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Howard Marks latest client letter "There they go again...again"


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I've only had a skim-read of this, but it reminded me a little of this:

 

http://www.oddballstocks.com/2017/01/homemade-economic-indicators.html

 

"When I consider everything I'm seeing it's easy to say that we must be nearing a market top.  But it was another two years from what I witnessed in 1999, 2006, and 2014 before the top finally blew off. Oddly I've been consistently two years early in noticing these trends, so maybe the bottom won't fall out until 2019?"

 

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^^ That's a great blog post by Nate. I've had three notable anecdotal events this year that make me think the economy is too hot, but who knows...

 

1. I know quite a few people in real estate in Austin and it's absurd. I've heard numerous stories of houses going on the market and getting 20 offers.

 

2. One friend here owns over 100 properties all around Texas. He stopped buying in Austin 3 years ago and stopped buying in Texas altogether last year. All he's done since then is sell properties because he said there's no good deals in the entire state.

 

3. A family friend in Cincinnati sold their house earlier this year and got offers from the first three people that walked into their open house. Had it under contract within hours of putting it on the market.

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Hey all:

 

There is simply NO QUESTION IN MY MIND that we are far into the economic cycle. 

 

The best example of this that I can think of is that real estate in & around Detroit has actually gone UP!  In this area, real estate usually goes DOWN over long periods of time.

 

On the radio, I hear ads for "Trading Academy", daytrade your way to financial freedom!  Or the 3 stooges advertising "Get Rich Quick using leverage in real estate!".

 

I have been to "Meet UP" groups for business and real estate and am simply shocked at some of the people that I bump into.  A lot of these people have no experience, no capital, no financial/business education, believe everything they hear, are looking for rentals in Detroit at a GREAT cap rate of 12%.  A good chunk of these people are "hipsters" coming in from NYC, LA and other spots on the coast, and they are going to GET RICH QUICK!  How can you go wrong buying a brick house for $40K?  How can real estate be so cheap in Detroit/MI? 

 

One of the things these guys/gals don't get is that the house they are buying for $40k was bought 2/3 years ago for $10k and the LOCAL guy put in some capital ($8k?) and some sweat equity and is now selling out to anxious newbies.

 

Well, these guys & gals are going to get an edukation!  That is for sure....

 

The only problem is that the cycle can keep going for a while...another 6 months? 1 year?  2 years? We'll see!

 

 

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2. One friend here owns over 100 properties all around Texas. He stopped buying in Austin 3 years ago and stopped buying in Texas altogether last year. All he's done since then is sell properties because he said there's no good deals in the entire state.

 

 

There was an interesting article in the Financial Times yesterday about the global real estate bubbles being driven by the Chinese. One of the new trends they identified was a surge in smaller Chinese investors pulling their money out of China and investing in cheaper markets like Texas and Thailand, buying up properties for up to 500k. They specifically mentioned Texas was seeing a surge because the real estate was comparatively cheap to the rest of the county.

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Josh Brown wrote some counter-points:

 

http://thereformedbroker.com/2017/07/27/tennis-with-howard-marks/

 

My answer to this: You can always always always find examples of people acting speculatively.

If I were trying to demonstrate speculative fervor in 2012, I could have used the monstrously large IPO that Facebook came to market with that spring, dwarfing all but one or two prior offerings in terms of dollars raised or initial valuation. I could have done the same thing a couple of years later with Alibaba selling the NYSE’s largest ever new issue. I could have pointed to the all-time record S&P 500 highs in 2013 (as many did) and made the same case. Pick a year, I’ll show you a dozen examples that could be spun as speculative excess.

 

Now you’re probably saying “Oh yeah, do it for 2008-2011!”

 

No problem. Gold, silver and platinum. If you weren’t there, you have no idea.

 

Not just the massive price increases and the boom in assets going toward mining stocks and commodity ETFs – but the activity! A veritable beehive. I attended a large convention for publicly traded miners in Vancouver in 2011 and dared to say – on stage – that gold had broken its uptrend and was technically at risk. I had to be smuggled out of the building in a f***ing laundry cart. Peter Schiff refused to shake my hand in the green room. Ask Tommy Humphries if I’m lying. Price predictions for the precious metals were out in the stratosphere. CNBC had a gold ticker on-screen all day. Gold-buying entrepreneurs were going house to house all across the country for melt parties. It was a speculative mania in the context of a Great Recession. There is always a casino somewhere.

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