In Not Stocks and Not Real Estate Part 1, I threw out the idea that the next bull market might not be in stocks or real estate. What will the next bull market be in? I have some smart readers that I hope will add comments to this post, but I’d like to kick off the discussion with a few possibilities.
- High Yielding Corporate Bonds – It seems bonds get sexy every 15 years or so and we are about due. Good companies still need cash to operate and in a deflationary environment cash becomes more scarce. In order to attract cash and compete with the safety of government bonds, yields would rise. In the most recent newsletter by John Mauldin (Leverage in an 8 Letter Word), he shows charts of AAA corporate debt selling for 70 cents on the dollar. Interest on high-yield bonds is now approaching 20%.
- Gold and Gold Miners – As debt piles up on the balance sheets federal governments around the globe, the risk of monkeying around with currencies increases. What happens when these debts exceed the ability to repay them?
- Private Placement Capital – My pal Matt does private placement investments that have good returns.
- Short The EURO – If we can’t figure out the next bull market opportunity, then perhaps just betting against Europe is the way to go? The Geldpress makes the case and shows how one can profit from a declining EURO in Euro Problems – Short the Euro. I do not know if this ETF has counterparty risk.
The problem here is this market is no where near as efficient as the equity markets. Is there an ETF out there that is buying up fire-sale corporate debt from solid companies? And can I buy call options on them?
The problem is here is commodities keep falling in a deflationary environment. Mish seems to think Gold may have found a bottom. The Sovereign Speculator likes the idea of buying physical gold at distressed prices, but not yet. I really don’t want to buy Gold. It is taxed higher and pays no dividends. Miners hold more appeal to me, but it is something I know little about and would have to research a lot more before investing in that sector.
The problem is here is I’m not an accredited high net worth investor. Big investors get opportunities for big returns. An ideal situation here would be to invest in a fund that places the money into several projects. As cash becomes king, I think those types of funds will become more popular, especially when banks are too frightened to lend money.
Again this post is just to get the discussion started. I have no opinions on the next bull market opportunity. I am currently in research mode. Investing in bonds, currencies and commodities may or may not be the next bull market. If so this will be the first time I’ve stepped outside stocks and real estate.
Looking in new directions can be profitable. In my post Fooled By Randomness, I mentioned John Paulson. He saw something in 2006 that in retrospect seems so obvious now. He believed subprime debt was highly overvalued and discovered a way to short it. He made an estimated $3-$4 Billion on that bet.
MAS, I can only speak to what I know, which is investing in commercial real estate and, as you said, private investments into business opportunities. For more on that subject, check out my blog on BiggerPockets.com: http://tinyurl.com/5bn9nk.
I think residential real estate in general will certainly come back around eventually once absorption has occurred (the simple laws of supply and demand dictate that).
I also like gold (silver more than gold actually).
But, as always, my general rule of thumb is stick with what you know and invest with who you know and you’ll make out alright. And, also realize not all your investments are going to be homeruns.
Residential Real Estate will not come back around as an investment for decades. It will return to its historical role as a place to live and appreciation will closely tied to the rate of inflation.
Well, let’s agree to disagree on residential real estate. It’s definitely going to continue to be an investment — just not one’s primary residence (that’s a liability, not an asset). I know literally dozens of people making money right now in residential real estate investing (and it’s only going to get better over the next couple of years as a buyer) so your assertion is simply incorrect (i.e. unsupported by the facts). It’s not my bag, though, so I’m not going to argue with you about it.
OK. I’ll keep my eye on that Case-Shiller index. Once it bottoms and starts to rise, I’ll be glad to admit I’m wrong if it noticeably starts beating inflation over a multi-year period.
Now there will always be deals for people that can do their homework and are serious. My assertion is at the macro-level. The days of Joe and Mary SixPack getting rich off their homes are over.
Ah, now I see your point. Yes, I pretty much agree with your last 3 sentences. I just talked last night to 3 people who are full-time residential investors who did 4 short sales each last week and made about $20k on each deal. So, people are making money in residential real estate. But, I agree somewhat with your assertion on the macro-level.