Investment Grin Of The Day Google
How You Could Have Made A Fortune Trading Apple, Inc (AAPL)
Continuation from Friday….
TIMING & MATHEMATICAL ANALYSIS:
If we study Apple’s stock price movement since 1997 or after Steve Jobs took the reins back, it appears as if Apple’s stock price has synchronized with the overall movements of the stock market. Outside of a few notable exceptions, Apple’s stock price tends to ebb and flow with the stock market as a whole. Given Apple’s $580 Billion market cap, that makes perfect sense.
Yet, this yields an important clue. If Apple’s stock moves or oscillates with the market, it is best to take position at market bottoms, get out (and even go short) at market tops and then re-establish position at subsequent market bottoms. And while most people would assume that it would be impossible to time the market to such an extent, I have proven that not to be the case in my previous book Timed Value.
In that book I spend a considerable amount of time describing two important cycles that consistently show up in the stock market. The 17-18 year cycle that represents repeating secular bull/bear market patterns and the 5 year cycle that tends to represent one completed bull/bear cycle within the stock market.
For instance, the stock market had started its bull market in 1982 and had completed in 2000. This move was represented by a 18 year secular bull cycle. As of this writing, the market is in the process of completing its 17 year secular bear market cycle. Further, there were a number of clearly defined 5 year cycles during this time. Most notably, 1982-1987, 1994-2000, 2002-2007 and 2009-2014.
An analyst or an investor familiar with these cycles would understand that it is best to hold Apple’s stock during the bull phases, only to get out or even go short when the bear phase initiates. For example, an investor in Apple would get out at the top in 2000, go short to ride the stock from $20 a share to $2 a share, only to re-establish position at the bottom in 2003. In fact, April to June of 2003 represented a perfect entry point in Apple’s stock.
The stock was selling between $1.80-$2.70 at the time. The Dow set a clearly defined bottom in March of 2003 to continue its 5 year bull market cycle. An analyst working with Apple would know that Apple’s stock is likely to follow the overall market. Forcing an analyst to watch for any signs of a breakout. Such a breakout occurred in April-May of 2003 when Apple’s stock broke out of its 1 year trading range and surged higher. Giving us a technical confirmation that the bottom is likely in and that Apple’s stock is ready to follow the overall market higher.
The result?
Apple’s stock price appreciated 1,300% (13 bagger) between 2003 bottom and 2007 top. That was followed by a 60% collapse in its share price during the 2007-2009 financial crisis. Followed by another 700% gain in the subsequent 2009-2014 bull market.
GETTING IN AND OUT OF THE STOCK
As you very well know, taking a trading/investment position in a Tenbagger at the appropriate time is only half the battle. Staying put, increasing your position and not being forced out to sell at the wrong time is the other side of the coin. After all, it wouldn’t be a good idea to take a 100% profit, only to see your stock go up another 20,000% over the next decade. As human beings we are wired to buy and sell at exactly the wrong time. Hence the inability to outperform the market. When it comes to Tenbaggers we must have a clearly defined set of trading rules that will help us mitigate the risk of being wrong (Please see the Tenbagger Trading Rules & Maximizing Returns chapter).
To be continued tomorrow…..
How You Could Have Made A Fortune Trading Apple, Inc (AAPL) Google
Weekly Stock Market Update & Forecast. July 5th, 2014. InvestWithAlex.com
Weekly Update & Summary: July 5th, 2014
A strong up week with the Dow Jones up 255 points (+1.51%) and the Nasdaq up 87 points (+1.97%). The Dow left behind two large down gaps. One on Tuesday, July 1st at 16,825 and one on Thursday, July 3rd at 16,970. Suggesting that the market will go down over the next few days/week in order to close these gaps.
At the same time, we continue to have a number of other large down gaps, the one on May 27th, two large gaps on May 21st/23rd and two large gaps on April 14th/16th. Indicating an eventual correction. Further, there are a number of smaller gaps left behind, leading all the way down to February 5th low. We continue to believe that the Dow will close such gaps when the next bear leg develops at below mentioned time frames (please see mathematical analysis & timing section below).
WEEKLY REVIEW:
Would You Like A Million With That Coffee? (10 Bagger Book. Part 4)
Continuation of Part 3(below)…...What no one at the time realized is that they were sitting on top of a goldmine that would transform their business. Through the combination of Keurig’s Premium Coffee System and Green Mountain’s coffee and K-Cups (single cup) technology, the company was about to create something of a “printer & ink” combination in the hot beverage/coffee industry.
So much so that the company went from deriving 95% of their revenue from their low margin wholesale coffee business in 1999 ($65 Million), to deriving 95% of their current revenue base from their high margin sales of Keurig Coffee Systems and K-Cups ($4.3 Billion). In summary, staring in 1998-1999 Green Mountain Started its transformation from a sleepy coffee distributor/roaster into a high-technology coffee company. Hence the growth and the 49,616% return on investment since 1999.
For our purposes, we must ascertain if it would have been possible to predict this meteoric rise and take position in the second half of 1999 from the fundamental perspective alone.
The short answer is NO.
There were very few clues that would allow us to take a position at the time. First, there was nothing special about the company. It was just another regional coffee distributor/roaster. Second, the company was stuck in a tight trading range for over five years. Further, the company’s valuation at the time (with the P/E of 20) would not warrant a value oriented investment. Finally, there was nothing to suggest that the company was about to stage a massive revenue growth spurt.
Even Green Mountain’s own management didn’t not anticipate that their Keurig line would take off as much as it did. The best any fundamental analyst could have done at that stage is thrown this company into a “Big Potential” bin. That is after analyzing Keurig & K-Cups in great detail and realizing that the company MIGHT have a great product line on their hands. Yet, no one at the time could have predicted that Keurig and Green Mountain would be able to achieve the growth that they have had. This brings us to the technical side of the equation.
TECHNICAL ANALYSIS:
Since the fundamental analysis has failed to give us the ability to take a long position in Green Mountain’s stock in the second half of 1999, we must now concentrate on the technical side of the equation to see if would have had better luck there.
As you can see from the 1994-2000 GMCR chart above, after going public the company’s stock immediately declined over 50%. Thereafter, the stock price remained in a tight trading range of $0.14-0.40 (split adjusted) between 1994 and the second half of 1999. Bottoming at $0.14 in October of 1998.
With the stock price trending higher in 1999 and 2000 we would had two opportunities to take a long position in GMCR at the time. One in September of 1999 at $0.31 and one in January of 2000 at $0.35. With the $0.35 entry point in January of 2000 being technically more sound.
To Be Continued Tomorrow…….
Stock Market Update
While the market continues to put most traders/investors into a deep state of trance, the chart above should give them a swift kick in the ass. At least in theory. Among other things, it clearly shows that forward P/E for the S&P is now officially higher than it was back in 2007. And while some will stop there, I will not.
You see, the E in P/E has been massively diluted over the last 5 years by the FED, massive capital infusion, QE, etc….Creating “fake or pay it forward” earnings for all of the corporate America. So much so that if we make make certain adjustments and take that monstrous/artificial liquidity out, the real P/E is likely to be above 40. Making today’s market incredibly overpriced. This is exactly what happened in 2008 when corporate earnings collapsed and the S&P P/E ratio briefly jumped over 100.
So, – 49%, -57% and -??% to complete our 2000-2017 secular bear market.
This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2014-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years. If you would be interested in learning when the bear market of 2014-2017 will start (to the day) and its internal composition, please CLICK HERE
The Shocking Truth Behind Predicting Nuclear World War 3 (Book, Intro, Part 4)
Continuation of Part 3…..After a decade long research into the subject matter, let me firmly state that everything that was said in the article above is 100% true. Once the stock market structure is understood in its entirety, the market or individual stocks can be timed with great precision. Not by some arbitrary technique that cannot be replicated, but through the use of modern science and mathematics. Math doesn’t lie and when the market turns/reverses at exact mathematical points of force, only one explanation remains. The market is not a randomly volatile instrument, but a mathematically precise tool that baffles the mind.
What does that have to do with predicting the future?……. Everything.
Again, if one can predict the future movements of stocks, one should also able to use the same mathematical knowledge to predict the future of our everyday lives. As above, so is below. In other words, the same TIME cycles that apply to the stock market can be applied towards predicting everything else. Everything from major disasters to major events in our own lives, from major political changes to wars. Once you understand that, predicting the future becomes a whole lot easier.
Now, I know what you are thinking. The future is impossible to predict, we do not live in a “predetermined” world and the very notion of living in such a “pre-programmed” world is ludicrous…..everyone know that. Well, do they? Do I really have to remind you that just 500 years ago 99.9% of the Earth’s population believed that A. The Earth was flat and B. The Earth was the center of the Universe. And if you were to suggest otherwise you would be called a heretic and grilled at the stake.
Point being, when it comes to understanding the world we live and/or the multi-dimensional architecture behind our 3-Dimensional reality, the human race has not even started its ascend. We act as children in a pitch black room, groping everything and understanding nothing. And instead of arguing this point further I will leave you with a quote from someone who has a little bit more credibility and a lot more intelligence. Someone who is basically telling you the same thing.
God Does Not Play Dice
-Albert Einstein
When it comes to predicting Nuclear World War 3 the book will look at the subject matter in the following order.
- The Study Of Time Cycles & Predicting The Future: We will look at a number of real life examples and I will prove to you, without a shadow of a doubt, that the TIME cycles I talk about are real. We will also take a look at how they work and what the future holds.
- When Will The War Start: We will study the WAR TIME CYCLE in great detail. We will also look at the exact time window associated with the start of the WW-3 and the meaning behind it.
- Why Will The War Start & Why Will It Be A Nuclear War: We will look at the number of today’s geopolitical issues in order to determine who will fight the war, why it is unavoidable and why it will be a Nuclear war.
- How Will The War Start: We will look at a number of possible scenarios.
- What You Can Do Now To Protect/Save Your Family & Yourself: As a bonus section we will look at what you can do over the next decade to protect/save your family and yourself.
Buckle up, it’s going to be a fascinating journey.
GEOPOLITICAL & MACROECONOMIC ANALYSIS:
With the week ending where it began, most of the issues discussed in last week’s update remain intact. Below is a re-print of last week’s update.
This week has not been a good week from a geopolitical sense. With so many conflicts happening simultaneously it certainly feels as if the world is going to hell in a hand basket. Let’s take a quick look at the three of the most important ones and see if they can impact our financial markets
- Ukraine/Russia/NATO/USA/EU: As I have mentioned in last week’s update this situation continues to die off. While there is cease fire and with Putin suggesting that he will not invade, this issue might be on a verge of completion. With that said and as with any conflict, a quick re-escalation is always a possibility. Unfortunately, the US relationship with Russia will continue to deteriorate for as long as this administration remains in place. If the conflict dies off, there shouldn’t be any impact on our financial markets.
- China/USA/NATO/Philippines/Vietnam/Taiwan/Japan: China has already said, in no uncertain terms and a number of times, that it wants the US military presence out of Asia. China will continue to flex its military muscles to try and control the entire region. While there have been a number of incidents, thus far they have not caused any major problems. Yet, make no mistake, the pressure is building and this powder keg will explode. Sooner or later. No impact on our financial markets as of today.
- Iraq/Syria/USA: In a stunning turn of events, various factions of Islamic militants, crazies, al-queda, etc….. have nearly completed their takeover of Iraq in a matter of day. Given the circumstances and reports coming out of the Iraq, it is probable that Baghdad might fall to such militant groups within a matter of weeks. Giving them control of the entire country. No amount of “strategic bombing” by the US will prevent that from happening. Only an invasion can and no one is willing to do that.
This is the most important issue now….. on two fronts. First, if successful, these Islamic militants will be able to use Iraq and parts of Syria as lawless land where anything and everything goes. Further destabilizing the region and having the ability to train as many terrorists as their little hearts desires. This will come back to haunt us. Second, OIL & OIL money. They might end up as the wealthiest terrorist organization ever created, destabilizing the oil markets in the process. We must watch this situation very carefully and anticipate that it MIGHT have an adverse impact on our financial markets.
TECHNICAL ANALYSIS FOR THE DOW JONES:
Long-Term: The trend is still up. Market action in January-February could be viewed as a simple correction in an ongoing bull market. Same applies to the market action over the last few months. Yet, that in itself can be misleading as per our timing analysis discussion below.
Intermediary-Term: Since February 5th, intermediary term picture shifted from negative to positive. Giving us a technical indication that both the intermediary term and the long term trends are up. Yet, that in itself can be misleading as per our timing analysis discussion below.
Short-Term: Short-term trend remains positive for the time being. The Dow would have to break below 16,800 for the short-term trend to shift from positive to negative.
Again, even though all 3 trends are bullish for the time being, that might be misleading. Please read our Mathematical and Timing Analysis to see what will transpire over the next few weeks.
MATHEMATICAL & TIMING ANALYSIS:
It’s going to be a long one.
First, a re-cap. Particularly for our new subscribers. Over the last few months we have maintained that the DOW will…..
(*** Please Note: This time around about 90% of the information contained within this section has been deliberately removed as it contain too much technical information. Particularly, exact dates and prices of the upcoming turning points. As well as trading forecasts associated with them. I deem such information to be too valuable to be released onto the general public. As such, this information is only available to my premium subscribers. If you are a premium subscriber please Click Here to log in. If you would be interested in becoming a subscriber and gaining access to the most accurate forecasting service available anywhere, a forecasting service that gives you exact turning points in both price and time, please Click Here to learn more.Don’t forget, we have a risk free 14-day trial).
In conclusion, xxxx
Longer-Term Overview:
The next turning point is located at……
Date: XXXX
Price: XXXX
TRADING:
I am now fully committed to the XXXX side of the market with 11 individual positions taken at the prices outlined below. A lot of them have done incredibly well thus far and I hope you were able to benefit as well. I will be updating you of any changes or anticipated changes before they take place.
Remember, you should have an exact strategy and entry/exit points based on the forecast above.
The list below is for your reference point. It entails my investment strategy for my own investment purposes. While you are free to follow me, please do so at your own risk. Do not take this as a trading advice. Please note, all of the positions below have been triggered.
| Stock | Entry Point ($) | Action Taken | Stop Loss @ |
| xxxx | xxxx | xxxx | 91 |
| xxxx | xxxx | xxxx | 1250 |
| xxxx | 110 | xxxx | 121-123 |
| xxxx | 74 | xxxx | 80 |
| xxxx | xxxx | xxxx | 260 |
| xxxx | xxxx | xxxx | 460 |
| xxxx | 35 | xxxx | 39 |
| xxxx | 65 | xxxx | 70 |
| xxxx | 120 | xxxx | 120-130 |
| xxxx | 100 | xxxx | 108-112 |
| xxxx | 112 | xxxx | 120 |
Otherwise, I suggest the following positioning over the next few days/weeks to minimize the risk while positioning yourself for a forecasted market action. (This is continuation of our previous positioning).
If You Are A Trader: XXXX
If No Position: XXXX
If Long: XXXX
If Short: XXXX
CONCLUSION:
An incredibly important week is coming up. We are now looking for our forecasts above to be confirmed over the next few trading days/weeks. I have also described what to anticipate over the next few months and exactly what you should do now. With increased volatility, multiple interference patterns and an incredibly important long-term turning points coming up over the next few months we must be very careful and risk averse here. Those anticipating the moves and those who can time them properly will be rewarded appropriately.
Please Note: XXXX is available to our premium subscribers in our + Subscriber Section. It’s FREE to start.
Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!
Weekly Stock Market Update & Forecast. July 5th, 2014. InvestWithAlex.com Google
The Hunt For 10 Baggers (Book…Introduction…Part 3)
Continuation of part 2
What will we find and will we be able to identify future Tenbaggers based on the analysis above?
That is the purpose of this book. To look at such companies in greater detail and to identify traits that were common to all of them. By combining fundamental, technical and timing/mathematical analysis we will be able to determine what factors were important and what might have triggered these Tenbaggers to initiate their massive multiyear stock market rallies. Most importantly, we will attempt to build an early trigger system that would allow us to take appropriate positions in future Tenbaggers. All while holding their stocks through the duration of their rallies.
Which companies will we study?
| Company Name | Stock Symbol | % Appreciation | Number Of Bags | Original Investment($10,000) | Industry | Duration |
| Franklin Resources | BEN | 81,328% | 813 | $8.1 Million | Financial | 22 Years |
| Danaher Corp | DHR | 56,478% | 564 | $5.6 Million | Industrial | 24 Years |
| Apple Inc | AAPL | 4,185% | 41 | $410,000 | Technology | 14 Years (*Since 2000) |
| The GAP, Inc | GAP | 69,100% | 691 | $6.9 Million | Retail | 24 Years |
| CarMax, Inc | KMX | 5,878% | 58 | $580,000 | Auto | 15 Years(*Since 1999) |
| Southwestern Energy Co | SWN | 6,288% | 63 | $630,000 | Utilities | 15 Years (*Since 1998) |
| Bally Technologies | BYI | 12,213% | 122 | $1.2 Million | Technology | 14 Years (*Since 2000) |
| Keurig Green Mountain | GMCR | 60,675% | 607 | $6.1 Million | Consumer | 20 Years (*Since 1994) |
| Best Buy Inc | BBY | 42,500% | 425 | $4.25 Million | Retail | 29 Years (*Since 1985) |
| Medifast Inc | MED | 15,605% | 156 | $1.56 Million | Weight Loss | 13 Years(*Since 2001) |
*Data as of June 2014.
In conclusion, this book will attempt to become a definitive guide on how to identify, analyze and take appropriate position in future Tenbaggers. In a wide range of diversified industries. By studying the past and identifying clearly defined metrics, we should be able to parlay such knowledge well into the future. It is my sincere hope that this book helps you identify future Tenbaggers, take position at the appropriate time and hold it through thick and thin. Well, at least until it is time to take profit at 10X, 20X or 50X your original purchase price. If done properly and successfully, the grandkids of your grandkids will never have to work.
To Be Continued……
The Shocking Downside Of American Real Estate Bubble 2.0
As Wall Street Journal reports…. Half of Americans can’t afford their house
Over half of Americans (52%) have had to make at least one major sacrifice in order to cover their rent or mortgage over the last three years, according to the “How Housing Matters Survey,” which was commissioned by the nonprofit John D. and Catherine T. MacArthur Foundation and carried out by Hart Research Associates. These sacrifices include getting a second job, deferring saving for retirement, cutting back on health care, running up credit card debt, or even moving to a less safe neighborhood or one with worse schools.
If you need someone to blame I have got a few people for you. You can start with Greenspan, Bernanke, Yellen, Clinton, Bush, Obama and everyone in the US Congress/Senate over the last 20 years. All of them were, more or less, directly responsible for perpetrating this massive financial crime against the American people.
While you might have enjoyed your house going up in value 500% over the last 15 years you will not enjoy what happens next. As the chart above illustrate, the “Dead Cat Bounce” in real estate prices is almost over and the market is rolling over. As predicted here, Real Estate Collapse 2.0 Why, How & When the real estate market is about to suffer a massive Stage #3 correction. By the time it’s over, most Americans should be able to afford a house…again. I can’t wait.
The Shocking Downside Of American Real Estate Bubble 2.0 Google
Real Estate Disaster 2.0 Continues To Gather Pace
Real estate collapse 2.0 predicted here in October of 2013, when I called for the housing market (dead cat bounce) top, continues to accelerate. Back than most people thought that I had lost my mind and/or that I had just escaped from a mental institution. …..which is expected by now. In fact, the number of data points that confirm my original forecast is staggering. Here are a just a few.
- U.S. house price gains seen moderating over next few years: poll – Moderating? “About to collapse” would be a more accurate description.
- The Most Overlooked Statistic in Economics Is Poised for an Epic Comeback: Household Formation – Yep, no one is getting married and no one (young people) has any money left after making payments on their student debt. Disaster.
- Borrowers Tap Their Homes at a Hot Clip – Who said that people learn from their mistakes?
- The Number Of California Real Estate Agents Collapses 30% – What about all of those investors buying hand over fist for cash? Don’t they need realtors?
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“Pent-Up” Pending Home Sales Demand Missing; Down 9.4% YoY – Yep.
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Zero Down Payment? China’s Developers Get Desperate – And let’s not forget about the biggest housing bubble on the face of the Earth.
Here is the bottom line. If you are thinking about buying a house, understand, you are buying at the very top. If you are thinking about selling…..you have about 3-6 months max before this real estate market trend really accelerates and becomes apparent to everyone else.
Shocking Truth: Why San Diego Real Estate Prices Will Decline By Over 50%
It’s official. My home base, San Diego, has done it. San Diego the nation’s second least affordable city for buying a home behind San Francisco.
“The report says a person in San Diego would need to earn $98,534 a year to buy a $483,000 home, the county’s median price in the first quarter.”
Well, I have good news and I have bad news. The good news? As advertised, San Diego is a beautiful city, the weather is nice and it’s a nice place to live. The bad news? Real estate prices will decline to the tune of 50% over the next 10 years.
Let me be crystal clear. Anyone…..anyone buying a house at today’s prices will lose a ton of money. Don’t worry, I know that most people (particularly in San Diego) will disagree with me. Yet, most of these people have no idea of where we are in the composition of the overall economic cycle, its application to real estate, real estate valuation work and so on.
Very briefly, what we saw in the real estate market between 2006-2010 was just the initial decline in the secular Real Estate Bear Market(stage 1). What we have witnessed since, 2010-today (stage 2) is a “Dead Cat Bounce”. What’s next?
Stage 3….a massive decline followed by another bounce and then by a final leg down. Now, these things don’t happen overnight. They take years to play out. My timing work shows the bottom in San Diego real estate prices arriving around 2022-2024…. at the earliest.
Again with 50% or more price haircut expected, it would be VERY wise not to touch real estate in San Diego with a ten foot pole. If you need more information you can read my comprehensive report here Real Estate Collapse 2.0 Why, How & When
Shocking: China’s Housing Collapse Is Already In Full Swing.
It’s been quite a while since I have updated you on the Chinese housing bubble. Here is the latest from a pair of excellent articles on the subject matter.
Bloomberg: Is China’s Housing Bubble Beginning to Burst?
Earlier this month, financial analysts from Japan-based Nomura Group (NMR) issued a grim report on China’s housing market: “To us, it is no longer a question of ‘if’ but rather ‘how severe’ the property market correction will be,” the report read.
I would agree with the assessment. Further, with the US Economic recession of 2014-2017 just around the corner, worldwide tightening and a massive credit/shadow banking problem in China, I highly doubt that China can engineer any sort of a “soft landing”.
Global Times: Fujian said to be easing home restrictions
Since March, 20 property developers in Guangzhou have been offering “zero down-payments” to attract buyers, in addition to large discounts and tax refund, the National Business Daily reported Monday.
Now that developers can’t even get rid of their inventory by giving it away for FREE, the end is truly near. The only question is, how massive will the implosion be and to what an extent it will impact the overall Chinese economy.
Will Lower Bond Yields Set The US Housing Market On Fire Once Again?
I had an interesting question from one of my subscribers last night. Quick summary:
“Won’t the lower yields in the bond market lower the overall mortgage rates and set the housing market on fire once again?” -J.V
Hell NO. Here is why.
If you haven’t noticed, the 10-Year Note has declined from around 3% at the beginning of the year to 2.35% today, going as low as 2% just a few weeks ago. This bond market action has, more or less, caught 95% of investors out there with their pants down. Not us.
As I suggested before, the reason the rates are declining is A. The bond market needs to set a secondary bottom and close the gaps at around 1.5-1.6%(It will do so over the next 2-3 years) and B. A more intelligent bond market is smelling out a severe US Recession over the next 2 years.
Long story short, here is why this WILL NOT have a net positive impact on housing.
- Even though the 10-Year Note is declining, mortgage rates are not. And even if they do, because the interest rates are essentially at ZERO, any future decline here will have very little impact on the overall housing market.
- The overall real estate market has already completed its “Dead Cat Bounce” and is currently in the process of a rollover into a massive stage 3 decline over the next few years. While lower interest rates might slow it down, its current overvaluation/speculation levels ensure its ultimate demise.
In conclusion, don’t expect anything short of 100 Million Rich Chinese landing in America and looking for a house to stop the upcoming real estate decline.
Are You Horny For A House? Another Scary Look At The California Real Estate Market
Another wonderful look at the California real estate market from our friends at Doctorhousingbubble.com. I continue to maintain that you have got to be a special kind of stupid to buy anything in California today. Well, that is unless you think that buying a 1,036 square feet shit box built in 1953 for $689,000 is a sound investment/financial decision.
Who is buying?
Chinese investors, hedge funds, flippers and straight up idiots horny for real estate, hardwood floors and granite counterparts. Yet, all of them are about to find out what Japanese investors found out in the late 1980’s after buying up half of Hawaii and California….real estate doesn’t always go up. In fact, according to my mathematical and timing work the real estate market is about to embark on the most vicious “Stage 3 Bear Market Leg” of its decline (similar to the one experienced in our equities market between 2007-2009).
You can learn more about what is to come in my comprehensive report: Real Estate Collapse 2.0 Why, How & When
California is no place for the young home buyer: Homeownership rate for young buyers takes biggest hit in California. Domestic migration out, international migration in.California is slowly splitting up into two clear distinct market segments. A smaller segment of wealthy individuals with access to capital and debt and another larger segment of financially struggling households. People might think that the trend of Californians moving out of the state is fairly new but this trend has been going on for over a decade. The state gaining the most from this domestic out migration is Texas. Surveys looking at reasons for people moving out include lower housing costs and a lower cost of living. Yet the population is increasing. The big reason for the increase is international migration. As we have recently noted there is a heavy focus in prime California markets for foreign investors, largely from China. Young families have little chance of competing in many California markets. Because of this it is no surprise that you have 2,300,000+ adults living at home with their parents. This group is not the future home buyer, not at these prices. Most are at home because they have lower paying jobs, no jobs, or heavy levels of student debt. Many are unable to even rent, let alone buy a home. So when we look at Census data, it is no surprise that the homeownership rate for young Californians has taken the biggest hit since the housing market peaked in 2007. Is California a place for the young home buyer?
Falling homeownership rate for young in California and nation
The lower homeownership rate for young Americans is not only an issue hitting California. This trend is occurring all over the country. One big reason for this is student loan debt. The Federal Reserve just came out with their household debt figures this week and highlighted that total student debt is now up to $1.1 trillion. This is now the second biggest household debt sector behind mortgage debt. That is simply one aspect of the issue here. As we noted in a previous post, many younger potential buyers are also confronting a world of lower wages. Those 2+ million adults living at home in California are largely at home because of financial hardship. It is naïve to think that these younger adults are living at home because they want to reconnect with family. To the contrary, if we brought back no-doc no-income loans the market would spiral out of control once again as house horny buyers dive into incredible levels of debt. Since you have to document income in today’s market, the first-time buyer market has dried up in the California drought but large money investors from Wall Street and abroad have taken up the slack.
The homeownership rate for young Americans has taken a big hit over the last generation:
Source: Census data
I think the above chart is very telling. What it shows is that for the last generation, any gains in homeownership for younger Americans has been completely wiped out. The peak that was reached in the 2005-07 housing market was largely due to toxic mortgages and a predatory financial system. The end result of course is a graveyard of 7,000,000+ foreclosures (many purchased after the crash for rock bottom prices by large Wall Street investors with easy debt access from member Fed banks).
Student debt is merely one issue. If these young buyers had student debt but also high paying jobs, buying a home would be no issue. In California we see this trend as well:
Source: First Tuesday
The homeownership rate took a big hit across all age groups but the brunt of this was felt by those in the 25 to 54 year old range. There was little escape here even for baby boomers. What is interesting is that the homeownership rate went up for those 25 and younger. This is largely due to big down payment gifts from parents and wealthy young buyers (this is also a very small percentage of all homeowners in the state by the way). The largest group of homeowners is from the baby boomer and older group.
California is getting older
These dynamics are shifting how California will look. For example, California is quickly becoming an older state:
At the same time, domestic Californians are heading for the exits:
If it wasn’t for international migration, California’s population would actually be decreasing for well over a decade. In some markets a large portion of the recent price increases have come from international buyers. Young buyers are fully out competed here in combination with older households that may also have equity. Older home owners might live in a high priced home, but you have to sell or tap that equity out to generate income.
For example, let us take a look at a newer listing in Culver City:
11820 Juniette St, Culver City
Beds: 3
Baths: 1
Square feet: 1,036
I’ll first let the ad speak for itself:
“Location, Location, Location! This extraordinary area is called Del Rey and is next door to Culver City and The Playa Vista Development. Centrally located near Marina 90 FWY & 405 FWY. Just a short 12 minute bike ride to Playa Del Rey Beach & 4 minutes to Marina Del Rey Shopping Center.”
“This neighborhood also has a community garden to enjoy. Property needs a little TLC but has strong and solid bones.”
Solid calcium enriched bones baby! This home can also squat 600lbs on any given weekend. I always enjoy looking at the Google maps version of the street since it gives you a better feel of the area:Are You Horny For A House? Another Scary Look At The California Real Estate Market
What is the current price tag for this home? $689,000. This place was built in 1953, you know, when Dwight D. Eisenhower was President. A 3 bedroom and 1 bath home at 1,036 square feet is a starter home. Now tell me, how many young buyers do you think have enough to support a $689,000 home? No surprise that adjustable rate mortgage (ARM) usage hit a six-year high in the latest sales report for SoCal.
California is now dominated by investors, foreign buyers, and those leveraging every penny to buy to chase their house horny dreams of granite countertops topped off with a little hardwood floors. For the2.3 million adults living at home, I’m sure renting a home seems like a dream at this point.