From a guy who called the housing bubble

[FF]

from Harry Dent, who believes deflation , debt cancelation , not hyper inflation will be forced on our rulers.

We have seen one bubble after the next since the last boom started in 1983… each one driven and exaggerated by the rising spending cycle of the massive Baby Boomer generation.
The first bubble peaked in late 1987 and then crashed 40% in two weeks! We didn’t even see such a sharp short-term crash, or such extreme volatility, in the last great crash from late 1929 to mid-1932.
The tech-stock driven-bubble from 1995 to early 2000 was followed by a 78% crash in tech stocks and a major crash in overall stocks into late 2002.
The emerging world, real estate and commodity bubbles inflated into late 2007, with real estate peaking first in early 2006 and commodities just behind that in mid-2008. When the bubble burst, stocks crashed 55% in the U.S. and 70% in China. Oil collapsed over 80% and almost all markets dove around the world.
Now we have the Fed-driven bubble. In its attempt to save the Titanic, the Fed has pumped massive amounts of stimulus into the economy. Stocks are back near the highs of late 2007 and they’ll likely make slight new highs by the end of the year or early next year.
But is a Dow of 3,300 too bearish? Of course not.
We’ve seen one major bubble after the next go to new highs and then crash to new lows. Why would anyone expect anything else in this bubble-boom-and-bust era?
We are not the ones out of touch with reality... the media, politicians and economists are!
This present, artificially-generated bubble (which is even worse and more vulnerable than all before it) looks very likely to burst between early 2013 and early 2015.
If this bubble burst leads to a new low, like all its predecessors, then it’s likely the Dow will sink to 6,000 or lower. And the ultimate low, when demographic trends bottom between 2020 and 2022, is likely to be lower still… between 3,300 and 3,800.
This is the New Reality


Everyone wants to wave a magic wand to wish away the crash of 2008, the closest we have come to a major banking meltdown since the early 1930s. They want to continue as if nothing untoward happened.
But this simply cannot happen.
NOT with the largest generation in history moving from a spending and borrowing cycle to a savings and downsizing cycle.
NOT with the greatest private and government debt bubble in history unraveling as it has every time in history.
The more we try to use artificial stimulus to cover over this new reality, the more the bubble comes back and the more it bursts when reality sinks in again.
Japan has already tried to ease the pain of its debt, economic, real estate and stock bubble with endless injections of money into the economy. The price it pays is endless stagnation, little-needed debt write-downs for consumers and businesses, low innovation, rising government debt (to extreme levels) and a continued aging population.
And all the Fed is doing, in its attempts to save us, is to lead us down that same path.
If we don’t face this debt crisis now… if we don’t restructure debts that have little relationship to real estate prices or the economy now… if we don’t restructure our entitlements in line with our much longer lifespans… if we don’t we invest in infrastructures that can make our aging population and the next generation more productive in the future… if we don’t do all of this now then we will follow in Japan’s footsteps.
Our kids and grandkids deserve better than our cowardice. To ease today’s pain we’re putting the future burden on them, just as Japan has already done to its younger generation.
So break the mold. Protect yourself from the next crash by conserving your assets and gains from the last decades. Do this before this next bubble bursts.
Then, push for policies that force our government to rein in our endless budget deficits and our runaway entitlements. If we don’t, politicians will simply continue to lead us to destruction.

 

[Moonstruck]

I have been predicting a similar scenario to one degree or another. We just missed our last best chance of doing anything at all about it. Now with artificially low interest rates, savers are getting penalized big time. Obama has to keep interest rates low to finance the billowing national debt. Think what it will do to the budget if interest rates soar to double digits again. We could never recover. Nothing is getting controlled but interest rates. I can't help but think this is some kind of big design to manipulate currencies and tearing down our country. We are in deep ****. I'm now glad to be at the end of my career. We have indeed produced a confederacy of fools.

 

[Blue Heron]

So how do you protect investments? IRA's for future growth ? Real estate ?

 

[Moonstruck]

So how do you protect investments? IRA's for future growth ? Real estate ?

Good question. With deflation there are few places of refuge. Even annuities are shaky because the payer could go down. Gold is one place for a little security. Cash will be king if anything can be converted to cash. We will all be on a ride to the cellar. I just don't believe that there is the political will to do anything substantive about the fiscal mess. It will do no good to raise taxes on a dwindling base. The only way to stay in office will be to promise free ****. The predicted 200 year life of a democracy may be upon us.

It's the young people who will suffer most. They have been voting for their own demise. Economic principles will not be denied. They are real.

 

[FF]

Seems he thinks our friends to the North , and Down Under will have their housing bubble pop too.

Canadian and Australian Real Estate

By Harry S. Dent Jr., Editor, Survive & Prosper

Dear Fred,
​

​

In the last year I have done two tours in Australia, I’ve spoken in Vancouver twice and just recently I was in Toronto to speak at the Money Show there.
What struck me is that Canadians and Australians have three things in common:

1) Neither country had a housing crash or banking crisis in late 2008 
2) Both countries have small populations with abundant natural resources, making them strong commodity exporters, and 
3) Neither thinks their housing markets will go down.
​

Ha! If I had a nickel for every time I heard someone say their housing won’t go down 
Just guess which cities in the developed world have the most overvalued real estate markets right now?
London. Vancouver. Melbourne. Sydney.
London’s average home price is now at 12-times average income. Vancouver, Melbourne and Sydney are over 10 times. Toronto is also very high at eight-times income.
Guess where prices were in San Francisco and Los Angeles when the real estate bubble burst in the U.S.?
Ten-times average income!
And Canadians and Australians don’t think their home prices will go down?! It’s mind boggling.
Never mind the other sign the bubble’s about to burst 

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Guess which major city has the highest rate of new condo construction ?
Toronto.
On the taxi ride into Toronto, in horrific traffic mind you, the things I couldn’t miss were the endless cranes, with steel and glass condos going up everywhere. All along the lake. All over downtown.
Toronto is a beautiful city, as is Vancouver. But such rapid condo development is always a sign of a bubble market in real estate.
Yet Canadians and Australians alike seem determined NOT to see the cliff they’re barreling towards. So my message today is for them and it’s simple:
Wake Up!
Bubbles create the seeds of their own destruction.
When the young families, between the ages of 27 and 42, can no longer afford to buy their homes because prices are too high, you’ve got a problem 

There’s No Arguing Against the Inevitable


Naturally, Canadians and Australians argue that the situation is different in their countries. “We’re not like the U.S.,” is one argument. “Our banks didn’t go as nuts as U.S. banks did.”
That’s true.
But – and it’s a big “but” – home prices in these two countries, especially with the continued rally since 2009, have gone as high or higher in valuations than home prices in the U.S. did.
When does real estate go down?
When young families simply cannot afford it!
The New York Times had a great article months ago that showed pictures of $1 million homes in Vancouver. They were crappy little shoe boxes  homes that would be $150,000 to $200,000, at most, in a normal market.
Can you look me in the eye and tell me average households with a $50,000 annual income can afford to buy and live in million-dollar shoeboxes?
What B.S. As is their second argument that real estate prices won’t go down because their economies are stronger. “We have strong immigration trends and we’re strong resource exporters,” they say.
My answer to that:
Immigration drops like a rock in a global downturn, as it has already started to do in the U.S.
And commodity prices peaked in mid-2008. They’ve headed down again since early 2011.
China, with its own real estate and overbuilding bubble, is the biggest factor driving commodity prices  but it’s heading straight for a hard landing and commodity exporters will feel the pain when the China bubble busts.
The reality is the 29-30-year commodity cycle has peaked and it will hit Canada and Australia worse in the next global downturn between 2013 and 2014.
So, Canada and Australia, listen up: your economies are in no better position than any other in the world today. You’re as susceptible and vulnerable to the global downturn ahead as the U.S. and Europe.

Don’t Look This Gift Horse in the Mouth

My point is this: if you own any investment and commercial real estate in Canada or Australia, sell it now. Don’t wait for the inevitable crash that will ultimately happen in all major cities that have bubbled.
And remember these two simple rules: bubbles always burst and they tend to go back to where the bubble began (maybe even lower).
The global real estate bubble generally started in 2000. Use that as your reference point. Look up what your real estate was worth in January of 2000. That’s likely where it will fall back to in the coming months and years.
Can you stomach such a fall?
I couldn’t. That’s why, when I moved from Miami to Tampa in October 2005 (right at the top of the bubble, by our forecasts) I convinced my wife to let us rent instead of buy. I showed her that home prices could go down 70% in Tampa if they simply fell back to 2000 prices.
So far, they’re down 50% and are likely to fall again if the economy fails in 2013 and 2014, as I am forecasting.
Don’t be a victim here just because you think real estate can’t go down.

 

[FF]

Right now there is a big push for renewable energy. One of the solutions is wind farms, those rows of huge windmills that sit on cliffs and in wide open prairies.
The generation of renewable energy is a common plank in liberal political agendas… usually. There is an exception and it sits off the coast of Massachusetts.
In the U.S. we have yet to tap one of the best places for a wind farm. That is: at sea. Given the wide expanse available for wind to blow unimpeded, it makes sense that wind farms just offshore would generate consistently high levels of electricity.
One of the best places for a water-based wind farm in the U.S. is off the coast of Martha’s Vineyard, which also happens to be a liberal political hotspot.
The idea of putting a wind farm off the coast there has met with intense opposition because it would ruin the view. Apparently, renewable energy is all fine and good, as long as it’s Not In My Back Yard (NIMBY).

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We all want things to be more efficient, unless it means cutting our own resources.
We want government spending to be smaller, unless it means cutting a program that provides us a benefit.
In short, we want the pain of doing things better or smarter, as long as it is someone else that feels the pain. That’s why there is no chance the automatic budget cuts – called sequestered cuts in the current fiscal cliff conversation – will happen.
The sequestered or automatic cuts were part of a budget deal gone wrong in 2011...
When the Simpson-Bowles commission could not agree on $1.2 trillion in cuts over the next 10 years, the U.S. budget was automatically put on schedule to cut $1 trillion over 10 years, starting in 2013. The cuts have to come from the discretionary part of the U.S. budget and will equal about $100 billion next year if they go into effect.
And that’s where the fight starts.
The Pew Center on the States just released a study that shows the effects of the fiscal cliff on state budgets for both tax hikes and spending cuts.
To figure out how much of an affect federal spending cuts would have, it estimated how much federal spending on salaries, procurements and wages is as a percentage of each state budget (including Washington, D.C.).
To no one’s surprise, the three highest states by this measure were Washington D.C. (not a state, but still its own entity), Maryland and Virginia. These three combined have the federal government to thank for 19.7% of their GDP.
That’s right, almost one-in-five dollars of state GDP in these three states comes from the U.S. government. The reason that Maryland and Virginia are so high is because of the incredible number of commuters that live in these two states and work in D.C.
So as the U.S. government approaches that dangerous fiscal cliff and peers over, what the bureaucrats see is themselves… and it scares the heck out of them. If there are large scale cuts that hit all areas equally, as the law is written, then many of the paper-pushers will be out of a job.
That simply won’t do!
We certainly need budget cuts, but obviously not in their backyard!
Expect absolutely nothing to happen on this front.
The sequestered cuts will be pushed off or simply dropped, as bureaucrats and politicians protect each other.
What does it mean for the rest of us? That there must be more work done on higher taxes! That’s right, even higher than what is now contemplated. I hope you’re getting ready.