An Utterly Serious Warning

[ecosophia]

There's an old Wall Street legend that came to mind today...

"In 1929, at the height of an economic boom in America, Joseph Kennedy Sr. (father of JFK) was working as a stockbroker on Wall Street. As the story goes, Joseph was walking around when he decided to sit down for a shoeshine. While polishing his shoes, the young worker gave Joseph some of his favorite stock picks. When Joseph heard the shoeshine boy giving out stock tips, he figured the party was about to end, and it was time to get out of the market. Joseph proceeded to exit his positions in the market and bought short positions that bet on the market going down. Shortly after that, the stock market entered a free fall." (Source)

The reason this came to mind is that I get therapeutic massage regularly these days, and my massage therapist mentioned today that she is getting into real estate investing. She's an extremely capable massage therapist -- but then I'm sure the shoeshine boy who did old Joe Kennedy's shoes was good at his trade, too. The rule remains the same: when people who have no previous background in investing start piling into some investment vehicle, a speculative bubble is in full swing, and will collapse catastrophically in the not too distant future.

I watched this same thing happen in real estate about a year before the 2008 real estate bust hit. When that arrived, everyone I knew who'd gone piling into real estate ended up in the bankruptcy courts. I also watched it in the stock market about a year and a half before the 2000-2001 internet bust hit, and a lot of people who'd put everything they had into interrnet stocks lost it all.

So, dear readers, if you find you're suddenly thinking about putting a lot of money into real estate investment, may I offer a piece of advice? You'd be better off shredding it all and flushing it down the toilet. Don't let yourself get suckered, because the market will sucker punch you.

Oh, and while you're at it, get ready for a whopping economic crisis, possibly as soon as this fall. The Dow Jones just hit an all time record, btw, and speculative investments are soaring while the productive economy lurches further and further into dysfunction. We're probably going to be in for a world of hurt within a year or so. Brace yourselves...

Comments

Re: Savings

[coyote_girl]

I'm in the same boat. I took an early retirement and went lump sum on a modest pension. Nearly half the funding was from debt instruments, and remembering 2008, I wouldn't expect it to remain solvent.

Though the taxes are going to be steep, I am wagering it will be a smaller loss than the next market correction. That, and why feed the beast that wants to put me on the menu.

I did park the cash in a savings account with a credit union. They are more regulated and SHOULD be less risky than a bank. When the bubble bursts, expect a lot more bank failures.

Reality is, I will need to find a new income down the road. The best that can be done is use some of the money for projects that would reduce future living expenses. I do plan to keep some of it as a nest egg. We'll see how inflation plays out in that.

Ultimately, there is no completely safe option. That's life. I did put a portion of it into precious metals. The idea of trading gold or silver for groceries invites a messy end, but enough to cash in for a few years of property taxes in case of steep inflation might make the difference.

Please take this with a generous grain of salt. Even if this works for me, there is no one size fits all. Planning for a comfortable poverty instead of investing for unearned wealth is also quite heretical. I have learned to keep a bit quiet about it.