Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
It’s interesting to watch the different markets these days. Assets keep going up in price, and oil keeps going down.
It defies logic. Especially with the 24/7 lamestream media hysteria focused on Trump.
So I looked into it. And it seems that the talk of a bubble has resurfaced.
Except that it’s not just fear of a real estate bubble. It’s fear of a bubble in everything.
Since most of the media these days walks in lockstep and is controlled by a few mega corporations, I like to look for alternative sources for analysis. One of them is ZeroHedge.com.
They recently wrote about this “Everything Bubble” concept, and I have to say, having studied econ in college, I can’t argue with their analysis. They wrote:
“The next crash is coming, and the decision by central banks to paper over their economy's troubles with a massive injection of debt likely means that the next crash is already overdue.”
“Soon, investors will be forced to reconcile a massive expansion of debt and falling productivity and growth with a host of potentially disruptive crises: The advent of government-sponsored cyberwarfare, followed by the collapse of the global dollar-based monetary system.
Whereas the last crisis triggered massive devaluations in the real estate and stock markets, the next crash will be the result of a triple bubble in stocks, real estate and bonds as investors bail out of traditional assets in favor of the safety of gold, silver and - perhaps - cryptocurrencies like bitcoin.”
Even Worse
I know that’s a mouthful. What it means is that the next crash will be way worse than the housing crash that started 10 years ago.
The difference?
The near doubling of the national debt over the past 8 years, and the massive increases in corporate and household debt.
You see, last time bonds were seen as a “safe haven,” so people had an alternative place to put their money if they didn’t want to be in stocks or real estate. They don’t think that’s going to be a viable choice next time around.
Regarding each of these markets they wrote:
“In the U.S., housing prices have experienced a halting recovery since the subprime crisis. But in other markets, like New Zealand, Canada, a frenzy of buying by wealthy Chinese hoping to stash their money abroad kept prices afloat, driving the ratio of home prices to incomes to all time highs. In Canada, the affordability index - the ratio of housing prices to incomes - has risen to an all-time high of 1.4.”
“In the stock market, a few vulnerabilities have emerged; the ratio of debt borrowed against investors' brokerage account balances has reached all-time highs, which tells you that recent gains are vulnerable to a short-squeeze - which is when brokerages close clients out of their positions.”
“Bonds have been in a "perfect bull market" for 36 years. But historical patters suggest that the coming shock will likely trigger its demise: Over a span of decades, interest rates have tended to spend about equal time on either side of a peak. If this pattern holds, it would mean that the decades long bond-market rally only has two or three years left to run.”
So that begs the question then…
What will the next crash look like?
Zero Hedge quoted one analyst who believes that it will be a one-two punch, and put it like this:
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Step 1: Investors will flee stocks and real estate and flood into the perceived safety of bond markets, causing a temporary spike in bond prices as the stock and real estate markets collapse.
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Step 2: The bond market will collapse, because the catastrophic pile of debt will be unserviceable due to the recession brought on by the stock and real estate market collapses.
That analyst believes that if the next crash unfolds like that, it could threaten the global dollar-based monetary system.
Not a pretty picture.
The question is, what do you do about it?
I’ve just started looking into it, so I don’t have a clue. Do you?
What Do You Think?
I’d love to hear your thoughts about this possibility. Share below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.