more expensive than renting, like in the case of people who bought real estate in Japan in 1989 at the peak of the boom. 24 years later, the real estate market is still way down. Most excited speculators simply do not research the reality of markets because they are so excited (greedy?).
• Consider that if you had $200,000 cash, you might be quite skeptical to spend it all on real estate (rather than diversify across a few investments). However, if you did not have hardly any cash, but could get a $200,000 loan, you might be much less skeptical about spending $200,00 of borrowed money. However, that is the “logic” of a hysterical mania. People “should” be more conservative with borrowed money. In fact, during speculative manias, people tend to be so excited that they think of gambling with borrowed money as safer than their own money. Why? Because if someone will lend them so much money to purchase real estate, people presume that indicates that real estate is safer than stocks or lottery tickets or whatever. However, look at Japan’s last few decades! (picture shown includes 1989-2011)
• 
• So, if I lend you money to invest in stocks or lottery tickets or real estate, that does nothing to change the inherit risk of those markets. However, if huge groups of people all lend money to people to invest in a particular market (like real estate), that tends to dramatically inflate prices in that market, making it extremely expensive for renters and so on. In 2003, when I started writing about the coming real estate collapse (which began in the US a few years later, but is far from over), I was already clear about basic principles like I have just mentioned here. Further, even though there has been a dramatic decline (over 50% in real estate prices here in most of Arizona), most people are still quite illiterate when it comes to the risk involved in speculating on a market like real estate which is inflated by huge amounts of lending and can quickly and sharply deflate, just like happened in Japan in the 90s and last decade, or in the US in the 1930s.
• As another analogy, does it change the long-term resale value of car to buy it in cash or buy it on borrowed money? Not at all, right? However, many people act more confident simply because they are speculating with borrowed money rather than cash when it comes to real estate. In fact, they are typically acting only on excitement, not as disciplined speculators. So, when their high-risk choices are exposed as high-risk choices, they tend to react with denial and blame and so on. That is kind of like eating a horrible diet and then complaining that diabetes and infertility and so on are arising.
• Does it change the biochemical results if the food is provided for free, bought with cash, or bought with borrowed money that still needs to be repaid? Not at all, right?
  If people want good health, it can be important to research the results of various diets. Those who blindly rely on the FDA get the natural results of their blind reliance.

  

  English: Logo of the . (Photo credit: Wikipedia)

  If people want wealth and security, it can be important to research the actual results of various investment strategies. Most people do not really have any strategy at all. They are just following the herd.

  When everyone else does well, so will the herd followers. When everyone else is facing bankruptcy, so will the herd followers. When everyone else is complaining about how Obama is to blame for high gas prices, so will they.

  However, high gas prices in the US tend to correspond to high prices elsewhere (Europe, Japan, etc). Also, gasoline prices may $4 in California while they are $3 in South Carolina. Is Obama also to blame for that?

  Now, to continue the analogy, let’s say that people want a politician to change things to lower gas prices and raise housing prices (like because they are already $50,000 upside down in a home that they cannot afford to sell). They are in an extreme of desperation.
• To me, that is kind of like eating a crappy diet, getting sick, and then wanting to keep eating the same diet and having the President change biochemistry so that the same diet will produce different results. That is deluded, hysterical, and… very common in regard to how people think about investments.
• Their strategy is follow the herd blindly, then complain about a politician when things do not go well for them. That is the same strategy as blindly following the advice of doctors who claim not to understand cancer well enough to cure it. If they do not understand basic physiology and say so openly, then what credibility do they have to give advice? Why exactly should I do the thing that I know will cause all of my hair to fall out? Why shouldn’t I research long-established methods for not only preventing but remedying cancer? Well, one factor is that special interest groups like the FDA have taken extensive measures to censor such information while investing huge amounts of money in to indoctrination programs about how cancer is allegedly incurable.

• But not all of the information is censored or targeted for prosecution. Anthropological research that clearly shows what cultures (and what diets) produce zero incidence of cancer have been around for at least 80 years. But many modern people operate in a state of ongoing low-level panic. When a holy doctor from the royal priesthood of the FDA says that cancer is incurable, people just accept that without question typically. They think that something is a scientific fact just because the FDA said so!
• (John Hopkins University recently admitted that it had been wrong for the last few decades about something, and many people seem to believe that because they admitted being wrong, now they suddenly have more credibility when they publish something. Well, consider that they never did have much credibility and still do not! Results establish credibility. If you want a cancer cure, go to where there is either no incidence of cancer among large groups of people and copy their behaviors or else go to where there are long lists of people who have had totally recoveries from cancer and copy their behaviors. That is only logical. Or, keep paying attention to what the jokers at John Hopkins University are saying today that they will be retracting in a decade.)
  So, when a diagnosis of cancer is made, most people just react with terror. They do not think “why should I accept what this person who claims ignorance about how to cure cancer is saying?” (Actually,  recently more and more people do think with a healthy skepticism about the religious fanaticism of the superstitious worshipers of “incurability.”)

  Notice that most people do not think “why are cancer rates rocketing across recent decades?” They do not look for books from the 1930s on why cancer was so rare for most of human history, right? Further, if people came knocking on their front and offered them such books for free, would they even read them in that case? Many might not. Many may not think of personal responsibility as a priority.
• Likewise, when economies shift, do masses of people chase down those who explicitly predicted the shifts? No, they keep tuning in to the same mass media outlets who failed to give advance warning. Why? Maybe these mass media outlets (programming) which are by now established to have no credibility or competence will suddenly have competence and credibility.
• Again, it is a low-level panic that then resolves in to terror and desperation with herds of people clinging to the familiar. That is why the opportunity for the few who are alert is immense. The masses are still relying on TV shows for instructions on investing, relying on Obama to secure your retirement through social security, and so on.

Panic attack (Photo credit: Wikipedia)

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2 things crucial to the future of your business: the local economy and what you value most

“Petrol (gasoline) prices per liter in Euro at Childerley Gate (UK). A historical record of fuel prices in mid-2005!” (Photo credit: Wikipedia)

What you value most could include valuing a particular kind of customer (or any order for a particular service that provides an excellent profit margin). What you value most could also include valuing a particular amount of customers (or a specific increase of profit). Of course, what an individual values most can change as they change, as their household changes, and as the community around them changes, like as gasoline prices quickly double or drop by a dollar or two.

What the people around us value can be labeled “the local economy.” What people value includes how they choose their priorities of what to spend money on, how to select which businesses to use, and every part of the process of choosing to either do business with you or do business with someone else instead.

“Business development” is a broad term that includes planning, marketing, generating leads, and converting leads in to transactions. Many small businesses are generally familiar with the basic idea of business development. Realistically, most small business owners are very familiar from personal experience with converting leads in to transactions, yet they are just as surprised as the general population by major economic changes.

Certainly, many businesses have major increases in their profits by reviewing and refining the process used for converting leads to transactions. Some business owners recognize that as an issue in which a major improvement is possible. However, in the 13 years that I have been consulting with business owners, the vast majority have, in my opinion, vastly underestimated the value of competent economic forecasting.

Phoenix Arizona 24th Street & Camelback Road from the Phoenix Mountain Preserve (Photo credit: Al_HikesAZ)

In the area of Phoenix (Arizona), the economic shifts of the last decade have substantially altered almost every local business. As energy prices rose (including for gasoline), two factors made Phoenix more sensitive to that change: the heat of the desert (which creates extremely high electricity bills in the summer for cooling) and the sprawl of the suburbs (which creates unusually high costs for commuting across long distances, including when the auto’s AC is constantly on high to keep the inside of the vehicle cool when it is well over 100 degrees outside).

I published forecasts in 2004 alerting my readers to the issue of gasoline prices rising so much that it would effect the budgets and spending patterns (including investing patterns) of businesses and consumers within the US in particular, but also in places even more dependent on importing fuel, such as Greece, Italy, the UK, and Japan (which has been in a “recession” for the last 23 years). I published warnings in 2003 of the emerging instability in real estate and stock markets, but it was not until 2004 that I recognized rising fuel costs as the underlying issue. In mid-2005, when the real estate market in Phoenix shifted (as well as in another sprawling desert suburbia, Las Vegas), I had already been watching for the shift and published my recognition of the first stages of the shift that eventually spread to the rest of the US real estate market and then the financial stocks (companies that had been gambling on extreme concentrations of risk exposure in real estate, such as AIG, FNMA, FDMC, Countrywide, Washington Mutual, Merrill Lynch, Bear Stearns, and then even Bank of America, JP Morgan Chase, and so on).

Bank of America recently acquired Merrill Lynch, saving Merrill Lynch from going out of business (Photo credit: Wikipedia)

The Washington Mutual logo prior to its acquisition by JPMorgan Chase. (Photo credit: Wikipedia)

(In the late 1920s, Charles Merrill, the co-founder of Merrill Lynch, repeatedly warned his clients in advance of the emerging risk in the US stock market. In recent years, apparently the company was not so committed to competence analysis of emerging trends.)

Merrill Lynch & Co. (Photo credit: Wikipedia)

Many local small businesses have been challenged by the decreasing tide of people moving to the sprawling desert suburbs. New construction in the Phoenix area is a small fraction of what it was in 2004. New people moving to the area had been so high that many local businesses had been extremely successful without ever advertising. However, cultivating customer loyalty is a huge issue now for many businesses. Further, even with word-of-mouth, there is a transition away from spoken recommendations toward the broadcasting of typed electronic messages like “can any of you recommend a really good ____?”

Since I have been in the advertising field for 13 years, my work history shows that I have been part of the shift away from print and radio toward the internet. Obviously, the shift toward the internet is far better known by most people than the causes of the economic shift that has slowed the economies of Greece, Phoenix, Japan, and other areas most sensitive to rising fuel prices. (In fact, in this piece, I am not even addressing WHY global fuel prices reversed a long-term trend in 1999, but that has been the main focus of my forecasting publications since my 2004 use of the term www.TheDominOILeffect.com.)

So, almost everyone who has studied business trends at all in the last 10 or 15 years knows about the huge shift toward the internet and growing electronic resources like google, facebook, blogs, and things like verified reviews and ratings. The shift of business toward the internet is almost as obvious as how computers altered how business is conducted or how the telephone altered how business is conducted or even calculators and adding machines and credit cards and checkbooks and currency.

Next year, the most popular currency in the world, the Federal Reserve’s “US Dollar” note will be 100 years old. It simply did not exist in 1912.

100 years ago, the technologies altering the world of business were things like the use of residential phones (“landlines” were still replacing telegraphs in remote parts of the US). Automobiles were still extremely rare, kind of like owning a private jet is very rare today. There was no such thing as TV advertising or cable TV or even television sets.

Now, millions of people are walking around with new mobile phones that have computing power that might have cost a million dollars in 1999. Most business owners are only vaguely aware of the growing waves of business flowing in to the internet.

As fuel prices continue to rise relative to most other items such as real estate and computers, people are going to value their time newly. As technology allows growing numbers of people an extremely fast access to extremely relevant information, people are not going to drive around all day shopping for deals to save $20 or even $50. People will save time and money by using the internet.

Imagine businesses that clung to using a telegraph instead of getting a telephone. Imagine businesses that favored typewriters over word processors. What happened to those businesses? They mostly disappeared, right?

I know some farmers who only recently bought a telephone and do not own a computer. They are Amish. I do business with them regularly.

However, they are farmers. They may not use automobiles personally, but they sure appreciate that UPS and Federal Express will deliver their products for them.

Image via CrunchBase

Is your business ready for the future today? How would you be sure?

In 2004, were you planning for the coming economic changes like rising fuel prices and a huge decrease in borrowing and lending? Most business owners may have no idea how far they are from the reality of the business trends that are coming to their industry and their local economy (as in the changing values of their customer base).

I have talked to many confident millionaires in the last 10 years. A lot of confidence was not enough to keep them out of foreclosure and bankruptcy.

Government committees across the world have also been profoundly confident in their projections of tax revenues. Myself and others have warned them that their projections were “approaching the ridiculous.” They sometimes called us ridiculous.

There may have been some excessive pessimism as well as some excessive optimism. Consider that there is no such thing as an excess of realism.

English: Damage to the JP Morgan Chase Tower after Hurricane Ike, Houston, Texas (Photo credit: Wikipedia)

If you are open to a realistic assessment of what are the most valuable refinements that you can make to the way you conduct business, then you may realize that sometimes a single change can make a huge difference, though a series of small changes is often what leads to the most historic breakthroughs. Those who are willing to benefit from changing economies and changing technologies are welcome to contact me now. From realism about the changing economic trends to realism about the changing technology of how your future customers are selecting which business to use, how much realism are you willing to value?

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http://www.inc.com/articles/201103/businesses-hit-by-rising-gas-prices.html

www.youtube.com/watch?v=8G70lBEAFl8

www.fueleconomy.gov/feg/gasprices/faq.shtml

gaspricesexplained.org/

http://www.smartplanet.com/blog/business-brains/rising-fuel-prices-push-businesses-to-reconsider-fleet-options/23998

http://www.bizjournals.com/dayton/news/2012/05/24/delta-cutting-flight-between-phoenix.html

myths and realities: US real estate price variation by region, including Phoenix

“Everyone knows that real estate prices in New Orleans were devastated last decade by hurricane flooding.”

“Everyone knows that real estate always rises.” 

Actually, anyone who has looked at actual data knows that neither of these two statements are true. If you have the interest and courage to look at the simple reality, I am about to show you some actual data so you can see for yourself. As a word of caution, any myths that you may have now about real estate markets may be about to be revealed as unrealistic. Are you willing to recognize the simple truth?

As a brief reminder, I am one of the MANY people who publicly forecast (starting in 2003) the widespread decline of real estate prices. In this article, I will repeat to you WHY real estate prices have dropped and then I will repeat the basics of my 2004 hypothesis regarding the cause of the regional variation in the decline in real estate prices. As I show you the actual data, you may assess for yourself how strongly my 7 year-old hypothesis is supported by the data on regional variation of real estate prices, which became evident in the US by mid-2005.

First, let’s glance at this chart of New Orleans real estate prices for more than three decades

What do we notice there in the chart? The biggest decline in the chart above was from 1985 to 1988 (to the left of the center of the line). Further, that was not even a very big decline.

So, where was the devastating decline in real estate prices from Hurricanes Katrina and Rita and the related flooding? There simply was no devastating decline.

Obviously, the prices of many homes in New Orleans went down by close to 100%, but the actual average price of homes sold in New Orleans did not change much at all. Could that be from a higher proportion of inexpensive homes selling? Sure! The decline there in the average price of a sold home has been less than 8% since the all-time high in 2006.

By the way, if it seems notable to you that the all-time high of real estate prices in New Orleans was in 2006, that may be because you know that the “devastating” hurricanes were in 2005. In other words, after the hurricanes, prices were still rising. In fact those two years had the biggest price increases in a single year within the last 3 decades:

2005      10.22%
2006      10.67%

Why? Maybe it was because a bunch of people in New Orleans suddenly needed a new place to live! Does that make sense to you?

Consider that economics is easy. When someone who understands it talks about it, it can be very easy to understand. On the other hand, if you attempt to learn to pilot an aircraft from a person who has been blind from birth, then you may find that their instructions seem rather mysterious. Again, economics is simple and easy, but the patterns identified through the field of economics can also produce either euphoria or terror- and those emotions can obscure precise recognition of the simplicity of the patterns of reality.

For perspective, in the last 5 years, the change in real estate prices in New Orleans (down 7%) is very close to the median (midway point) for the 381 biggest US metro areas. For the last 20 years as a whole, New Orleans has had one of the highest rates of appreciation of any metro are in the US: up 127% on average.

New Orleans real estate prices:

Last 5 Years                              -7%             Rank: 197 of 381 (48th Percentile)
Last 10 Years  . . . . . . . . . . . .   37%            Rank: 93 of 381 (75th Percentile)
Last 20 Years                            127%          Rank: 39 of 355 (89th Percentile)
Decline From All Time High        7.97%
http://www.forecast-chart.com/estate-real-new-orleans.html

In summary, how big of a factor were the hurricanes on real estate prices in New Orleans? To use scientifically imprecise terms, I would say: “not very big at all.” The hurricanes produced a brief mini-boom that added slightly to the 127% gains of the last 20 years.

Finally, did the hurricanes “devastate” prices? The clear answer is “no!” The hurricanes raised prices.

Now, rather than tell you my assertion about why real estate prices have varied by region in the US, I am going to show you some data and maybe ask some leading questions. Then, you can notice if anything new becomes obvious to you as we go.

First, in about one-fourth of the 400 biggest cities in the US, real estate prices have actually risen in the last 5 years (counting from late April 2007 to late April 2012). The next city we will glance at has done extremely well (relative to the average) in the last 5 years, with real estate prices rising 2%. However, it is far below average for the last 20 years: only up 67%.

(With price increases that small, real estate prices in about one-fourth of the biggest cities in the US have not even risen as fast as the inflation of the money supply. For the last 20 years total, real estate prices in one fourth of US cities has been a net loss after adjusting for inflation. In all of those places, savings accounts or government bonds have produced better investment gains than real estate.)

Here’s the data for Dallas:

Real Estate Appreciation, Rank & Percentile

Last 5 Years                              2%    

Rank: 95 of 381 (75th Percentile)

Last 20 Years                            67%    

Rank: 263 of 355 (25th Percentile)

           http://www.forecast-chart.com/estate-real-dallas.html

Clearly, the chart shows that Dallas had a big increase from the 1970s to the late 1980s, which was mostly just an increase due to inflation of the US Dollar. Since the 1980s, Dallas real estate prices been relatively steady, not even keeping up with inflation.

Next, let’s review a few other metro areas for contrast. I’ll show one that did even better than New Orleans for the last 20 years as well as the very biggest decline- much worse than in Dallas. Further, I will begin to put the various cities in to two groupings, contrasting the metro areas that have done the worst in the last several years, then presenting a question about what common factors are obvious for those two areas (Las Vegas and Phoenix).

Here is one of the best performing US real estate markets of the last 20 years: Denver       

Last 5 Years                              -6%

 Rank: 180 of 381 (52nd Percentile)

Last 20 Years                            147%

Rank: 16 of 355 (95th Percentile)

Decline From All Time High        5.56%

   http://www.forecast-chart.com/estate-real-denver.html

When did Denver do so much better than the rest of the US? The 1990s were big for Denver.

Seattle            http://www.forecast-chart.com/estate-real-seattle.html

Real Estate Appreciation, Rank & Percentile

Last 20 Years                            116%

Rank: 60 of 355 (83rd Percentile)

Last 5 Years                              -20%

Rank: 294 of 381 (22nd Percentile)

Decline From All Time High        23.43%

Below is the chart for a city where real estate has done worse than inflation for almost every year in the last 30 years, though with a notable exception several years ago. Real estate prices there have returned to where they were in the mid-1990s, producing in a huge loss relative to inflation (and also relative to a savings account or US government bond or most any other investment, with a huge decline in “real purchasing power”). In the last 20 years, real estate has only gone up 5% (and is still falling), making this the very worst city in the US for real estate prices for the last two decades as a whole. Prices have fallen 60% there in the last 5 years, making it the second worst market in the US.

In other words, a million dollars of real estate there in 2007 would be worth about $400,000 now. Or, holding dollars as cash would have allowed one to buy about 2.5 times as much real estate there now as 5 years ago.

Las Vegas        http://www.forecast-chart.com/estate-real-las-vegas.html

Real Estate Appreciation, Rank & Percentile

Last 5 Years                              -60%

Rank: 380 of 381 (Bottom .20%)

Last 20 Years                            5%

Rank: 355 of 355 (Bottom .00%)

Decline From All Time High        59.81%

 Here’s the last price chart I will show: the Phoenix area, where I live. The Phoenix price chart looks a lot like Las Vegas, though the 1990s were notably stronger in Phoenix:

Phoenix            http://www.forecast-chart.com/estate-real-phoenix.html

Last Quarter                              2.67%         

Rank: 22 of 381 (94th Percentile)

Last 5 Years                              -48%

Rank: 364 of 381 (4th Percentile)

Last 20 Years                            69%

Rank: 260 of 355 (26th Percentile)

Decline From All Time High        47.78%

I also highlighted that in the last quarter (early 2012), Phoenix real estate had some of the biggest rise in price in the US. People  here might get excited about that. Then again, lots of people here were pretty excited in 2004 or 2005, and prices are down 50% since that time of popular excitement.

In 2003 and 2004, when I was first talking with people about the coming collapse in real estate prices, some people asked me “when will real estate investing be safe (or smart) again?” My answer: when most people laugh at you when you mention investing in real estate, that means that there is a lot of room for other investors to enter the market.  When more new investors are entering a market than old ones leaving, prices tend to rise.

In the short run, it does not matter really if the new investors are buying with cash or borrowing with financed mortgages. Prices will rise if more money is flowing in than is flowing out. Economics is not “rocket surgery!” Of course, if people are borrowing money to enter a market (real estate or otherwise), then the rise in price will not be nearly as stable as if they are buying with cash (100% down with no monthly installments).

Generally, the higher a portion of the cash flowing in to a market that is from borrowing, the less long-term stability there will be for prices. In contrast, when people are buying brand new homes paid for in cash, that can be the strongest type of buying in terms of long-term stability.

A surge in New Orleans  in 2005 and 2006 would be an exception, since people were mostly just  replacing destroyed homes, not adding to the total number of homes. To have long-term stability of home prices in New Orleans, there would also need to be massive engineering improvements to protect the homes from flooding, since the destroyed levies offered even less protection than before they were destroyed (none at all).

So, what is similar about Phoenix and Las Vegas that separates them from all of the others? What distinguishes those two places from other parts of the US?

One of  the most obvious things to any summertime visitor is that these places approach 120 degree temperatures every summer. They are deserts at low elevations.

However, viewed from an airplane, they are also big and spread out. They feature sprawling suburbs.

Other cities are in a desert (like Baghdad or Cairo), and other cities have sprawling suburbs (Chicago, Los Angeles), but where else do we find both together? What economic factor is most extreme in sprawling deserts?

Maybe you have noticed the price of fuel rising in recent years. If you lived in a sprawling desert metro area, maybe you have also noticed that as you moved further out in to the suburbs and got a less fuel efficient vehicle, your fuel expenses for a weekly commute have gone from $30 to $150, especially when you were running the AC all the time in the 110 degree summer heat.

Maybe you have also noticed that your summer heating bills have gone from under $200 per month to over $400 per month.

That is a glimpse of the reality of the last several years for sprawling desert metros like Phoenix and Las Vegas. In other areas, gasoline prices have certainly risen (with gas prices per gallon in the US ranging by region from under $3 per gallon to over $4 per gallon). However, most places have not had the severity of the decline in real estate that the sprawling desert metros have had.

Further, most places do not have $400 per month cooling bills in the summer. That is more than some mortgages!

Could the severity of the decline in Phoenix and Las Vegas be related to other factors not mentioned here? Of course! Again, Phoenix prices have only fallen 50% so far- not as far as Las Vegas. Clearly, there are differences between the two areas.

However, if I had to pick just one factor to explain the severity of the decline in sprawling desert metros, I would assert that it is because they are sprawling desert metros. But why recently? Why not 1995 or 1985?

I forecast in 2004 that rising fuel prices would destabilize the economies (including lending markets and real estate markets) of Europe and the US (like I assert had already happened in Japan in the 1990s). It was years later before I specified that regions like Phoenix and Las Vegas could be expected to do most poorly in any economic shift caused by rising energy prices. However, since I had been already looking for a decline in real estate prior to 2005, I was watching for it prior to 2005 and when the decline started to be obvious in the market data for August 2005 (at least in Phoenix), I promptly identified that (publicly) as the beginning of the US real estate decline.

Now, if people are not complaining of a headache at this stage, they often ask my forecasts for the future. I already made my comment about the importance of a rising number of new homes (especially bought mostly or completely with cash). Now, let’s look at some actual data:

Is there any historic increase in the demand for things like permits to build new houses in the US? No, not yet. in contrast, there are actually a huge number of existing homes with delinquent mortgages or even already lining up for foreclosure auctions (as I was referencing by 2004 to be nearly inevitable in the near future- as in now).

We could also look at data for mortgage applications or for the “traffic of prospective buyers” (as measured by the National Association of Home Builders). However, what is notable to me is that most people considering the purchase of a home do not look at that data and may not even be aware of it. The near absence of an interest in actual data is to me a “de facto” admission that there is no new surge of sanity or diligence among buyers. They are buying based on the exact same rationalizations that were grossly wrong in 2006 (and still may be).

Relative to overall price fluctuation in the US, average real estate prices continues to decline:

Average U.S. Real Estate Price (Logarithmic Graph) divided by CPI (Consumer Price Index)

What do I recommend next for investors? I recommend slowing down enough to focus on the possible value of forecasting. You may recognize the possible value in finding a competent forecaster and hiring them as an adviser (and then actually doing as they recommend!).

While  there are an enormous number of forecasts being promoted and publicized, some are more valuable than others. What are obvious factors to use in evaluating a forecaster or forecasting method?

Does it correspond to the actual data? Is there an established record of extraordinary value and accuracy? Is the logic clear and simple?

As I have consistently said since 2004, I assert that energy prices are extremely important to economic activity. Energy prices (adjusting for inflation) had been declining in to 1999, then reversed in to what I asserted in 2004 could be a very long-term increase. By 2008,  energy prices reached high enough to destabilize the prior trends in economics and finance. Falling demand brought down energy prices sharply since then, but have recently approached the highs of 2008, with gasoline prices again exceeding $10 per gallon in parts of Europe.

On that note, if you think that $4 gallons of gasoline have effected the economies of sprawling desert metros like Phoenix or Las Vegas, have you considered what would happen at $8 or $12 per gallon? Since 2004, I have been thinking ahead of such issues and the implications are easy enough to identify.

In this article, I recognize that I have not referenced WHY energy prices began a long-term increase in 1999. Because I extensively addressed that in my 2004 publications predicting an emerging dramatic reversal in many economic trends, I will simply provide a few links here:

www.TheDominOILeffect.com

 

2004 – The Real US Deficit: OIL!

www.gold-eagle.com/editorials_04/fibonacci110704.html

2005- Navigating the New Economy, Lesson 1: “Worth its Weight in… OIL“

 www.321energy.com/editorials/fibonacci/fibonacci090705.html

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How much is your business benefiting from economic change?

How much is your business benefiting from economic change?

With every economic change, some businesses benefit more than others. For instance, the stock price of McDonald’s rose by more than 500% from 2003 to 2011. Do you know how rare that big of a gain has been in recent years? The earlier that you recognize a new reality that is changing the future of your business, then the better you can change your business to benefit most from that changing reality.

While McDonald’s has performed well in recent years, it has not performed nearly as well as the following sector of 15 US companies (shown below). I wrote about this sector in 2003. If you were to ask most investment professionals which US stock sector did the best last decade, MOST OF THEM STILL DO NOT KNOW!

Now, in recent years, what economic changes have made the biggest difference for the profits of your business? Changing competition within your industry? Changing fuel prices? The changing rate of new arrivals to your area? The shift toward more prospects shopping online, including using reviews and ratings?

Which is an easier prospect to sell: one that knows nothing about you and your business or one who already trusts you because of personal recommendations including recommendations found online? What if you were hiring a new employee and one applicant stood out from the others because of a personal recommendation from someone you know and trust? Who would you schedule first for an interview?

Consider that if you were planning to make a major purchase, wouldn’t you value knowing which alternatives got the best rating from people like you? What if you could quickly access free reviews from people that you personally know and respect and trust? Some of the best marketing campaigns in recent years have featured detailed reviews and real-time public ratings, which are simply not possible through regular commercial advertisements, like in phone books, radio and TV.

If prospective customers are not already familiar with your business, isn’t it predictable that they would value ways of finding which businesses that they can trust most? Wouldn’t they stop using something like the phone book (which just lists businesses in alphabetical order) in favor of searching online where they can see the results in order of systematic rankings, ratings, and reviews?

As people increasingly use online reviews and referrals through their online contact network (“social media”), that can result in the number of online searches for companies in your industry to decline. Are you updated yet about the latest trends in online searches for your industry? Are you updated yet about all of the trends that will determine the future of your industry in general and your business in particular?

In recent years, how early were you alert to the changes in your market that have most effected your sales and your profits so far? Did you benefit more than your competitors by adapting earlier to emerging changes or were you surprised and unprepared?

Over 400 years ago, William Shakespeare wrote:

This was long thought to be the only portrait of William Shakespeare that had any claim to have been painted from life, until another possible life portrait, the Cobbe portrait, was revealed in 2009. The portrait is known as the ‘Chandos portrait‘ after a previous owner, James Brydges, 1st Duke of Chandos. It was the first portrait to be acquired by the National Portrait Gallery in 1856. (Photo credit: Wikipedia)

“There is a tide in the affairs of men,
Which, taken at the flood, leads on to fortune….
On such a full sea are we now afloat;
And we must take the current when it serves,
Or lose our ventures.”

“Of course I’m interested in steering my business toward results that are far above average, yes, but why talk to you in particular?”

In a moment, I’ll show you some evidence that will help you to identify who you can trust to make accurate analysis of the market for your business. The best credibility comes from bold forecasts that have accurately fit an unusual reality that has developed exactly as forecast. If one forecasting analyst says things that contrast with what most analysts say, would you rather go with the majority or with the reality?

Now, what were some of the most shocking economic developments of recent years? Think back to some of the big changes that influenced your business and when you first began adjusting to each of those changes: rising fuel prices, the declining popularity of suburban living and suburban real estate markets, and declining overall consumer spending. What year did you begin adjusting your behavior because of any of those trends?

In 2003, you could have read an online report that I wrote about an emerging global shift in patterns of lending and borrowing behavior as well as the increasing risks for the markets most sensitive to borrowing trends, such as US real estate. In 2004, you could have read an online report that I wrote about the risk of a fuel prices (like gasoline) rising so high that it would effect the economies of the regions most dependent on the importing of fuel, such as Japan, Greece, and Italy.

(See the highlight from my 2004 publication below: “how many dollars will it cost to buy a gallon of gasoline next year?” By 2007, you were probably asking questions like that which I was asking (and answering) in 2004.)

In 2005, when housing prices in desert areas like Phoenix and Las Vegas began to decline, you could have read an online report that I wrote within a few months of the peak. Why was it so easy to know that sprawling desert metros like Phoenix and Las Vegas would have such unusual declines in real estate?

There were two issues that made the real estate shift easy to recognize in advance. The most obvious issue was a declining number of applications for mortgages in those areas. The root issue that caused the decline in suburban desert mortgage lending was rising fuel costs, which I stated in 2004 before the decline started.

Here’s the obvious logic as to how fuel prices impact different regions (markets) differently, even though not everyone has the courage to face the simplicity of the issue. Note first that when oil prices doubled in less than 12 months starting in 1999, stocks prices of the US airline sector plummeted 40%. Could that be because of their sensitivity to fuel prices as a major cost of their business?

Now let’s review oil prices for a longer period of time, up well over 1000%. Oil prices then reversed in 2008.

Below that is a longer-term chart of the stock sector of airlines in the US, which fell by over 90%. When did prices of the airline sector reverse? When oil prices dropped?

Could rising fuel costs effect the profits of airlines? Could rising fuel costs increase the operating costs of airlines? Could declining fuel costs decrease the operating costs of airlines?

Next, what does any of that have to do with the decline in mortgage lending for desert suburbs? First, let’s consider what produced the boom of suburban desert mortgage lending of the prior two decades.

In the 80s and 90s, fuel prices were declining (relative to inflation). As fuel prices declined, sprawling desert metros benefited more than other regions. As late as the end of the 1990s, the costs of summer cooling bills were dropping and the cost of gasoline for the long suburban commute were was so low that growing herds of people were buying big vehicles like SUVs that got less than 20 miles per gallon.

Eventually, that began to change. Commuters quickly went from paying around $1 per gallon of gas to over $4 by 2008. In dense urban areas with short commutes, that was not a big increase in total spending on gasoline. However, in sprawling desert metros, long commutes from distant suburbs use a lot of gallons of gasoline, especially when the vehicle’s air conditioning is running for the whole trip during the 110 degree heat of the desert summers.

That means that when fuel prices rise, certain regions and climates will predictably be effected most. Again, when fuel prices were declining (relative to inflation) in the 80s and 90s, sprawling desert metros benefited more than other regions from fuel prices that were declining relative to inflation, so why wouldn’t the same areas be hurt the most as fuel prices eventually surged?

In 1999, a barrel of oil was $11. By 2008, the same barrel cost over 1200% more: $148.

Back to the sprawling desert suburbs, some of the most spacious suburban homes were also getting very expensive to cool in the summers, with rising energy costs sending monthly utility bills past $300, $400, and even $500 per month- nearly as much as some mortgage payments. Rising fuels costs in the form of cooling costs and rising commuting costs ended the desert suburban housing boom in 2005. I have been publishing that assertion since the fall of 2005.

“I’ve been saying the real-estate boom ended around August 1- based on stock
charts of real estate sectors [HGX, DJR, EQR, EOP]. Now that the September “lagging indicator” data
is in, how long before people say “maybe it is ending soon?”

Oct 26, 2005: http://groups.yahoo.com/group/redpill_info/message/34

In 2004, I published an explanation of exactly why that was coming. In 2002, I identified some of the first signs of the shift, and then in 2003 I published projections of a global credit crisis and resulting effects, but I did not identify the source of those symptoms until 2004, when I published this:

Are You Affected By The Real US Deficit: Oil

www.gold-eagle.com/editorials_04/fibonacci110704.html

I followed that in 2005 with this:

321energy :: Worth its Weight in OIL : J.R. Fibonacci

www.financialsensearchive.com/fsu/editorials/2005/0906.html

www.321energy.com/editorials/fibonacci/fibonacci090705.html

and that article was also cited in this 2006 MBA thesis at Columbia University:

“Strategic Choices for Managing the Transition from Peak Oil to a Reduced Petroleum Economy”

http://www.ldeo.columbia.edu/~odland/Odland_PeakOilMgt_Dissertation.pdf

by S.K. ODLAND - 2006 - Cited by 4 - Related articles
13 J.R. Fibonacci, Navigating the New Economy, Lesson 1: Worth Its Weight in Oil. (Published online at http://www.321energy.com, Sept. 9, 2005); 

How much would you value the insight of someone who forecast the rise of fuel prices and the effects on the economies of sprawling desert metros like Phoenix and Las Vegas? As economic changes come, will you be shocked or prepared? How much is your business benefiting from economic change?

For a limited time, I will offer a free 15-minute consultation assessing the future of the market for your business. Contact me now to get insight in to the single most important reality for you business, which most analyst do not have the insight to recognize or the courage to admit:

• competent (realistic) forecast of the future trends of things like consumer activity and gas prices

You will also get the benefit of the following standard data that any market analyst could give you:

• current growth rate (indicates number of recent arrivals that are valued prospects because they are least likely to already be loyal to a competitor of yours)
• current market size (number of prospective customers, grouped by income level & any other relevant demographic data)
• profitability by service: buying demand vs cost to provide incl. competitiveness/market saturation (often, business owners already have excellent sense of this)
• trends of how consumers are shopping for the specific service you offer (rate of change for online searches)

www.ldeo.columbia.edu/~odland/Shifting_the_PO_Debate.pdf

www.aspo-usa.com/2009denver/confirmedspeakers.cfm?bid=742

http://rei.rutgers.edu/index.php?option=com_content&task=blogcategory&id=39&Itemid=54

www.aspousa.org/conference/2011/speakers.cfm

http://law.utoledo.edu/students/lawreview/volumes/v40n2/Lynn_RevFinal.pdf

www.greatdreams.com/oil/peak_oil_consequences.htm

iopscience.iop.org/1748-9326/1/1/014004/pdf/erl6_1_014004.pdf

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2003, 2004, 2005 forecasts of real estate decline plus predictable political reaction

Oct 18, 2005:  “Just don’t be surprised when your
$100,000 home is assessed at $50,000 in a few years….”

http://groups.yahoo.com/group/redpill_info/message/28

 

Oct 26, 2005: “I’ve been saying the real-estate boom ended around August 1- based on stock
charts of real estate sectors [HGX, DJR, EQR, EOP]. Now that the September “lagging indicator” data
is in, how long before people say “maybe it is ending soon?”

http://groups.yahoo.com/group/redpill_info/message/34

 

In January 2009, President of the United States of America, George W. Bush invited then President-Elect Barack Obama and former Presidents George H.W. Bush, Bill Clinton, and Jimmy Carter for a Meeting and Lunch at The White House. Photo taken in the Oval Office at The White House. (Photo credit: Wikipedia)

Sep 14, 2006: http://groups.yahoo.com/group/redpill_info/message/146
“So, re investing… I want to talk about real estate, again. As a recap, I have been forecasting a large drop in real estate for over 3 years now. The next paragraphs in italics highlight that.

On March 3rd, 2003, I wrote: “Unless you have a very specific reason to believe that real estate will outperform all other investments for several years, you may deem this prime time to liquidate investment property (for use in more lucrative markets).” (See http://www.gold-eagle.com/editorials_03/hunn030303.html in which I explicitly suggested that of these [5] markets: commodities, stocks, the mining sector, real estate, and bonds, the best two were commodities and the mining sector. And what happened?)

On June 9th, 2003, I wrote this: ” Some people think… real estate is a safe return, but how many of them recognize the assumptions involved in that conclusion?”  (See http://www.gold-eagle.com/editorials_03/hunn060903.html ) In the concluding remarks, I said: “If you still are holding investment real estate in the US next week, email me your favorite assumptions explaining why.” (No one did.)

Even after real estate was still rising, as of November 7, 2004, I did not let up. I was still making warnings with plenty of time to do some research and move a household before any crash started: http://www.gold-eagle.com/editorials_04/fibonacci110704.html

“… Some people even refuse to explore the evidence of [market] predictability. Others make naive predictions like “real estate always appreciates,” ignoring Houston, Silicon Valley, Japan, the 1930s Global Depression, and the bombing of Baghdad or Oklahoma City: “Do I hear nine million? How about eight million? Boom! … Do I hear one hundred?” (If only I had known about New Orleans….)

So does all that sound like an alarmist? That may be because I was sounding an alarm! And, it really is laughable to me how devoted some people are to real estate- indeed the the same people will say “I do not believe in market forecasting” and then say “I forecast that real estate markets will continue to be strong…” oops- except they are not strong and haven’t been for at least a year.

On 9/6/05, I wrote about oil primarily, but including how oil markets effect real estate markets. Still, “Real Estate” appears 43 times in  http://www.financialsense.com/fsu/editorials/2005/0906.html .

The most profound segment of the article may be, indeed, my brief, direct explanation of how the “baby boom” (a temporarily increased rate of population growth) predictably effected demand for housing, and yet how the vast majority of people were surprised anyway- at the beginning and end of that trend. Very briefly, the trend was that “the baby boomers” started turning home-buying age and then, coincidentally a few decades after the end of the birthrate increase, suddenly the number of people reaching home-buying age decelerated. Shocking, eh?

May 30, 2005, I wrote: “If you would like to review the data of what has already happened in recent years, this may also motivate you to consider re-assessing any current exposure to unstable markets and systems, including the US Dollar and US Real Estate markets.” http://groups.yahoo.com/group/Natlawmandisc/message/920

Then, over a year ago, I reported the end of the real estate rise- because I was looking for it. That report featured 5 straight weeks down in the US housing sector in August 2005. Here is a current chart on the housing sector of the US stock market: http://stockcharts.com/h-sc/ui?s=$hgx&p=W&b=5&g=0&id=0 [Note that when I published this in 2006, the chart showed the first part of the decline shown here: http://www.barchart.com/chart.php?sym=%24HGX&style=technical&template=&p=MO&d=M&sd=&ed=&size=M&log=0&t=BAR&v=0&g=1&evnt=1&late=1&o1=&o2=&o3=&sh=100&indicators=&addindicator=&submitted=1&fpage=&txtDate=#jump ]

Recently, [again this was in 2006] mainstream media has begun to report the declining that I started reporting a year ago. You see the years of issuing alerts for real estate… I was right, again!

But now [2006] I am issuing a panic alert. Now that the mainstream media is reporting what I forecast several years ago, those who did not consult accurate forecasts years ago or the news reports I gave a year ago, now they are finally starting to look at the data of what has already happened and some are naturally reacting. Each “knee-jerk” reaction can enhance a snowball effect.

I gave you my warnings, and for those of you who have not heeded them yet, this is a new warning- an alert only- but a very strong warning. The US real estate decline is now over a year old. No accelerated panic has yet begun, but once the lending market buckles, then it may be too late to exit real estate quickly. There are still many unscrupulous buyers out there… for now. Some folks will see the news and even believe that real estate is now discounted to a bargain. That might be a reasonable possibility, if not for the fact that lending markets are generally predictable.”

Real Estate Office (Photo credit: pixieclipx)

More excerpts:

Oct 18, 2005: http://groups.yahoo.com/group/redpill_info/message/28

“I mentioned real estate a lot already in the prior
emails…. I’ve already told you about the other dominoes that will fall after the
first catalyst triggers a drop in real estate- and
many folks seem to get some of that- but my sense is
that most folks still do not accept the possibility of
deflation (or currency appreciation in general), and,
after repeated references, I figure either most of you
basically understand it or don’t care enough to use
your search engine or even just call me and ask….

If you get that $100,000 loan because it is only
$333 per month to service the mortgage (the first
year), that is fine. Just don’t be surprised when your
$100,000 home is assessed at $50,000 in a few years….

US President George W. Bush presents the Presidential Medal of Freedom to Pope John Paul II during a visit to the Vatican in Rome, Italy in June 2004. (Photo credit: Wikipedia)

As usual, I want you all to be aware of the
larger changes in our midst. All these economic
changes will mean political changes. The President

[which was George W. Bush in 2005]

will be scapegoated (whether for good cause or not)
and likely removed- seriously.

[I meant impeached, and though Bush was not impeached,

his approval ratings went from amongst the highest of all 

US Presidents as of 2005 to among the lowest by 2008.]

If you don’t know how
big a deal a 15% drop in real estate prices is, you
will- and it should be much deeper than that. 

[a much bigger decline in price than 15%]

Political encroachments are likely to accelerate.
Since the cause of the anger of the people will not be
satisfied by removing one “public servant,”

[Note that as of now Obama has almost as many critics

as Bush did by 2008.]

and in
desperation to garner support, more international
violence (including in America) is likely…. Note this sort of
economic correction is not only what led to the vast
influx of socialism into the US in the 1930s (the New
Deal), but the scapegoating of one leader after
another was also recently manifested in the Japanese
Depression of the 1990s (which continues to this day).

After all, if it is not “them” (“their fault”), then
“we” would have to accept responsibility… to act
responsibly (economically, sustainably)! That just
doesn’t usually inspire voter turn-out like “we will
fix everything for you.”

Presidents Gerald Ford, Richard Nixon, George Herbert Walker Bush, Ronald Reagan and Jimmy Carter at the dedication of the Reagan Presidential Library (Left to right). Français : De gauche à droite, les présidents américains Gerald Ford, Richard Nixon, George H. W. Bush, Ronald Reagan et Jimmy Carter à la bibliothèque Ronald Reagan Presidential Library (1991) où se trouve une reconstitution du bureau ovale. (Photo credit: Wikipedia)

“I’ve been saying the real-estate boom ended around August 1- based on stock
charts of real estate sectors [HGX, DJR, EQR, EOP]. Now that the September “lagging indicator” data
is in, how long before people say “maybe it is ending soon?”

Oct 26, 2005: http://groups.yahoo.com/group/redpill_info/message/34

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Courage and one economic forecaster who predicted the 2008 crash, financial crisis, and housing collapse

Courage and one economic forecaster who predicted the 2008 crash, financial crisis, and housing collapse

Courage is what makes the difference. Many people are terrified of fear, as in paranoid and anxious. Many are paranoid about appearing afraid to others and even to themselves, as in ashamed. Many are reflexively anxious about even exploring something new.

Basically, they are already paralyzed with fear and terror. They may say things like “negativity disturbs me” and “which villainous individual or group is most to blame for the consequences of my choices” and “which heroic politician will best protect me and save me from the consequences of my choices?”

There are many who have eyes, but having eyes is not enough. Those who are full of repressed fear and terrified of courage, they avoid facing what is plain and clear.

Courage is what makes the difference. Let those who have the eyes to see notice what is plain and clear.

For those who hearts are full of raging fear, let them compete with each other to see who can avoid reality the longest. Let the courageous cease from any raging blame and wishful thinking, then adapt and benefit from what is changing.

I am clear on the shifting trends that will determine the future value of your various alternatives. I can quickly assess your situation and present you with the best choices available to you. Let me know when you are ready to experience the courage of adapting now to benefit from change.

March 2003:

I forecast the collapse of the credit bubble and a resulting decline in real estate prices

“We can profit from the collapse of the credit bubble and the subsequent stock market divestment. …Real estate has not yet joined in a decline of prices fed by selling (and foreclosing). Unless you have a very specific reason to believe that real estate will outperform all other investments for several years, you may deem this prime time to liquidate investment property (for use in more lucrative markets).”

http://www.gold-eagle.com/editorials_03/hunn030303.html

November 2004:

I forecast a continuing rise in fuel prices which would be the specific trigger ending of the prior economic boom, resulting in a “deflating” of the credit bubble in the US and beyond

“How many dollars will it cost to buy a gallon of gasoline next year?”

The basic idea of this article, “The REAL U.S. Deficit: Oil,” was that surging demand for fuel (worldwide and in the US) would continue to raise fuel prices (which had been rising since 1999), eventually leading to tightening budgets, then a reduction in fuel consumption, and a shift in  trends of economic behavior (buying, borrowing, lending, selling). I called that predictable sequence “The DOMINOIL Effect.”

http://www.gold-eagle.com/editorials_04/fibonacci110704.html

September 2005:

I forecast that the rising demand for fuel would be leading to a shift toward more spending for fuel and less spending on real estate, especially in “remote suburbs,” like the desert metros of Phoenix and Las Vegas.

“Weakness in US stocks or the dollar which leads to a “flight to safety” [i.e. to real estate] is not the same as strength in real estate. Real Estate markets are nowhere near as strong as oil markets. Think about it. Oil is the leader [reversing trend in 1999]. US stocks followed [in 2000]. The dollar followed them [in 2002]. Real Estate will follow next.”

November 2006:

I forecast the coming collapse of financial institutions (as well as a crash of the broader stock market)

“When the credit market shifts, [then] the real estate market shifts, and they are actually connected such that when the real estate market declines… that  actually greatly effects [lenders] capacity to extend credit. So, what you have is a context where banks can collapse.”

June 2011:

www.gold-eagle.com/editorials_08/hunn062911.html

Ezekiel 12:2 “Son of man, you are living among a rebellious people …

“Son of man, you are living among a rebellious people. They have eyes to see but do not see and ears to hear but do not hear, for they are a rebellious people. … //bible.cc/ezekiel/12-2.htm - 16k

Romans 11:8 as it is written: “God gave them a spirit of stupor …

… just as it is written, “GOD GAVE THEM A SPIRIT OF STUPOR, EYES TO SEE NOT AND EARS TO HEAR NOT, DOWN TO THIS VERY DAY … //bible.cc/romans/11-8.htm - 17k

Deuteronomy 29:4 But to this day the LORD has not given you a mind …

… But to this day the LORD has not given you a heart to understand or eyes to see or ears to hear. … //bible.cc/deuteronomy/29-4.htm - 15k

Psalm 119:18 Open my eyes that I may see wonderful things in your …

… Open my eyes to see the wonderful truths in your instructions. … //bible.cc/psalms/119-18.htm - 15k

Matthew 7:3 “Why do you look at the speck of sawdust in your …

… ”Why do you see the speck in your brother’s eye but fail to notice the beam in your own eye? … //bible.cc/matthew/7-3.htm - 16k

Matthew 7:4 How can you say to your brother, ‘Let me take the …

….. How can you say to your brother, ‘Let me take the … //bible.cc/matthew/7-4.htm - 16k

Matthew 7:5 You hypocrite, first take the plank out of your own …

… Hypocrite! First get rid of the log in your own eye; then you will see well enough to deal with the speck in your friend’s eye. … //bible.cc/matthew/7-5.htm - 16k

Luke 6:41 “Why do you look at the speck of sawdust in your …

… ”Why do you see the speck in your brother’s eye but fail to notice the beam in your own eye? … //bible.cc/luke/6-41.htm - 16k

Luke 6:42 How can you say to your brother, ‘Brother, let me take …

… Hypocrite! First get rid of the log in your own eye; then you will see well enough to deal with the speck in your friend’s eye. … //bible.cc/luke/6-42.htm - 19k

Matthew 13:13 This is why I speak to them in parables: “Though seeing, they do not see; though hearing, they do not hear or understand.

---

Matthew 13:14 In them is fulfilled the prophecy of Isaiah: “‘You will be ever hearing but never understanding; you will be ever seeing but never perceiving.

---

Mark 4:12 so that, “‘they may be ever seeing but never perceiving, and ever hearing but never understanding; otherwise they might turn and be forgiven!’”

---

Mark 8:18 Do you have eyes but fail to see, and ears but fail to hear? And don’t you remember?

---

Luke 8:10 He said, “The knowledge of the secrets of the kingdom of God has been given to you, but to others I speak in parables, so that, “‘though seeing, they may not see; though hearing, they may not understand.’

---

John 9:39 Jesus said, “For judgment I have come into this world, so that the blind will see and those who see will become blind.”

---

John 12:40 ”He has blinded their eyes and deadened their hearts, so they can neither see with their eyes, nor understand with their hearts, nor turn–and I would heal them.”

---

Acts 28:26 ”‘Go to this people and say, “You will be ever hearing but never understanding; you will be ever seeing but never perceiving.”

---

Romans 11:8 as it is written: “God gave them a spirit of stupor, eyes so that they could not see and ears so that they could not hear, to this very day.”

---

Deuteronomy 29:4 But to this day the LORD has not given you a mind that understands or eyes that see or ears that hear.

---

Isaiah 1:23 Your rulers are rebels, companions of thieves; they all love bribes and chase after gifts. They do not defend the cause of the fatherless; the widow’s case does not come before them.

---

Isaiah 6:5 ”Woe to me!” I cried. “I am ruined! For I am a man of unclean lips, and I live among a people of unclean lips, and my eyes have seen the King, the LORD Almighty.”

---

Isaiah 6:9 He said, “Go and tell this people: “‘Be ever hearing, but never understanding; be ever seeing, but never perceiving.’

---

Isaiah 43:8 Lead out those who have eyes but are blind, who have ears but are deaf.

---

Jeremiah 5:21 Hear this, you foolish and senseless people, who have eyes but do not see, who have ears but do not hear:

---

Ezekiel 2:7 You must speak my words to them, whether they listen or fail to listen, for they are rebellious.

---

Ezekiel 2:8 But you, son of man, listen to what I say to you. Do not rebel like that rebellious house; open your mouth and eat what I give you.”

---

Ezekiel 3:27 But when I speak to you, I will open your mouth and you shall say to them, ‘This is what the Sovereign LORD says.’ Whoever will listen let him listen, and whoever will refuse let him refuse; for they are a rebellious house.

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Gratitude into Action

English Language (Photo credit: Wikipedia)

Gratitude into Action

I almost died. Be clear that I do not mean that something was so funny that I almost died laughing. I mean it literally: the functioning of my organism almost stopped suddenly.

Well, to be even more specific, let’s say that I was very scared. My heart rate shot up, my body eventually relaxed to catch my breath, and then shivers and shaking went through my body as I adjusted to the surge of chemicals like adrenalin.

Can you relate to this? Have you even experienced something similar?

I’ll tell you exactly what happened a little later. Before that, I am inviting you to use your own imagination and intelligence… rather than bias you with the particular details of my own history of a particular case of almost dying- or being suddenly exposed to the possibility of dying… like “ah, I notice that I could have just been killed. How interesting!”

So, you personally would have at least witnessed someone who gets “scared to death,” right? Sure, but not just startled- I mean really clear that their physical organism is temporary, conditional, something that begins and then ends, something that belongs to the earth itself, not to our linguistic ideas, not to our ego or our family or our government, but that ultimately belongs ONLY to God, if you like that word.

Again, I do not mean God as a particular linguistic ideal either, like loving or wise or old and white-bearded like Santa Zeus. No, I mean God as the indescribable, the one word that we know is beyond regular words, the ineffable, the mysterious, the great unknown (uncontainable) that is so far beyond our capacity for language that we can conceptually accept only that it is absolutely beyond our understanding, beyond “what we know that we don’t know.” We have no idea what the word God means, and, in the one exceptional case of this particular word, we actually might just even admit it!

Hebrew mystics have four letters for it, with each letter representing a distinct idea built in to the sequence of four related ideas, but they consider that sequence of letters to be a sacred encoding which is not to be said out loud. The Taoists even directly say this: “the Tao that can be spoken of is not the Tao.”

One cannot meaningfully declare one’s definitions of it. If one defines it with other words, that is not it. I mean by the word God this: THE fundamental linguistic unit that points to the conditionality and inherent emptiness of all other units of language.

Letters and alphabets begin and end (like in the history of a particular species or culture). Formations of an individual word begin and end- like the words “internet” or “blog” or “quark” are rather new while an ancient language that is known to have existed may now be otherwise forgotten, like an extinct species that is now just a distant legend or a big rack of dinosaur bones in a museum.

So, words come and go, and the meanings of words can change. The use and function of a particular word formation is thus ENTIRELY contextual (not inherent).

For instance, the sound of the word “right” means three distinct things. Right is the opposite of left. Right is also the opposite of wrong. Right is even a legal category distinct from privilege or any act that is prohibited or punished (as in some act that is criminalized by law: by the drafting, proposal, adoption, declaration and then the evolving administering of some new law or treaty or amendment or constitution).

However, to someone who does not know the English language, the sound of the word “right” is just a meaningless sound. Ask your pets. Even human infants do not know right from left. We either learn or else we still don’t know, and then we may go senile and forget.

Even the shapes of the letters forming the word “right” are just shapes. Each letter is just a shape. The G and the H do not even have a sound in that word, yet without those silent letters, “rit” is just not spelling it “write.”

So, we can easily demonstrate physically which is “right” and which is left, but there is nothing sacred about those terms. In sailing, we might use the terms “port” and “starboard” to refer to the same or similar distinctions. In other language or contexts, we use other sounds or words or letters or alphabets or encodings.

But the word “God” is not like all these words that are contextual, that is, inherently meaningless. God is not the opposite of the Devil either. I do not mean gods like the archetypical psychological distinctions of mythological astrology. I mean like what the Chinese call the Tao.

Ludwig Wittgenstein (Photo credit: Wikipedia)

If we had to use a relative term of description to distinguish the term God, we might say that the word God is the opposite of all other words. It’s not like the others at all. Given that, to say anything, we would be limited to all those other words that are like that one, “God is not like those” is really about all we could say.

God is just what “we don’t know that we don’t know.” (I borrow that particular phrasing from

Werner Erhard. (Photo credit: Wikipedia)

Wittgenstein… which Werner Erhard and then Landmark Education borrowed in turn- though none of them called it God or anything else, as far as I know.) Other than “we can’t describe it in words,” we obviously can’t say much about it, can we?

So, as I said before, I almost died. Here is what actually happened.

Back in the days of elementary school, Johnny and I were both crammed in to the front passenger seat of his mom’s car. I was sitting next to the door and Johnny was on my left (or, for you boaters, portside of me).

Johnny and I were in our dark blue cub scout uniforms and we were probably late for a cub scout meeting. She was taking a sharp left turn when I found out that I had not closed the passenger door all the way. It may have even been a car in which the door did not actually stay closed. Cars can eventually fall apart, too, you know!

So she’s turning the car left and I’m flying out of the open car door to the right (starboard). Johnny grabs my left hand and then I look down for one of those eternal moments at the hard black pavement speeding by me just a few feet under the soft tissue of my face.

So, maybe I did not quite “almost die.” But I did almost fall out of the car. I was as scared as I could ever recall being as of that time in my life- so not just scared of heights and shakily climbing back down the ladder from the diving board of the “high dive.”

This was not just a recognition of “I’m scared that I could have been hurt.” This was “there were cars and trucks coming from the opposite direction. I could have been run over and smashed like the flattened little animals on suburban and rural roadways everywhere. Like the insects on a car’s windshield. Like my body could have been creamed- cremated without even using a hot furnace.”

The Grouse Inn on the A624 above Chunal, near Glossop, where Ludwig Wittgenstein stayed in May 1908 when he was studying in Manchester. See Ray Monk. Wittgenstein: The Duty of Genius. The Free Press, 1990, p. 29. Also see “The Grouse Inn”, grouse-inn-glossop.co.uk, accessed 12 September 2010. (Photo credit: Wikipedia)

Oh yeah, I was definitely a little boy. Those are the kinds of descriptions that little boys can give, yes, even while they are poking holes in antbeds and mindlessly ripping leaves off of trees and tearing them to shreds… perhaps not unlike the legless body of a grasshopper over here and a neat stack of legs over here.

“Yes, I stacked the legs here. What do you think they just stacked themselves up like that? See how neatly I stacked them! Guilty? Why would I ever feel guilty about ripping the legs off of the grasshopper? After all, this is a heroic act. I did not feel guilty about destroying the nest of the ants, but since I had done that and they were already running all over the place, I thought that I might generously feed them this grasshopper, and, you see, grasshoppers are otherwise rather uncooperative with the entire prospect of being fed alive to ants, so you can see that the legs being attached to the grasshopper simply did not fit with my program for being generous to the ants. They just had to go. Now that I think about it, I suppose I can feed the legs to the ants later as well….”

By the way, if you do not think that your little boys have ever done any of those kinds of things (or your husband or father when they were little), well, you could be quite wrong. By the way, ladies, yes, some men will lie to you just toreduce the possibility of you going into hysterics.

Then they may casually continue carving up the turkey and tell their urban-raised grandkids fabulous stories about the turkey farms where the turkeys are raised from seeds, transplanted as saplings, and, then in the prime of their lives, volunteer to join in for an (of course) entirely bloodless harvest… in which the edible part of the turkey plant is severed from the roots. If you haven’t heard this story before, that may simply be because I personally am not your grandfather….

Ah yes: Thanksgiving- that is a holiday that was started by the Native Americans and then “borrowed” from them, you know, kind of like the rest of their culture (and continent). People may not like to admit it, but reality can be harsh. While you’re being grateful for food and family and a solid building you call home, I’m not going to ask you to remember the turkeys that gave their lives or the people who called this land their home several hundred years ago. That kind of sentimental musing is pretty-well covered in public schools already, right? Kids make turkey drawings from outlines of their hands. I did it, too. Yes, it is STILL cute and yes of course your child is still the most amazing artist in human history.

That’s all fine! You are quite welcome to be all gushing with sentimentality- go for it- but that is not what is there for me to say right now.

Life is fragile. It can end in a split second. The key word in the sentence “I almost died” is… almost.

The physical body is temporary. In fact, it is changing all the time. Just ask a teenager that is halfway through the doorway of physical maturity. Just ask some elderly person that you know as someone who used to be able to walk, but now they do not even remember that they could walk.

The physical body is changing all the time. Just spend two hours with a newborn- but make that second hour a week later than the first- and you may find that a lot can change in a week (or a month or a year or a decade or a century).

Then, to top it all off, just spend an entire minute with a grieving parent who has just been informed that their school-aged child… has just died surprisingly, like in a traffic collision in which the child flew out of the passenger seat right into the path of the school bus that you were driving. Oh, and, if you are really open to experiencing heart-opening gratitude for the fragility of life, be the one to tell them the news.

Now I could end the sharing here and it would be wonderful- at least wonderful that the sequence of gruesome stories are over- right? However, there is a reason that I began this essay which I have not revealed yet and I am going to mention it soon and not just briefly. (No, it does not involve blood. That would be gross!)

So, I thought of the title “Gratitude into Action” because of a specific interest in a particular type of action. Yes, it happens to be Thanksgiving, but if you did not already know, I am not especially sentimental about it. I picked that title because some readers might be in the mode of focusing on gratitude.

Great. So am I.

But I did say “into action.” And I did have a specific category of action in mind, and I’ll tell you what action in a bit, but first a little re-cap of this essay so far.

First, I thought of the words “I almost died” before I thought of the particular incident. Next, I was going to share with you an incident from my adulthood, but then I chose to use an incident involving me as a child. (Why? Well, this story just seemed like it would be a lot of fun to tell!)

So, by being confronted with the immediate possibility of dying as a young boy, I was suddenly grateful for life anew. Can you get that? The whole section up to now has simply been so that you can really get that by now, as we shift attention toward an obvious action that can naturally follow such a breakthrough in gratitude. The obvious action is the one that happens automatically even without anyone suggesting it.

Yes, as a young boy, I almost fell out of a moving car. Of course, to say that I almost died is pretty dramatic.

I was merely mortally frightened, which is rather different from being mortally wounded and having my parents pacing the floor of the hospital emergency room, waiting to hear the next bit of news from the paramedics and so on: “Is he going to make it or not?” No, it wasn’t that close to dying, but I wanted you the reader to be able to have a sense of the fear of that little boy (me) without it being too unnerving (and then, for my own amusement if not yours as well, I eventually moved on to what little boys may sometimes do to grasshoppers…).

Ludwig Wittgenstein’s five siblings: (back) Hermine, Helene, Margarete, (front) Paul and Ludwig. (Photo credit: Wikipedia)

So, in that event of almost falling out of a moving car, I was not even physically injured at all (thank you, Johnny Elam). By the way, no, we were not wearing seatbelts.

Guess what, though? For at least the next few weeks, if you had seen me, you might have seen a little boy so attentive to buckling his seatbelt that he would be buckled in before he would even close the car door. “Ah, it’s just a little rain and wind. This will help remind you not to leave papers stacked on the backseat of the car where they can blow all over the place, mom! But at least I’m safely buckled, huh?”

So, I was going to say that Johnny was grateful for me, and that is why he grabbed me and slowly reeled me back in to the car. But that spontaneous digression I just took about me being suddenly grateful for life anew- and thus automatically attentive to wearing seatbelts- that is an even better fit with where I was already going.

Here it is. In the last several years, I have experienced a foreclosure of a home. I’ve also been repeatedly financially destitute- like more than just once or twice- in the last seven years. I’ve even spent a little time in jail (which can be both be a result of and a cause of financial trouble).

In recent years, I’ve also spent a lot of time working in a law office, ironically, that specializes in helping people who are experiencing financial challenges to file bankruptcy. Starting in mid-2002 (long before working with the law firm), I also started researching financial trends, including global trends in the lending markets. As time went on, I focused more and more on the specific financial patterns of the middle class of the US in the last few decades- as well as the psychology behind those trends of activity. But, for a moment, let’s ignore the long-term and just focus on 2008.

Some people experienced quite a startle financially in 2008. Companies that had been extremely unstable for quite a while were recognized by the masses to be unstable upon the publicizing of those companies filing bankruptcy or or least nearing bankruptcy: yes US auto giants, but also mainstream financial institutions including Merrill Lynch, Wachovia, Fannie Mae, Freddie Mac, IndyMac, Countrywide, Bear Stearns, Washington Mutual, and even the world’s largest insurance company, a US company that many in the US were not familiar with: AIG.

By the way, in my experience, most investors in the US were not only oblivious to the reality of the financial instability of those mainstream financial institutions, such that they were actually surprised by the announcement that those companies were near bankruptcy- kind of like driving at night without headlights or gambling at poker without looking at the cards- but most Americans are generally oblivious to the entire rest of the world. That is why many Americans do not know AIG even though it was the biggest insurance company in the world (as well as a US company).

The governments of places like Iceland almost went bankrupt in 2008, but how many Americans care about that? The financial crisis is all over Europe, too – very severe in places as far away as the UK and Japan, “but what does that have to do with me personally?”

Systemic (global) issues can have personal implications even before a person finds out about them. Yet, many people seem to actually think that when they found out that mainstream financial institutions were unstable… is basically when the instability started. That is like thinking that when the first raindrop hits you, that is when the clouds started to gather.

But you can see the clouds in advance of the rain actually falling- if you only would look- right? People simply have neglected to look at the stability of various mainstream financial trends- nationally and globally. Those who have looked (and are competent to interpret the simplest data) have seen for years what is coming. Those who have not looked, in contrast, have lately been very surprised- many quite unpleasantly.

In the US, college professors from the most respected institutions in the Ivy League (Harvard, Princeton, Yale, etc…) have been publishing books on the culminating of global financial instability for years (such as Elizabeth Warren, Robert Shiller, and Paul Krugman). Private researchers have been also warning about it for years or even decades (including Robert Prechter, Jim Shepherd, and myself).

Most investors, however, have presumed that their own abundance and prosperity would be safe… to such an extent that they did not look at the cards before placing their bets (bids) on aggressive speculation in real estate. But that is just the start of what I mean by oblivious.

Even people who have been directly warned of what is easily predictable have failed to invest in responsible research of “due diligence” and taking precautions- that is, they have invested in losing huge amounts of prosperity, they have gambled against very unfavorable odds and then been surprised upon losing it… for they had simply presumed that certain investing strategies that did well in the 1990s for instance would do well, what… forever? People in places that have not had the severe real estate declines (yet!) of Phoenix or Las Vegas seem to simply dismiss the idea that it could happen to them personally. I call that denial. That is exactly what I witnessed in Arizona for the last 7 years as I have warned handfuls and then dozens and then hundreds of people about the particular instability of real estate markets dependent on “easy lending.”

In Phoenix, Arizona, where I happen to be at the moment, many real estate speculators gambled big on aggressive real estate borrowing in recent years- even having been directly warned! Subsequently, many have already lost half of the value of their home, dropping the home values far below the amount owed on the home, which exposes them to bankruptcy and a loss of most or all of their assets (including many retirement accounts). Many of those retirement accounts lost up to half of their value with the stock market decline across 2008. That means that by entering huge debts not covered by the realistic long-term value of the home, then failing to sell stock that were severely over-priced, many people who were new millionaires have gambled away their entire net worth- such as by partnering ridiculous real estate gambling with over-confident stock investing. How often I have found that the two go together: obliviousness to risk in stocks and real estate.

But gold will do great right? Oh, here come the people comparing recent events to the late 1970s, again completely oblivious in their abject denial of the simple realities pointed to for years by researchers who have the remarkable distinction of… accuracy! But why consider those folks when there are people on TV pointing to the light at the end of the tunnel and saying “it simply could not be a train. In fact, there is obviously no such thing as a train.”

So, I’ve gone on for a bit now about financial instability and how people tend to be oblivious to risk and then, when they find out about the historic risk by the public announcement of the bankruptcy of the next mainstream institution or government, much of the middle class then just wants to blame someone else for the results of their own investing strategies. Many want some other government to come and rescue that other collapsing government program. They do NOT want to make any personal adjustments. After all, they are patriotic folks worshiping politicians and constitutions and words (and neglecting the simple truth of the God beyond all other words).

Taking responsibility and making personal adjustment would be ridiculous, right? These “surprised” investment gamblers are like pregnant women who act mystified when “suddenly” their water breaks. “Who knew? I was confident that this company was doing fine, and then they filed bankruptcy. Who is to BLAME for this shocking development… which, by the way, was obviously unpredictable (and which I may have been explicitly warned about for several years now)?”

So, kids, wear your seatbelts. Adults, do not sit two kids in the front seat, especially if you are late and inclined to take sharp turns. Close the doors securely and lock them.

Investors, get in contact with someone competent to review the stability of your finances- not by virtue of a TV show or a government license, but by virtue of clear competence as in a long, verifiable track record of accuracy in regard to identifying risk and opportunity well in advance of the majority of the mainstream. Also, do not just stop at someone competent in forecasting, but invest in the services of those familiar with the specific ways that you can put your gratitude for your financial abundance into practical ACTION.

For instance, you can begin by sheltering your finances from predictable market developments, reducing exposure or totally diversifying out of de-stabilizing markets like real estate, commercial commodities, and most stocks. Instead of being unpleasantly surprised, benefit from those same predictable market developments. For those that would benefit from it, shelter your finances from the default exposure to tax and court liability by using the most conservative protections built in to those systems. For those valuing debt relief, explore conservative negotiation options, perhaps including the possibility of filing bankruptcy- not as an imperative, but as a precaution- and just explore it. (By the way, as I have been explicitly telling folks for years, as the lending markets further de-stabilize, having a good credit score may not matter as much when there are “suddenly and surprisingly” not any lenders left to lend.)

So, sure, be grateful for your food today and every day, for your family and friends today and everyday, and for the solid buildings in which you dwell, and certainly for cars and the seatbelts within them. Just remember that the clouds have also gathered. The winds have started to blow. Many mainstream financial institutions that were already unstable were recognized by you to be unstable as of 2008… the winds blew down the houses made of straw cards built on sand. (I do like to mix my metaphors, don’t I: the story of the three little pigs with the house of straw, plus a house of cards, plus the scriptural reference of building on foundations of sand or of rock.)

I’m rather light-hearted about it, yes. And, it is quite serious. Many people are about to have their houses taken from them, not by high winds or floodwaters of New Orleans, but by their own investment choices. And then they will be in the rain. And they will complain and blame and some will call for rescue. All I am asking you is if you are willing to be ones of the ones in a position to help… at least to help a few of them.

Those who are deeply mortgaged into real estate, won’t be soon… either one way or the other. Which do you choose: whether you will be dry or wet when the thunderstorm breaks, when even the people who only worship words will be faced with the God of all words? We can wait until then to know God speechlessly, or just go ahead right now. Be grateful for every single aspect of your life… for so long as you shall live… starting as soon as you choose to stop doing anything else.

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• Hume and Wittgenstein (manwithoutqualities.com)
• Philosophical Literature (manwithoutqualities.com)
• “Whereof One Cannot Speak, Thereof One Must Keep Silent” (rompedas.wordpress.com)
• COMMENT: In defence of Joyce and Wittgenstein (dawn.com)
• Wittgenstein (abalufia.wordpress.com)
• Ordinary Language Philosophy (pbmo.wordpress.com)
• What I Like About Wittgenstein (maverickphilosopher.typepad.com)
• 40. Upon “I know that there is my hand”… (oncertainty.wordpress.com)
• I Will Not Die Though You Bury Me (historyfrog.wordpress.com)
• Thoreau and Wittgenstein revisited (personalscience.wordpress.com)
• Articulate: Thinking and Communicating with Clarity and Precision (motivationalmagic.wordpress.com)
• Shiller: The Balanced Budget Multiplier (economistsview.typepad.com)
• Krugman and Shiller: We’re In a Depression (washingtonsblog.com)
• Yale economist says world has entered a ‘Late Great Depression’ (theextinctionprotocol.wordpress.com)
• U.S. housing rebound could take an entire generation: Shiller (business.financialpost.com)
• Is There a Long-Run Upward Trend in Housing Prices? (economistsview.typepad.com)
• The upward slope of Real House Prices (woodonfire.wordpress.com)
• The Shiller Duality (ritholtz.com)
• WHEW: Robert Shiller Doesn’t See A Bubble In Stocks (businessinsider.com)
• Robert Shiller’s Take on the Mortgage Interest Deduction (fool.com)
• Shiller on a U.S. housing bottom (investmentpostcards.com)
• Real Chance of Japan-like Housing Slump – Shiller (wallstreetpit.com)
• Robert Shiller on Animal Spirits, Optimism, and Why the Economy Is Slow (dailyfinance.com)
• ROBERT SHILLER: Capitalism Necessitates That We Rethink Human Nature (businessinsider.com)
• Robert Shiller: Housing is not an Investment – PragCap (woodonfire.wordpress.com)
• Reinflating a New Housing Bubble? (counterpunch.org)
• The benefits of the system: Why finance is good for us (economist.com)
• ROBERT SHILLER: Let’s Offer Shares Of America (businessinsider.com)
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• Contradicting.. (ysobele.wordpress.com)
• Where To for Home Prices? Robert Shiller Weighs In (fool.com)
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real estate prices: how predictable?

Here is a chart of recent US residential real estate prices and US commercial real estate prices. Do you notice that the red line peaked and then declined, which was followed by the black line peaking and declining?

With that chart in mind, let’s imagine that there could be such a thing as a leading indicator. A leading indicator would be some measurement that consistently precedes certain consequent developments.

What other data could predict changes in price trends of overall US real estate prices? How about prices of specific subcategories, like selling prices of new homes only in a certain specific region? Isn’t it possible that certain prices (like of new homes only) would drop in a particular region first, prior to an overall drop?

How about this: could future prices be predicted by the recent volume of sales? Could the volume of sales be predicted by the recent volume of pending sales (signed contracts that have not closed yet)? Could the volume of pending sales be predicted by the recent volume of mortgage applications for pre-approval of real estate financing? Could the results of consumer confidence surveys predict things like the volume of mortgage applications or the NAHB rating for traffic of prospective buyers?

National Association of Home Builders (Photo credit: Wikipedia)

What? Is there really such a thing as the NAHB and do they really track the traffic of prospective buyers? (Yes and, by the way, the NAHB is the National Association of Home Builders.)

So, there are a lot of leading indicators tracked and monitored by conservative investors (and by conservative, I mean those who do research into leading indicators before they invest). For instance, here is a notable report on mortgage applications for “new home” purchases dropping 27% in a single week in 2010: http://www.mbaa.org/NewsandMedia/PressCenter/72905.htm (while applications for “used homes” dropped only 14 or 15 percent that week.)

There is even data tracked for the volume of existing homes listed for sale. So, when sales volume dropped in certain categories, then volume of unsold homes listed for sale started to multiply, what would be natural to expect regarding future prices of similar homes? (I’ll give a real example below.)

First, here is the same chart as before, but with two added lines. Note that I just drew some lines on there, but you can imagine what kind of data could indicate in advance what would happen next in US real estate prices.

On that note, here is something I wrote in October of 2005, right after reading the NAR (National Association of Realtors) report that was released that day to report September 2005 data. (You can see my original comments in full at this link: http://groups.yahoo.com/group/redpill_info/message/34)

“…actual sales are down almost 20% from last month, while excess inventories keep rising. Even more importantly is… price. Look at housing in the west, the most expensive region: down ALMOST 10% from last month. Do you think the rest of the nation will be stable while California prices are tumbling?”

I could have added that the previously booming areas of Phoenix and Las Vegas were also struggling. In fact, I later did in October 2006. Here is a new update regarding Phoenix area real estate.

Date	Single Family & Condo Inventory	25th Percentile Asking Price	Median Asking Price	75th Percentile Asking Price
03/07/2011	30,053	$85,000	$144,990	$275,000

08/28/2006 27,703                     $255,000$339,000$505,000

09/01/2005

8,030

$269,000

$380,000

$630,000

While some people might be startled to note that the median price has fallen from $380,000 to under $145,000 ( a drop of over 60%- and actually up more than $5,000 since January), next is what I find even more interesting. The inventory of homes listed for sale is still much higher now than in 2006- meaning that the excess of unsold homes listed for sale is currently worse than in 2006 right before prices declined by about $200,000.

So, is there  a shortage yet of unsold housing for sale again in Phoenix like there was in 2005 right before the market collapsed? Nope- not even close.

Now, I offer those examples simply for historical reference. They are not particularly important to me and perhaps not to you either. But here is where it gets interesting….

Consider that the amount of spending for exploration for oil deposits is a leading indicator for discovery oil deposits. Consider that the following chart shows the correlation between the timing of exploration and discovery (as well as extraction and refining):

It is reasonably logical to predict that we can only discover oil that we look for, right? And we can only extract oil that we discover first, right? And we can only refine oil that we extract first, right?

Okay, so now that you are clear on the simple and really quite obvious principle of leading indicators, now let’s look at a chart that is much more important than something trivial like prices for commercial or residential real estate.

That chart shows exactly how discovery peaked in the mid-20th century, with production still rising. But then production (AKA extraction) peaked in 2006:

Now let’s look at that same chart with the main data broken down into two subcategories: non-OPEC production and OPEC-production.

Notice that except in the early 1970s, non-OPEC production has exceeded OPEC production. Now was there anything unusual about the early 1970s in global economics? I was so young; let’s move on….

Around 1985, non-OPEC countries produced about twice as much oil as OPEC countries. The above 1999 chart showed a forecast that in 2008, OPEC countries would match the productivity of non-OPEC countries- now did anything unusual happen in 2008 in global economic patterns? Anyway, let’s look ahead to 2020 or 2040 and consider which countries are currently dominant economically and also consider which ones are predictably likely to rise in prominence- or even become singularly dominant, with 2:1 ratios of oil productivity- or even 10:1 by 2040.

So the US and USSR rose to singular prominence in the 20th century as the #1 and #2 producers of oil in the world. Those two nations were known as “superpowers.” Then, the USSR collapsed a few decades ago.

Is it possible that there will ever be a different global economic superpower than the US? Is it possible that there already is? Is it possible that the US, which now consumes around 25% of the world’s resources with less than 5% of the world’s population, might eventually consume less than 25% of the world’s resources?

Considering that oil extraction peaked in 2006 and may continue down forever, is it possible that even if the US continues to consume 25% of the world’s oil, the total consumption worldwide could eventually diminish- perhaps just a little? For instance, if, in a particular year, all of the oil in the world were consumed in the US, but that was only 1 barrel of oil, then consuming 100% of the world’s total consumption would still only be 1 barrel.

Now, are there any questions about the predictable future prices of suburban US real estate? No? None at all? Not even one?

Maybe I distracted you with that reference to over 30,000 unsold homes listed for sale in the Phoenix area… because you were thinking that you did not see any reason not to own at least 25% of them yourself. Maybe you missed everything else in the article.

I just hope that you got the part about possible leading indicators like mortgage applications and the NAHB index of the traffic of prospective buyers. You do know that all that stuff is going to be on the test, right?

(completely unrelated graph placed here for absolutely no reason:)

First Published on: Mar 9, 2011

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accept 2 simple trends and prosper

“Accept the trends as they are: a flow toward cash and away from non-cash assets (like US real estate since 2006  and US stocks since 2007) and a flow of affluence toward private legal creations and away from the middle-class….”

Stock Market Game, Goodwill, 02/14/09 (Photo credit: photophonic)

A comment from a reader (and partner in conversation for about 10 years):

[regarding] the one Blog we talked about,  I found the syntax so convoluted that I understood the ideas Less than when you had explained them to me [on the phone].

I understand and agree. I often find that after writing ideas out, I can then deliver them much more simply in a spontaneous conversation. Also, new conversations sometimes spark a coherent, concise writing process.

However, there is often a phase in which leaving something as an unpublished rough draft  could be appropriate. But let’s imagine that we may be past that stage in regard to the 2 following simple distinctions, both of which relate to major financial trends that recently reversed.

Regarding my favorite introductory issue of cash vs. non-cash assets, the distinction is simple enough. Non-cash assets are any contract negotiable for some amount of cash that is indeterminate (but often estimated), such as mortgages, court judgments, stock shares, paychecks, etc.

Unlike cash, non-cash assets may or may not be worth any listed face value. A check written on an account without sufficient funds can “bounce.” Many debts can be discharged in a bankruptcy court.

Non-cash assets can have things like assessments and appraisals and bids and asking prices, though the only price that matters ultimately may be an actual transaction. (Ask most anyone who has had a home listed for sale for over 6 months.) People do not know what a non-cash asset is really worth until they have a qualified bid (including for barter)- and the inherent uncertainty and fluctuating value of non-cash assets remains… no matter what anyone assumes about it’s current or future “cash exchange value” AKA price.

So, the basic trend of transactions has been away from cash toward non-cash assets for a very long time. In other words, people have been chasing non-cash assets faster than they had been chasing cash.

Note that two investment markets that have been heavily favored by political interventions (including the tax code in the US and elsewhere) did quite well for much of the last 30 years, especially most of the 90s : the overall stock market and the real estate market. In particular, relatively new interventionist programs like the FHA and HUD and Fannie Mae have favored real estate (and related industries) in historically unprecedented ways.

However, while the long-term trend has been away from cash toward non-cash assets, that trend has clearly been decelerating (in the US, for instance) for the last 30 years. That is reflected in overall interest rates (for things like  savings accounts and secured debt) going down in percent from the upper teens or mid-teens (in 1980) to as low as four or even two percent.  In other words, those with cash are less and less willing to lend it and- here’s the really big issue- less and less willing to spend it at all.

In the last few years, for most investments, including the overall US stock market and US real estate market, the cash/non-cash trend has already reversed. That is, people are recognizing that the cash value has already been declining for many of their non-cash assets, like stock shares or silver ounces or oil wells or homes or second mortgages- of course with evident variations across various markets.

By the way, to the best of my knowledge, the various “hyperinflationist arguments” have been consistently wrong for basically the last 30 years (while government deficits have been multiplying all along- one of their favorite arguments). However, 30 years of clear evidence is apparently not enough to counter the “emotional investment” that some may have in the issue(s).

[Regarding the original comment that a phone conversation was more clear for him than a blog,] I do not know what other blogged issue you might have in mind, but another one that I have vastly simplified in my language is this: the private legal creation as distinct from the public legal creation. The default “public legal creation” is what I call the “citizen estate.”

I use the term estate because, when a creative person dies (like a musician or poet), we know that their estate continues to collect royalties legally. The estate is a legal creation quite distinct from the natural organism. From the perspective of an accountant, the estate is the citizen, not the natural organism.

Civil courts do not deal with natural organisms per se, but with accountings in commerce created by natural organisms (including bureaucrats). You may know that the commercial jurisdiction (“citizenship“) of a citizen estate can change, and that is a totally distinct legal status (and accounting issue) than the physical residency/domicile/location of the natural organism.

Anyway, a private legal creation would be something like a trust. In the absence of someone taking explicit responsibility for their finances by making private legal creations such as trusts, then the court system provides the service of resolving disputes between natural organisms who have not exercised that freedom of conducting their commerce using private legal creations. Thus, many court cases involve “citizen estates” by default (by the “failure” of natural organisms to operate using private legal creations, such as trusts and corporations, which generally are fully recognized by courts as the rights of the natural organism who choose to use them).

So, many people may complain antagonistically about these issues. Typically, reactive antagonism is not a sign of comprehension. You may think that traffic lights are a personal insult to you and contrary to your constitutional liberties, but if everyone else is following them and you are driving on the same roads as everyone else, you may be interested in noticing the patterns of traffic and lights and then just going with the flow. Consider what works practically as more relevant than your own ego- at least sometimes.

Anyway, there has been a shift of trend in regard to both of the above distinctions. In regard to the distinction of cash vs. non-cash assets, the trend of increasing demand for non-cash assets has reversed with a chase for cash… as over-exuberant debtors (including many corporations) seek to avoid foreclosure, bankruptcy and so on. In regard to the distinction of private or public legal creations, there has been a huge overall flow of finances toward public legal creations (citizen estates) which loosely has corresponded to the rise of a historically remarkable phenomenon called a middle class. However, that trend has reversed, too.

Corresponding to the middle class “addiction” to debt, the debt bubble grew “too large too fast,” and so a corrective deflation is underway. Further, with the deflating of the financial bubble, those in the middle class who abdicate by default to courts and governments are in the process of losing their assets, homes, and so on. They are most exposed to civil litigation, ballooning taxes, and so on. They tend to respond to fear with antagonistic blame, rather than personal adaption such as forming a private legal creation to isolate their assets and even sometimes their revenues from their liabilities.

Are there other valid ways of framing the above issues? Certainly. You may find that these are simple and quite practical, though.

Those who can, accept the trends as they are: a flow away from non-cash assets toward cash and a flow of affluence toward private legal creations and away from the middle-class “commercial citizen” estates, which are legal creations initiated by default through public bureaucracies (for the explicit purpose of  underwriting public debt). Those who are accepting will be inspired to make practical adjustments personally, such as the use of private legal creations as financial shelters and the prudent revision of any outdated investment strategies.

My function here is to bring these trends to the attention of people like you and to assist them in making the relevant personal adjustments, from sheltering one’s finances to negotiating discounted settlements on credit card debt to investing in alignment with actual (profitable) trends. Thank you for letting me know when you are interested in my assisting you, such as now.

 

Published on: Apr 20, 2010

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