Economic crisis: great for prudent traders & awful for real estate investors

A friend recently posted this on facebook:

A couple people have told me that the market is going to collapse in a year or so, at least the housing market. I’m wondering if anyone has any thoughts or professional opinions about this?

I replied (and then a short private exchange began). Here was my public reply:

A lot of statistics and data indicate the potential for a major downturn in global credit markets, which tends to “blow out” prices in markets like stocks, real estate, and even gold and gasoline etc….

In late 2005, I published this article forecasting a major downturn in the global economy including in stock prices. My favorite section is me “tearing apart” the recent analysis of a PhD who was the chief investment strategist of Wells Fargo. He was “very wrong,” and yet despite his apparent incompetence remained in that job for another decade at least (as of the last time I checked).

Starting in early 2003, I published forecasts of the emerging real estate decline (which started in the 1990s in Japan and had spread to Europe by 2003). By mid-2005, I published a few “confirmation” articles showing that two regional markets in the US were already starting the crash that eventually spread throughout almost the entire US. Those two regions were Phoenix and Las Vegas.

Expanding beyond the topic of real estate, in 2004, my publications focused on global oil markets as a primary trigger that would eventually cause a major shift in the global economy. Within a few years, it cost over $11 to get a gallon of gasoline in parts of the UK and Germany. And soon, the “dominoes” that I said would fall in sequence did in fact fall just as I had proposed.

So those were my public comments, which that facebook friend (who I will call “FBF”) and a few others so far have “liked.” Here is the private exchange that followed (with slight censoring of her comments).

FBF wrote:

Hello, honored to have such an intelligent friend on Facebook!

If you are ready and willing, I would like to ask a little bit of advice.

JR replied with a “thumbs up.”

FBF continued:

OK then I will ask… I own a house in [a particular location] where lots of yuppies like to move… It’s a rental property….

The real estate prices are consistently going up at a very fast rate. I dislike being a landlord, but I can tolerate it.

A bunch of people have told me that I should sell my house this spring due to the bubble probably bursting soon. Others have told me that one should hold onto real estate during economic crisis is… Do you have any suggestions? [She then references her other income from her profession.]

JR replied:

Okay! First, I recommend targeting strategies with smooth, stable gains- ideally, with some calculated diversification.

For instance, a couple of months ago, I wrote a short report on two unrelated systems that have been producing annualized gains of 110% and 220%.

Next, my trading analysis will TARGET the forecasting of economic crisis because a crisis will present the most lucrative opportunities BY FAR.

Huge amounts of wealth transfer very rapidly in a crash. In a manic bubble, the transfer of wealth toward prudent investors will generally be much much slower, since so many people will be on the “receiving ends” of benefiting from the bubble.

Last, as for the stability of real estate, in a deflating of credit markets (which is the main kind of economic crisis), it is far better to own cash during a deflation than to own real estate. A few examples include the crash of Japan’s real estate market in the 1990s (which almost 30 years later has still not recovered), plus Phoenix, where prices rapidly fell [almost] 50% on average, and Las Vegas where prices rapidly fell 60%.

This image from early 2012 shows the rapid 60% price decline in Las Vegas:

Here is the same timeframe for the 48% decline in the Phoenix area:

FBF replied:

with a graphic icon saying “thank u” and a cute teddy bear.

JR continued:

So, those are my main “summary comments” for you. Also, if your main “investing strategy” is concentrated in a single faraway unit of real estate, that could be very bad during a deflation. (By the way, I was briefly a landlord for a home in [a certain place familiar to FBF] and that “did not go very well.”)

I could say more about WHY owning real estate can be SO bad during a major deflation, but for sake of brevity, I will simply say “other things would be much better and why not focus on them instead?”

[FBF replied with a thumbs up]

Also, to be clear, I am sharing this info with you with the expectation that you will be open to using my services for wealth management. I do not charge anything except a portion of the gains (as in no administrative fees or management fees and generally no set-up fees). My main question for you now is “how soon would like for us to take a few minutes to explore the details?”

If you’d like to read more at any time, here are my “official” promotional pages, which are entirely optional for you to read:

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