A poster wanted to know if anyone had recommendations on how to not just survive, or get by, but to PROFIT from what we all likely know is coming - the bursting of the worldwide housing bubble and a severe economic downturn
I'll turn it over to you all - give us your best plays (you ghouls!)
March 06, 2006
Picking the jewels off of the dead bodies
Subscribe to:
Post Comments (Atom)
25 comments:
Well, my original post wasn't as bad as all that.. Sheesh. :)
What I said was: "The question for me, which I have not seen addressed directly in this blog so far (but I'm new here still), is what are the best suggested strategies for surviving the housing bubble pop and following economic downturn (depression). Both internationally and nationally. That is besides investing in gold. Heck, ghoulish as this sounds, it should theoretically even be possible to profit from the downturn if you knew it was really coming and thought about it. -- Or, to paraphrase the subtitle of the Peter Sellers movie, Dr. Strangelove.. 'How I learned to stop worrying and love the bomb(bubble).'"
The reason I came up with this ghoulish question was I had remembered a quote that I had read referring to the accuracy of economists in predicting the direction of the economy. I think this was in context of extolling the virtues of Warren Buffet style individual stock picking wherein you mostly ignore macro economic conditions and invest only after doing exhaustive research on the individual company. Anyways, the quote was, "If an economist could predict the correct timing and turn of economic conditions twice in his lives he would be a rich man."
I believe that the Motely Fool also had guest columnist article series by a man named Whitney Tilson on bearish strategies for stocks, which sparked my imagination. http://www.fool.com/news/commentary/2004/commentary040220WT.htm
And I seem to recall that there were several investors during the Great Depression that made out like bandits on the 1929 crash.
However, I was interested in was:
1) - How to best survive, god forbid, an economic crash. Besides holding gold. (There is far too much dry economic tinder lying around begging for a match for my taste - derivatives, personal debt levels, federal debt, trade deficit, unbalanced currency, housing bubble, etc.)
2) - Then, after mere survival, is it theoretically possible to profit from it. (e.g., short bank stocks with high mortgage exposure, currency arbitrage, etc..)
--Andrew
see the new book I posted above - cash in on the real estate crash
that's a good one - write a book about cashing in on the real estate crash!
hmmm...
anyone want to ghost-write that one, publish under the housingpanic brand?
seriously?
True, I had noticed that people (probably the only ones who are currently making money off the housing bubble) were making money off of selling how-to books on realestate flipping. I view this as similar to selling shovels and supplies to the 1849 California and 1890's Alaskan Gold Rush participants.
I will also grant that in investing in real estate itself, estimating when you have reached the bottom (the capitulation stage) is important, *IF* you are planning on investing back into real estate. However, 1) it should theoretically be possible to find a way to profit from it on the way down also.. And, 2) I recall reading a World Bank (or was it an IMF article?) on the depth and duration of asset bubble pops (housing) versus equity bubble pops (stocks) that stated that the asset bubble related downturn was at least twice as long and deep as the equity bubble downturn *AND* it also usually took the equity market down with it. So it could be a looonngg drop to the bottom with at least 30% drop in the value of the dollar (as stated by Paul Krugman in recent NYT article) to balance out the trade deficit.
Oh, and I'll add a couple of more items to my list of dry economic timber that is likely to be set ablaze by the housing market bubble pop.. Pensions (both private and state/local), Insurance costs and Healthcare costs.
--Andrew
sdf
I follow this blog religously and despite a big believer that housing is rediculously overpriced, I'm less bearish on the overall market.
I think that high prices will come down and that there will be significant corrections along the coasts lasting several years similar to Japan - more like a slow hissing sound than a 'pop'. But overall, higher prices will just drive demand for more building because people are willing to pay more than the cost of materials to buy a house - which drives the profit incentive of the builder.
This will keep the overall economy and demand in shape because those who get squashed will be primarily at the lower end of the economic scale. They will be up to their eyeballs in debt which is just the type of economic slavery our capitalist system needs in order for it to continue.
So my forecast. Prices will drop 10% to 15% over the next 2 years. Meanwhile, the dollar will slide another 10% to 20% and inflation will drive fixed interest rates 1.0% to 1.5% higher than where they are now. The variable rate will go much higher though.
Each of these (price drop, dollar drop and inflation) all are ways to reduce the underlying value of an overpriced asset and I see all three contributing to the slow motion train wreck that will be the housing market over the next 6-8 years.
Personally, I'm full invested in the stock market but have 60% in international, the rest in value style in the US. As inflation kicks up, prices go up. As the dollar drops in value, international goes up.
The only major risk here is if we decide to invade Iran. The White House is racheting up the language with their two current international lap dogs...Mrs. Rice and Mr. Bolton cause they are running out of time. The neo-conservative Christian right has to start the war before Bush's term ends in 2.5 years. Hopefully the public rejects their fearmongering but considering how easily they duped the American Public into invading Iraq, I'm not too hopeful.
Cheers!!!
Bill
Pasadena, CA
Buy In the Money 2008 Puts (LEAPS) on Overleveraged Homebuilder Stocks with large exposure to DC, AZ, CA.
CTX
KBH
BZH
DHI
Great topic Keith...
Here is what I am doing, I am currently short SPF and KBH. I shorted SPF after I went to one of their new home releases and virtually no one showed up.
After all these builders hit significant 52 week lows, I'm planning to short some of the financials and FNM.
I'm still looking for other plays, so I'm all ears if anyone else has any interesting ideas.
Buy ANY asset when absolutely NOBODY else wants to own it, everyone who used to own it recently took a real bloodbath trying to get rich quick, and after most who once owned it swear they will never own it again. It can only go up from there, because, at that moment, YOU will be one of the only buyers. I have seen this happen with stocks, bonds, gold, real estate, and currency.
I agree. The worst time you can buy something is when you are afraid you will miss out on an opportunity if you don't buy right now, but that is a characteristic that the asset is near the top and can only go down from there. You don't have to compete with other offers in order to buy at the bottom.
I liked Pasadena Bill's strategy and have done similar portfolio allocations, including CDs in New Zealand dollars from Everbank.com and some of the Asia ETFs. A crashing dollar might also mean more European tourists coming to the US again. John Talbot's book on the housing bubble implosion says that there are five main reinsurance companies with exposure that far exceeds their market cap and some of them will not survive a big downturn. These are the mortgage insurance companies that will have to pay up when the foreclosure boom hits. They are:
MGIC Corp
The PMI Group
Radian Group
Republic Insurance
Triad Guaranty
Some are near 52-week highs and should be shortable pretty soon.
The problem with this strategy is that sometimes everybody is right, and the company declares bankruptcy not long after you buy it. Nothing is easy.
I am currently short (through actual shorts or long-term puts) homebuilders, mortgage holders, mortgage originators, and select consumer discretionary issues (some retail REITS are near all-time highs).
I am long very little other than gold miners.
Short XHB!!
ok- last two anonomi-
What do you want to do with this knowledge _right now_?
i.e. Gold- if you caught the bottom, do you suggest to sell now, since your criteria no longer hold. Or if you say they should stay in, then do you recommend others buy it now?
If you recommend others buy now, the criteria certainly aren't met.
If you tell the Gold owner to sell now, wouldn't you have told them to sell at 80% gain, 50% gain, 25% gain?
How does this help me time anything?
Prove me wrong- what do you recommend with this advice _now_?
p.s. some "panic buyers" of RE have already made 50+% appreciation- so it worked out very well even though it was "bad" under your criteria.
But I do agree that now is an historically bad time to buy RE.... Probably the worst time in 660 years (year before the Black Death hit Europe).
personal property will go cheap, sporting goods, art, vehicles, boats, etc...
When you have to make a house payment, you are likely to go short on your Harley, or flat screen.
Resale value is in the toilet for most items, so if they have to fire sale...and they will, antiques and such always go cheap.
Stick it all in storage for 5 years and sell it during the next boom. The money always runs out, and when it does they will sell everything they have...even their souls...but thats for another rant.
We lived through a major housing bust in Denver in the 80s and achieved a high level of economic independence by playing it right. Residential RE was surging in in Denver in the early 80s but the signs were there of a downturn coming by 1985. We sold our townhouse in 1985 and left the area in 1986. After seeing foreclosure lists with prices being halved in 1987, we returned and purchased a house for $65,000 in Denver west side and paid it off in 2 years. It sold for $125,000 in 1995. We took that money and bought a house + 14 acres in an area near DC for $135,000 which is now going for near $500,000 and no mortgage. The bust will provide housing and profit for those who cannot afford todays prices. Better keep adding to those liquid savings....
I have sold all stocks, bonds, RE, funds, and cashed out all US Government backed banked accounts.
My primary holdings are bottles of wine. In a really old vintage you can lock up 50K of value in a small package.
The bottles are easy to care for a store and to hide from the Nazi government currently moving into place in the USA.
I learned this trick from my grandfather that escaped eastern europe with a small fortune in wine before Hitler's army.
He kept a stock of dusty cheap bottles of wine to pay off the various guards and corrupt agents he had to often get his supply of wine past.
Sticking personal property in storage for 5 years to sell is a losing proposition.
In 5 years all the stuff we consider good now will be total junk.
Resale on anything is low and is going lower, especially on the following items:
-ATVs
-boats
-Dodge Ram trucks
-plasma TV sets
-high end computers
-riding lawnmowers
-Harleys & Big Dogs
Just sell it now, eat the loss, and promise not to do something stupid again for at least a year, since we'll all forget anyway.
The coming bust will be nothing like the '30s. Central banks around the world will work in unison to pump liquidity at levels never seen before. The working classes will see their standards of living reduced by the resulting inflation while bankers and Wall Street types fly high on the huge profits they make from transaction fees and commissions. U.S. hundred dollar bills will be used as toilet paper in outhouses around the world, poor Ben Franklin!
No, the government will never allow a '30s-style deflation cycle to take hold. Rather than purge the system of bad investments and debt, they will inflate the money supply as necessary to prop up widely held assets like housing and the stock markets. I wouldn't be surprised if mortgage interest rates fall to near 0% as a ploy to keep people in their digs. Ben Bernanke says anything is possible for people who run the printing press. Imported goods will be another story. The prices of oil, electronic gadgets, and some automobiles will skyrocket.
Is there any way to come out on top? I doubt it unless you are well-connected and already have assets offshore away from the prying eyes of the federal governmennt. Unlike the '30s, most people today deal with cash and asset holdings electronically, and banks have essentially zero reserves (about $240 per account holder on average).
Guns and gold will be important in some places, but I expect the feds will be ruthless in supressing any kind of protests, rebellions or sessesion under the guise of preserving "homeland security". The Democrat-controlled Congress elected this November will raid pension funds, IRAs and 401Ks to make ends meet (it's not stealing, just borrowing!). If things really get sticky, war is always an attractive option for pols as nationalism usually trumps rational thought.
There are some paranoid people on this thread. Not the brightest porch lights on the block, either, if you get my drift.
Yes, the people who fled Germany in the 1930s were "paranoid" too. How could they possibly believe that a great nation with an educated population could fall into an imperium? The fools!
Just remember, desperate people do desperate things. There is nothing in this world more desperate than a politician with the scent of power fresh in their nostrils and no money to spend.
I have been following a site now for almost 2 years and I have found it to be both reliable and profitable. They post daily and their stock trades have been beating
the indexes easily.
Take a look at Wallstreetwinnersonline.com
RickJ
I have been following a site now for almost 2 years and I have found it to be both reliable and profitable. They post daily and their stock trades have been beating
the indexes easily.
Take a look at Wallstreetwinnersonline.com
RickJ
Hi Blogger, I found your blog quite informative.
I just came across your blog and wanted to
drop you a note telling you how impressed I was with it.
I give you my best wishes for your future endeavors.
If you have a moment, please visit my todays mortgage rates site.
Have a great week!
Your blog I found to be very interesting!
I just came across your blog and wanted to
drop you a note telling you how impressed I was with
the information you have posted here.
I have a bad credit loan mortgage xxasdf
site.
Come and check it out if you get time :-)
Best regards!
Your blog I found to be very interesting!
I just came across your blog and wanted to
drop you a note telling you how impressed I was with
the information you have posted here.
I have a bad credit loan mortgage xxasdf
site.
Come and check it out if you get time :-)
Best regards!
Post a Comment