Crystal Ball Watch

If I could predict when the bubble will pop I’d be a rich man. Unfortunately I have been very wrong on many fronts going on 18 months.

But I can’t in my right mind risk the amount of money that’s at stake to see if I’m wrong. I’d rather be wrong sitting on the sidelines then risking several hundred thousand dollars and heading to the punch bowl like everyone else.  I’m not sure about you but I can not afford to lose my life savings.

A home used to be purchased for shelter. Because of government tax incentives it was a way to REDUCE the living expenses associated with renting. In most parts of the country the rent vs buy scenarios clearly points that it’s better to buy if you plan to stay for 7-10 years. Not so much in Southern California and clearly not with today’s metrics.

If it makes sense for you to spend 50-75% more per month to “own” a house you should sit down and spend some time with an accountant or book keeper that can really break down the costs and cash flow associated with each.

Am I “throwing my money away” renting? I’d say no. I am simply paying for shelter at a cost that is significantly less than the cost to live in a similar home. I have less risk, I have no maintenance costs and I don’t pay property taxes.  You on the other hand have a huge amount of risk, maintenance, taxes and the potential to make or lose a great deal of money.

In Mark Hanson’s latest post he references an article that talks about how this bubble is different. This time we may not be giving mortgages to people that can’t afford them or pushing interest only craziness but thanks to the fed and it’s easy money policy since the great recession they have found other ways to inflate asset prices.

Bottom line: The Fed, during Obama, did everything in its power to surge all asset prices — stocks, bonds, real estate, collectibles, et al — with no regard for its own guidance, as to when it would take its lead-foot off the accelerator.  …  If, the past 8-years of a Fed in Armageddon-mode created the “everything bubble” (hat-tip Wolf Richter), what will shifting monetary policy into reverse do to said asset price levels?

That’s the deal, the next time this won’t be limited to a real estate mess. It will be an economic mess that includes auto loans, student loans, WTF crypto currencies….the list goes on. If everyone runs for the exits at the same time panic ensues.

Now if I can only get my timing right we could all make a lot of money.


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