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.
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I recently attended one of his seminars and couldn't believe all the people so excited to hand over $1500 for his course after hearing an obvious sales pitch. While I did leave feeling I had learned something, I was glad I didn't get suckered. I have since read many complaints on the internet about the courses and continuing sales pitches for the must have tools and information.
On another note, I'm about half way through Juggling Dynamite and have found it be a refreshing read and a real eye opener. Thank you so much for writing it. I was wondering if you could offer up any books or websites to learn more about setting up my own criteria for determining when I should enter and exit the market to preserve my own capital. I have grown tired of the 'keep giving us your money for the long term' mentality. In one of my RSP accounts I recently added up my contributions and compared it to the current market value to find that both numbers were not far off each other. I was thankful that I was at least ahead, rather than behind. I would have been better off leaving it in a money market fund after all those years.
“Whoever controls the checkbook controls the family”
Danielle, what is your take on what US Treasury Secretary Henry Paulson is doing and especially with the bill presented for Congressional approval that contains the rather disturbing clause:
“Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”
If it quacks like a coup, walks like a coup….
S, devising a set of sell rules takes some work and thought in advance of a crisis. It took us several years to develop ours and it was our full time job. I have listed several books on this blog and in the back of my book that will help give you some of the elements you need. And yes, I agree that without a discipline to sell before big market declines, people would be better off to skip equity markets and products altogether and just stick with laddered GIC's at your bank branch. D
Danielle,
Ever since I saw you on BNN, I've been following you and reading all your blogs. Kudos for breaking your career away from the “Big” investment firms. Even though, small investor like me wouldn't be able to qualify for the minimum requirement to invest in your firm, your daily inputs helps us, little guys, greatly.
About Donald Trump, yes he is indeed an “always bull” on real estate market just like mutual fund adviser being “always in it for the long term”. I've have already learned my lesson the expensive way. I couldn't agree more with you about the conflict of interest in their industry.
Again, thank you for telling truth.
Tony,
Vancouver
During the golf telecast on the weekend, Merrill Lynch is still running ads to persuade people to give Merrill their retirments funds and other monies for Merrill to manage. This comes from a company who almost went bankrupt because the could not even assess the risk of their own investments. Like hell, I would never give them my hard earned funds. Yes, just a giant sales organization. The sales pitches continue. A bunch of bull if you ask me.
Danielle, keep up the good work!
Ricky