UPDATE – Evening of Sunday March 15th – Poor Caesar died on this date. He would have fully related to our current times as we are living out The Fall of The Roman Empire II.
Like a good little boy doing as he is told, the Fed lowered interest rates all the way to 0%. I thought they might do it in a few steps, but this time they did exactly as the market told them.
And like a few weeks ago, DOW futures are down over a 1000 points. I have always said it is easier to predict events in a downturn than in a bubble. Bubbles extend higher and longer than anyone expects. The masses in panic mode is the same crisis after crisis after crisis.
And to another wild week we head in to….
UPDATE – Saturday March 14th – Carl Icahn has essentially created The Big Short II. You might need to cut and paste this URL:
I would like to know what Sam Zell thinks. He is the greatest real estate investor of the past 30 years. If anyone sees anything from him, please pass along to me.
If Icahn is correct (he is a billionaire, so he has obviously been successful, but I know firsthand of some large losses he has incurred over the years….so he isn’t a perfect indicator of things to come), I would be out of CRE. Financial institutions take note. Investors take note. Of course, there will be pockets that don’t do as bad as the overall market. And if you know your local market better than anyone, then you might be able to find true bargains sooner than later. There will likely be the normal OREO market for deals, also.
A side note regarding stocks. You will hear a lot of pundits saying stocks are better priced than they were (no duh!). That some bargains are out there, even if we are not at a bottom.
To be clear, we have NOT had stock bargains since the August 1982 bottom. I might concede NASDAQ stocks after the Dot.Com Bubble burst might have hit bargain levels. But, neither real estate nor stocks went down to bargain levels in The Great Depression II. Look at the Schiller Price Index and you will see that home prices only got down to fair value. And that is what I am trying to get to re stocks….this initial decline is simply wiping out excess over valuation bubble prices (enough adjectives ). No way are stocks at bargain levels (individual exceptions might exist….e.g. some oil stocks look darn cheap). Stocks likely aren’t even down to fair value, yet.
This isn’t to say that The Great Depression II won’t repeat itself and real estate and stocks bottom out at fair value. Just remember, we are not at true bargain levels until (Bloomberg now owns it) BusinessWeek or Barron’s run the infamous August 13, 1979 headline ‘The Death of Equities.’ Will we get that low is tough to determine at this time.
UPDATE – Evening of March 13, 2020 – Yesterday we approached nearly 3000 points down at one point. As forecast, the 2000 point move was surpassed. Today saw the largest point gain ever – almost 2000 points. Every day this week saw over a 5% move. Volatility (VIX) is at levels last seen in October/November 2008. That was 5-6 months before the March 2009 bottom.
A range for the Bear Market bottom is starting to come into focus. Albeit, it is really early to narrow the range. Based on past crashes, a bottom should occur in the 14,600 to 18,400 range. Analyzing the waves that are unfolding a low below 17,500 is probable. I think the lower area of the range is most likely. Again, it is VERY early, so I am sure I will refine this forecast as the waves unfold.
The waves are at the point where next week could see the worst of the decline to date. That is hard to believe after all we have seen. But, if it unfolds as expected, we might well be in the range noted above by this time next week.
A few side notes about a few myths that the masses assume to be true. I am a gold bug, but gold is not a safe haven (nor is Bitcoin….I think it got down to $4000 this week). Gold dropped about $175 in the past few days. Although, it is challenging for me to see how it will happen, the long-term forecast for gold is $700 to $1050. As always, we shall see.
The other myth is bonds being a safe haven. On the day the Fed lowered rates 50bp, the market was down over 1000 points. In declines this past week, everything was being sold. Cash was king. BTW, the markets are telling the Fed to lower rates up to 100bp. I doubt they will go that far. But, as the Fed follows and never leads, it will do as it is told. Note, rates are nearing 0% so this catalyst for a rebound is about to be eliminated from the Fed’s toolbox. Assuming the World doesn’t implode in this downturn, in the next crash following the next bubble the Fed will use its last tool – pumping trillions in to the marketplace.
More on Monday evening. I am trying to update my forecasts Monday, Wednesday, and Friday evenings. At least until things finally calm down.
Everyone be safe. Follow the instructions from the CDC. As they say, this too shall pass.
March 11, 2020 – I will start a new post to make it easier for readers. For those who are seeing this post for the first time, I have a post on this blog that started with the significant decline that started a few weeks ago. You can read thru it to get caught up on things.
Another week of up and down 1000+ point days. For the few who watch volatility (aka VIX for true followers of the markets), this period was sure to occur. Late last year we had gone thru one of the longest periods with the market not moving more than 1% in a day. I think it was over 100 days. Absurd calm as the stock market went straight up into a blow off top. Welcome back to reality traders.
The only observations I have at this point is that this current decline should definitely go below 22,100 with 19,100 being a nice target. But, that might be too high based on my next observation.
Not what many people want to hear (only those who are on the sidelines or short will like it). The waves are lined up for what we call 3 of 3 – this is the point of major acceleration in the direction of the larger move. The 2000 point down day we recently saw will be dwarfed.
Trading is halted when the market (S&P 500 specifically) falls 7% in a day. The next halt is at 20% I believe. We may not quite make it to that second circuit breaker. But, I will be sure to turn on the TV and watch that amazing site, if it occurs.
I have been asked about real estate. Before I guestimate a forecast, let me mention that so far this Winter 34 million (!!!!!!!) Americans have got the flu. Can you imagine how many work hours have been lost. How much income lost. What if we tried to stop the flu for a Winter? Instead of a little beer virus. It is likely more people die every day in car accidents than will die from the beer virus. Imagine if we eliminated all driving for a month. We would save thousands of lives. Perspective people. But, the Fake News Media has no perspective.
Real Estate is a bit difficult to project at this early stage. Obviously, real estate markets fall long after the stock market has declined. That is simply due to real estate moving much slower.
We know for sure that the hotel industry is getting hit hard now and likely will be thru the Summer. People won’t want to travel anywhere for awhile. Retail properties will be hurting for awhile, too.
I am no fan of Amazon, but they are in the best position – you can order anything and have it delivered and with oil prices down delivery costs for Amazon and WalMart and such are cheap.
I imagine we will see many bankruptcies in the energy industry. So, lenders with loans to such entities will sustain significant losses. Individual hotels may not default, but they should be watched closely as those with high leverage may be in trouble.
I would think apartments, industrial, and office properties would be least affected. Obviously, companies in troubled industries that are tenants in these property types might vacate. Especially if they declare bankruptcy.
I am thinking land acquisition, and all acquisition really, will slow down significantly. Essentially, those real estate investors that use money from their stock market profits to buy properties are gone. With a 20% loss they are frozen in their tracks. Even if they are up 40% for the past year or such, they are still hurting.
Like a major Election (yep 2020 has one of those), everyone will want to stand by and see how this just labelled pandemic plays out. The problem is even if it goes away like SARS or MERS or Legionnaire’s Disease (going way back, eh folks) that won’t occur til this Summer and then people will put things on hold for the Election. 2020 is snake-bitten.
For those of us that were wondering what would take the blame of being the black swan this time around, we now what it is. But, remember the markets are not telling us about their concerns today. They are telling us about their concerns around Labor Day.
People may fear the beer virus. Personally, I cannot even imagine what the real bad news is going to be this Summer/Fall!
So, for real estate, I would not be buying much. Industrial may continue its strength as even more goods will be shipped to consumers. Apartments depend on demographics, so the beer virus is not a significant issue. Vacant land will likely just sit until the next upturn comes along. Office could get hurt if bankruptcies occur that result in unemployment going up.
I have defended Retail all along because even if 12% of sales are online, 88% of sales are local brick and mortar. Plus, online sales are just today’s version of catalogs in the past (which also had goods shipped by mail). But, restaurants and lifestyle centers/malls likely will have fewer customers as people stay away from crowds. It will likely depend on the tenant as we still have to get many items at retail stores and in person.
Lastly, another thought that came to mind….is this the nail in the coffin for globalization? Globalization was on its way out over the past 4 years. But, this certainly made every country focus internally. Keep their people at home. Support their local businesses. Keep outsiders away. It’s early, we shall see how it plays out. Of course, I fully suspect the Fake News Media will associate the global downturn with this move to nationalism and say hey that shows globalization is better. Certainly not the case, but the FNM promotes lies, not truths. Just now President Trump has banned al travel from Europe to the USA for 30 days. Wow. Hunker down folks and buy American:)
I hope my thoughts help you think things out. Like anyone, I am not 100% right in my forecasts. So, think things thru yourself. Situations vary for a million reasons. So, know your situation. Just don’t listen to the pundits on the business channels or radio or wherever. Think for yourself.
I will just say, those who know me, know I live for major downturns. 2005-2011 was a dream and very easy to forecast all the way thru it. I am not as confident about this downturn, but will do my best to nail most of my forecasts this time around, too.
You can email me at GeorgeRMann@Aol.Com. Always interested in your thoughts, ideas, comments, questions, et al.
Remember, don’t panic. The only way to succeed in investing is to do the opposite of the masses which Buy High and Sell Low – you need to Buy Low and Sell High. Buying low is one of the toughest things to do on Earth. The entire world will be negative. Your stomach will be full of butterflies. You will have major doubts. But, you can smile and know that is the time to buy:)