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Deke's Investment Blog - November 15, 2015

At a November conference in Chicago real estate mogul Sam Zell spoke of the commercial real estate saying “it’s now in its eighth inning.” Barry Sternlicht, another real estate mogul, thinks New York residential real estate market is “on the precipice of an epic collapse.”

The real estate market is nearing a peak. When it turns there will likely be a significant decline. Opinions differ, but analysts’ consensus is by the end of 2016 or in 2017 a declining period will begin. It may last 3 to 5 years and decline from 30% to 50%. Here some predictions:

  1. Stock market decline 50% to 70%. The US stock market is at an all time high, margin debt is at an all time high, the SP 500 PE ratio is at a record high. These are peak levels that have been followed by declines every time in history.

  2. Real estate decline 40%. The real estate market has the lowest home ownership since 1965 (50 years). Home prices are at a level that home buyers cannot afford. Mortgage interest rates will start going up soon and the cost of owning a home will double or triple. When the real estate market turns, prices will decline quickly and many people’s equity will be wiped out.

  3. People are hording cash. The turnover of money in the economy is much slower. People are spending less.

  4. When the decline comes the unemployment rate will rise sharply.

  5. 47% of US population is on food stamps.

  6. Government debt is staggering, $18 trillion, going higher and unsustainable. Include unfunded liabilities and the US national debt is around $200 trillion.

The US economy is probably now past the point of return. Middle class incomes have been declining for 40 years. These are serious considerations. Take steps to prepare.

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