-- Posted Sunday, 10 April 2005 | Digg This Article
Rick’s Picks
Monday, April 11, 2005
For investors who’d rather be smart than lucky
Stray comments concerning the impending real estate crash perked up my e-mail on an otherwise dull Friday. I received from various sources, respectively, a CNBC report that 85% of the buyers in Miami’s condo market are speculators (probably true, according to an old friend of mine, a mortgage buyer who lives in a luxury high-rise on Miami Beach. I can attest that whenever I’ve visited her, the swimming pool and patio have been nearly empty of human traffic, other than some kids from places like Argentina, Brazil and Venezuela.); also, there was an article by Robert Shiller suggesting that home prices will crash as spectacularly as they’ve risen, but that the trigger will not necessarily be higher interest rates and/or recession. (I agree about the crash but am not persuaded by his argument that neither higher rates nor recession will prove fatal. Shiller notes that L.A.-area home prices continued to rise for a year after mortgage rates peaked at 16% in the spring of 1980. These days, though, household debt is so absurdly high that, in my opinion, even 7% mortgages would trigger an economic avalanche).
There was a second article concerning the South Florida boom, which Jim Grant sagely pointed out is not, as local realtors are wont to proclaim, “a totally new economic model”; also, a dog-bites-man news story about still more bookkeeping shenanigans at Fannie Mae; and, finally, a direct-eMail promo from a guru who purports to know how we can all get rich from the coming real estate crash.
Surviving the Crash
Concerning the last item, even if said crash is the once-in-a-century disaster that a few of us expect, I seriously doubt it will produce commensurately spectacular opportunities. Of course, many valuable assets will go on the block for distress prices. But to be in a position to buy them for five cents on the dollar, one’s own assets will have to survive the withering of nearly all classes of assets. That will be no easy trick, as bullion investors and those who are implicitly or explicitly short the dollar are learning even now.
I’ve long believed that there will be no big fortunes made when the global debt bubble deflates; for merely to survive will require a rare combination of street-smarts, contrarian daring and unshakable confidence under duress. If you are among the few who possess these traits in abundance, you are likely not only to hold onto your savings as the economy plummets, but to deploy your capital at just the right times, when insane bargains are truly going begging. But even genius and daring together probably will not suffice to amass wealth. One will also need great reserves of patience, since a totally wrecked global economy could take a generation or more to rebuild -- and probably much, much longer to produce the sort of boom that can turn entrepreneurs into billionaires.
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2005, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Sunday, 10 April 2005 | Digg This Article
