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

[pam_in_florida]

I am in a similar situation with a good amount of money in savings and I know it's value is degrading. Not sure how to alleviate that except to decrease my expenses by learning self-sufficiency and hope that helps. I am already living a pretty simple life.

Some people push gold, but I think the government can devalue that as well. When I heard Costco was selling gold in some locations I also thought of the Joe Kennedy story.

Re: Savings

[methylethyl]

Plus, if you get to a point where you are in truly bad straits and you need to convert your gold to, say, groceries... as soon as you bust out a krugerrand you're advertising to all and sundry that if they come to your house and tie up your family, you'll probably cough up more. That's not a theoretical, it's a common story from the economic collapse in Argentina.

I do think it's good to have a little bit of precious metals set aside for a small emergency fund, but it's also maybe important to think through what that's gonna look like on the other end if you have to cash it in for necessities, because as soon as it looks like you're the sort of person who has a stash of bullion under your floorboards, you've painted a target on yourself and your family. Like, personally, I think it's better to invest in skills that make you useful to others, which can't be stolen. And for emergencies, it's way better if you look like you're parting with grandma's wedding ring, cashing in a broken necklace or a bent bangle bracelet, or selling that weird sterling spoon somebody traded you for some plumbing work, than digging out a stash of collector coins.