One of the hottest topics in finance and real estate is calling a bottom. Whether you believe the bottom is now or much lower, investors all seem eager to get in at the bottom. And this makes sense. Why buy today what you can get for cheaper in the future?
Something is bothering me about finding that bottom. There seems to be a believe common among both bulls and bears that if you correctly guess that bottom, you will be able to then go long and ride the next bull market up. I may be completely wrong on this, but I’m starting to think stocks and real estate are not going to spike upwards from the bottom.
Residential real estate is easy enough to understand. The belief that homes are a good investment has been shattered for the next two generations. Anyone that has had their home listed for sale for a year or more starts to hate home ownership. Preparing your home every Sunday for an open house where nobody comes has a scarring event. You dream of the day you can rent. Although I think there will be silly good deals in new construction from distressed builders, I don’t see home values beating inflation by much for decades.
Stocks seems to be where everyone expects the bull market to occur. I don’t know about that. The killer bull market of 1982-2000 was based off cheap credit, global savings, fraudulent accounting and leverage. Sure there were massive productivity gains and technological advancement, but how much was financial engineering and how much was real engineering?
In a post-deflation world where financial markets are heavily regulated and the leverage is much less, how fast can we honestly expect equity markets to advance? Is it possible the average investor having been fooled twice will be reluctant to invest in stocks?
If not stocks or real estate, then what? This is what I’ve been thinking about for the past month. Continued in Not Stocks and Not Real Estate Part 2.
