I caught Donald Trump on Larry King last night. He was telling people he is leery of the stock market here and would not be buying it. He was saying he would park cash in T-Bills or buy a house. Real estate prices have dropped a lot he pointed out.
I agree with the Donald's overall comments. So far US realty markets are down by 20 to 50% in many areas, and overall the stock market has dropped about 20%, so comparatively less. Generally speaking the higher asset prices are the greater the risk. Overall asset prices that have corrected more tend to present less risk to new capital than assets that have corrected less. That said this general statement is a very broad concept that needs much more fine tuning before we would call it an investment strategy. This brings me to the trouble with Donald and those like him.
Donald is rich so people swamp to listen to him. He is the “best in the world”. Just ask him. The Donald is a “real estate guy”, just as stockbrokers and mutual fund salespeople are “stock guys”. He is telling people to avoid the stock market and buy real estate, because THAT IS WHAT HE ALWAYS SAYS!
The Donald was touring the country the last several years promoting his books and real estate seminars teaching everyone how they too can lever themselves to wealth through real estate. He was in Toronto last fall promoting his newest Trump Condos and telling captivated audiences why $1500 a square foot was cheap, cheap for his luxury condos in Toronto.
The Donald is an incredible sales guy. But no one should ever confuse his comments as strategically timed or valuable advice. And let us not forget that the Donald has gone bust a couple of times as well. Perpetually bullish people can be interesting entertainment, but we must never download them as advising our investment approach.
As Washington scrambles this week to get its backstop-for-financials-plan in place, I am thinking attention will soon move away from the credit crunch a bit and back to the realization that North America and many other countries around the globe are now in a serious economic contraction. Several months ago, I said that the credit crunch was like beating the economy with a phone book. The marks may be slow to show, but the internal damage would be significant none the less. I am thinking that the next leg down in equity markets will probably come when the the economic contraction comes fuller into view over the weeks ahead. Time will reveal.
Here are some broader economy headlines that caught my eye this morning:
WSJ: Manhatten won't Avoid Property Crunch
WSJ: Property Conundrum
Emerging Markets saddled with a backlog of maturing debt
Bank of England expects gloomy economy worldwide.
Cory’s Chart Corner
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