Downtown Los Angeles — More signs appear that the strong housing market has begun to butt up against the bursting of a major economic bubble.
The L.A. Loft Blog recently reported that December brought the biggest U.S. stock market drop, along with the slowest Downtown L.A. real estate market since 2008. December loft and condo transactions numbered only 22 in 2018, compared to 63 properties sold during DTLA’s peak December in 2014. The measurable weakness now shows increasing negative impact in DTLA real estate as public opinion begins to head south. #dtla #realestate
MARKET FRAGILITY
Experts who predicted the 2008 crash, permabears like Mike Maloney and free-market economists like New York Times Best-Selling author Doug Casey are all in agreement with Casey Report chief analyst Nick Giambruno in warning that the Federal Reserve is set to pop the “everything bubble.” They say it will trigger a market collapse of epic proportions. Take a look at what the Buffett Indicator says about stock and real estate markets in Mike Maloney’s Market Fragility video. #everythingbubble | Blog Video
The Federal Reserve’s current rate-hiking cycle, which started in 2015, is set to pop “the everything bubble.” If the Fed does not pop it, then something else will. #recession
James Stack also warns of inflation risk, which could cause interest rates to rise, and home prices to fall.
2018: The “Everything Bubble”
Casey Research and many others believe that another crisis is imminent…
As you already know, the Fed responded to the 2008 financial crisis by creating unprecedented amounts of easy money. Think of the trillions of dollars in money printing, but done electronically, called “quantitative easing QE 1, 2, and 3”. The Fed effectively took interest rates to zero, the lowest they’ve been in the entire history of the U.S. Free market economics says that this radical monetary policy must eventually lead to an equally radical punishment to the U.S. economy by free market forces, just as it has for Europe and Japan. The L.A. Loft Blog agrees that there is no way to stop free market forces because, if they cannot occur openly and legally, they will happen covertly and illicitly as Venezuela has most dramatically proven every day for years.
Now, the Fed has created enormous, unprecedented economic distortions and misallocations of capital. It’s all going to be flushed out one way or another. Because of the size of the financial meddling, the result must be an even bigger crisis than 2008. The trillions of dollars the Fed “printed” created not just a housing bubble or a tech bubble, but an “everything bubble.”
For perspective, the Fed inflated the housing bubble with about two years of 1% interest rates. So it’s hard to fathom how much it distorted the economy with seven years of 0% interest rates. The Fed Will Pop This Bubble, Too. The Casey Report predicts that this rate-hike cycle is going to pop the “everything bubble.”
The Fed has encouraged malinvestment by suppressing interest rates lower than their natural levels. This leads companies to invest in plants, equipment, and other capital assets that only appear profitable when borrowing money is cheap. This leads to misallocated capital, along with economic loss when interest rates rise, making previously investments uneconomical. This misallocation has extended to everything, including real estate.
Casey Research sees multiple warning signs that this pop is imminent:
WARNING SIGNS
Earlier this year, the Turkish lira lost over 40% of its value. The Argentine peso tanked a similar amount. China is experiencing a dramatic slow-down, which, by some measures, shows the slowest growth since 2005. The weakness of China is also locally visible when taking a close look at slowing sales at Downtown’s Chinese-built condo projects Metropolis, along with construction delays at Oceanwide Plaza caused by a delay in funding from China..
Trillions of dollars in easy money have fueled the second-longest economic expansion in U.S. history, as measured by GDP. If sustained until July 2019, it will become the longest in U.S. history. By historical standards, the current economic expansion will likely end before the next presidential election. Recessions are inevitable. Longer expansions can fuel greater recession potential just like overfilling a water balloon creates a bigger (and unpredictable) explosion of wetness. #meltdown
Earlier this year, the U.S. stock market broke the all-time record for the longest bull market in history. The market has been rising for nearly a decade straight without a 20% correction.
Meanwhile, stock market valuations are nearing their highest levels in all of history.
The S&P 500’s CAPE ratio, for example, is now the second-highest it’s ever been. (A high CAPE ratio means that stocks are expensive.) The only time it was higher was right before the tech bubble burst.
Every time stock valuations have approached these nosebleed levels, a major crash has followed.
Preparing for the Pop
The U.S. economy and stock market are overdue for a recession and correction by any historical standard, regardless of what the Fed does.
But when you add in the Fed’s late rate-hiking cycle – the same catalyst for previous bubble pops – the likelihood of a stock market crash of historic proportions, before the end of Trump’s first term, is very high.
That’s why investors should prepare now. One way to do that is by shorting the market. That means betting the market will fall.
Simply put, the Fed has warped the economy far more drastically than it did in the 1920s, during the tech or housing bubbles, or during any other period in history.
The Casey Report expects the resulting stock market crash to be that much bigger.
Swiss Bank UBS says that many markets are already overvalued including Los Angeles, San Francisco and New York, while Vancouver is at the greatest bubble risk reports Visual Capitalist. Toronto has already been cooling for more than a year.
LIQUIDATE EVERYTHING AND MOVE TO CASH
In a panic, stock owners can now hit one button to liquidate everything and move to cash. This works for big Wall Street firms who execute trades automatically in microseconds, but the typical small-time stock owner will experience delays and other costly setbacks during a major market drop.
All markets, including real estate, are affected by recessions. Selling a home is a process, not an event. Because selling a property usually takes many weeks or months, cautious homeowners must consider cashing out or downsizing early, before a panic can knock down home prices.
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Copyright © This free information provided courtesy L.A. Loft Blog and LAcondoInfo.com with information provided by Corey Chambers, Realty Source Inc, BRE#01889449 We are not associated with the homeowner’s association or developer. For more information, contact (213) 880-9910 or visit LAcondoInfo.com Licensed in California. All information provided is deemed reliable but is not guaranteed and should be independently verified. Properties subject to prior sale or rental. This is not a solicitation if buyer or seller is already under contract with another broker.