Editor’s Note: Harry Dent is a long time, well-respected financial researcher. He recently sent out a sales letter for his newsletter. The original article is fairly long, but I’ve taken what I think is the essence of the message and offered it to you. I then make my own recommendations.
If history has taught us anything, it’s that governments can’t spend their way out of enormous debt – especially the massive levels of debt choking the U.S. economy today.
Remember, when you include government, corporate, personal and entitlement debts and obligations, we’re in hock for around $129 trillion!
That’s nearly $400,000 owed for every man, woman and child in the country.
Once credit bubbles go to extremes, they always burst and deflate… resulting in a sudden tightening of money supply (credit)… followed by deflation as massive amounts of debt are written off and financial assets from stocks to real estate crash destroying massive amounts of money and wealth in a short period of time.
No government can counteract that kind of overwhelming debt with any amount of stimulus without making its currency next to worthless, it’s likely to happen as this economic cycle continues to unfold.
But the reality is, the Fed simply can’t keep printing the trillions needed to stimulate or inflate our way out of this Winter Economic Season as the burdens of debt only grow!
And when that realization hits… well… that’s when the other shoe will fall.
Massive amounts of debt will need to be repaid or written off.
Money and credit will dry up… again.
We believe markets will peak in the next few months or so. And we’ll see the next great crash. Banks will once again tighten up their purse strings and return to the stringent loan policies they implemented after the ’08 collapse. Many will not lend at all. Instead they’ll choose to hoard cash while it (cash) gains value (i.e., buying power) through deflation.
Most will be very hard pressed to find qualified lenders to loan to, since a) so many borrowers’ credit ratings are still in tatters and b) the housing market suddenly collapses again one last time, leaving very little or negative equity to lend against.
Less credit means less money in the economy.
Less money means less demand for goods and services.
Less demand means lower prices and less production.
Less production means more plant closings and more job losses.
More job losses means…
Well, I think you’re getting the picture here. It’s all a domino effect wherein the Dow slides to 6,000 or a bit lower about 18 months after that.
We’ve seen plenty of real estate bubbles in the past. In fact, research tells us real estate tends to run in 17 to 18 year cycles… virtually without exception.
Housing prices were already on the rise in the mid-1990s, thanks to an aggressive government-led “home ownership” policy that made it easier for people of all economic backgrounds to buy homes.
It was no accident that housing prices rose even faster following the 2000 stock market crash. Not only were Baby Boomers well into their peak house-buying years, but huge flows of investment funds suddenly shifted out of the technology stock bubble that was crashing and into housing.
Meanwhile with “Fed” easing and a slowing post 9/11 economy, interest rates plummeted to near-historic lows, making home affordability and speculation even more attractive.
The problem is, while the real estate market has shown some signs of recovery over the last few years, we think it’s an Indian Summer. People are simply looking at the numbers and cheering. They’re not looking at what’s driving those numbers and quacking because of the unsustainability of it all.
We believe we’re about to see the final chapter of the biggest real estate shakeout in history and that shake-out is likely to last into around 2022.
What does this mean to you?
For one thing it means, if you’re holding on to property with the sole expectation it will go up by double digits – or if you’re counting on gaining lost equity back over the next few years – sell it now.
The last of the largest generation of spenders in American history – the affluent Baby Boomers – are leaving their peak spending years behind them…
Deflation will increasingly become the dominant trend as the economy slows, debts unravel and financial assets deflate sharply…
And the greatest housing “recovery” will begin to unwind again, leaving everyday Americans wondering what hit them.
Given the demographic cliff and the Fed’s intended exit from the market, the stock market, commodities and real estate are all going to tumble again.
I’m talking gold hitting $700 to $750 an ounce at a minimum, and likely much lower down the road. Real estate down by another 40%. The Dow down to 6,000 or a bit lower… and all of this over the next 20 months or so.
We recommend putting as much into cash as soon as you can… at least for now. Why? Because in deflationary times, cash is king. Because unlike what happens during inflation. [Paper] Money actually gains value when there’s deflation.
Gold and silver perform very well in inflationary times because they act as a hedge against inflation. But when there’s deflation – and a strengthening currency – gold and silver prices will fall along with most other assets as they did in late 2008 when the crisis fully hit.
Read the entire article: Dent Research – Markets Crashing
Coach Mitch’s REFLECTIONS™
SELL, SELL, SELL –
Go to CASH.
Just as important, hide that cash in a safe place – but not in a bank. [More about this later] You might consider getting a fire-safe box, wrapping the cash in plastic and hiding it somewhere safe but easily accessible. You can hide valuables in fake outlets in the home or in a floor safe in the basement. How To Make A Super Secret Safe – For Less Than $3
GoldZilla reported: as of April 2015, JPMorgan Chase sent a letter to all renters of safe deposit boxes, specifying a new agreement that they must sign if they wish to continue to rent a safe deposit box. It includes this key phrase: “Contents of the box: You agree not to store any cash or coins other than those found to have a collectible value.”
By not holding cash in a bank you will lose some interest, but it is negligible, .25% to 2.5%. However, you greatly lower your risk of losing some or all your funds when the government confiscates bank accounts via a Bail-In. Another way of doing a Bail-Out.
Read this – The Economic Collapse Blog – Bail-In
One quote: “the European Parliament will soon be voting on a law which would require that large banks be “bailed in” when they fail. In other words, that new law would make Cyprus-style bank account confiscation the law of the land for the entire EU. I can’t even begin to describe how serious all of this is. From now on, when major banks fail they are going to bail them out by grabbing the money that is in your bank accounts. This is going to absolutely shatter faith in the banking system and it is actually going to make it far more likely that we will see major bank failures all over the western world.”
The plans for government to confiscate your savings is real. The next round of bank bailouts will be done via direct confiscation of your bank accounts. Worse, in reaction to the public’s ire, declaring martial law is a real possibility as people won’t appreciate seeing their hard earned savings go up in smoke to pay for silly government programs.
1. If you can’t sell your real estate, then, as a precaution, refinance now, in order to lock in low 30 year interest rates. Do not go for 10 or 15 year loans. The 30 year loan is about 17% lower each month than a 15 year loan. When cash is tight, you will want the lowest mortgage payment you can get so you can stretch funds if needed.
You can still create a 10 or 15 year loan by increasing your payments, if you have any extra monies. Any amount over the regular payment will go toward principle, thus lowering the number of years of the loan; but the amount you pay is always in your control.
2. Grieve your property taxes. Show that your property value has gone down and you deserve a lower property tax. When grieving, for comparisons sake, show recent low sales; but also, show close up pictures of the deteriorating portions of your property. This makes the situation more personal and you can justify a tax decrease. You can usually go to the Tax Assessor’s Office during grievance time, typically in the spring, and speak with the Assessor’s office personnel who can be sympathetic of your deteriorating property, especially if you bring some coffee and donuts. Note: when I did this, I successfully lowered my taxes over $10000 over the next five years.
3. I suggest that you consider selling your gold bars, silver bars and any collectible coins – but do not sell junk silver, i.e. non-collectible 90% US silver coins. In fact, you should convert all your gold and silver assets into junk silver. Should the crash hit, these used silver coins will still be able to buy goods. Should inflation hit, silver coins will grow in value and you will be able to buy goods. Junk silver is your hedge against disaster, especially if The Crap Hits The Fan.
I am highly skeptical that collectible gold and silver coins will hold their value in a crises. Think about it. During a depression, with the scarcity of funds, it makes sense that there are fewer collectors, for anything. Even silver rounds will lose value. The reason is that you cannot easily trade a gold coin or a gold bar for anything of regular value.
Example: If the fair market price for gold is $1000 per ounce; what will you be buying with your one ounce gold coin that is worth $1000? How often will you be making a $1000 purchase? Probably only a few times.
As the gold coin is in mint condition and collectible, you probably paid a high premium for it, e.g. $3000. But, in a depression, with cash tight, you will lose that premium. I doubt that someone selling a car will give you $3000 for that $1000 coin. In addition, how will you get change if the item is $800? This issue also holds true for bars.
The Answer: junk silver coins.
These coins will be far easier to use for trading. At today’s closing price of silver, $17.38/ozt (troy ounce), a $5 roll of circulated (used), non-collectible US silver coins have a silver value of $62.86. In a depression, when jobs and cash are scarce, a plumber might take a few silver dimes ($1.26 each) in exchange for fixing your leaky faucet. Take this idea seriously!
Real Estate Investing – Now
4. Be very careful when purchasing any property. Be sure that you only take ownership at rock bottom prices, e.g. 10%-25% of current Fair Market Value.
Should you own property when the values crash, other property will come down in price, but you have already purchased well below the market, so you should be safe.
Example: Should you purchase at 25% of Fair Market Value, e.g. $25,000, and the market crashes 50%, that $100,000 property is now worth only $50,000. However, because you were prudent, your $25,000 investment is still very safe and you can still sell well under the market.
5. Using Coach Mitch’s “famous $1 Option.”™ should be your preferred method of controlling and dealing in real property. Instead of buying and owning the property, you control the property, via the option, so that only you can sell it. In this manner you get the benefits of real property without the responsibilities of real property. By only putting up $1 per property, you can afford to option hundreds of properties, as I have done. When you sell, you make your profit. If you don’t sell, then your loss is limited to $1 plus any cost of marketing.
By the way, lease/options and sandwich lease/options are not good alternatives in a declining market scenario. Lease/options lock you into a price which you are obligated to pay. If rental prices go down because jobs are scarce, your profit disappears and you may be in a contract that loses money. The owner will be only too happy to sue you for any deficit owed.
In addition, any situation where you take responsibility for someone else’s payment, hoping to make a profit when selling or renting, you run a real danger of going upside down in the transaction. Be especially careful of Subject To agreements because in those situations the equity is usually small and it will quickly disappear in a down market.
Prepare yourself to be the bank
6. Remember, in an up market, it is harder to find great deals but it is easy to sell. Later, if the market plunges, it will be easy to find great deals, but it will be hard to find folks who can get bank financing, therefore, you may need to be the bank.
If you have optioned a property and then you sell it, the Owner / Optionor will want their profit in one lump sum. However, in a depression, with lenders not lending, it is not likely that a bank will give your buyer a loan, or anyone else. However, as long as the taxes are paid via a nice down payment, the owner will probably go along with your offer that the owner should take their profits over a longer period of time.
When you sell, Wrap-Around mortgages will be a favorite vehicle, or Contracts For Deed. As the Optionee / Buyer, you will find the end buyer for the property and at the closing table, utilizing a standard A to B, B to C double close, you will become the actual seller. You will sell on a Wrap-Around mortgage and, each month, after taking your portion, you will send the previous owner their portion of the mortgage payment. One good point is that because banks won’t be lending, you can charge a higher interest rate, a premium. Therefore, you’ve made a profit from the sale and on the interest.
What to do
The last time I made a prediction was 2006.
I was doing speaking engagements saying that the real estate world would be facing enormous foreclosures in the near future. My solution then, as now, was to only do transactions where the price was well below market, e.g. no more than 25% of Fair Market Value. In this manner, if the market were to drop 50%, the student would still have plenty of equity and could compete in the marketplace.
Several stock gurus have their own reasoning saying that the economic sky is falling. I happen to agree that the clouds are darkening. To be pre-warned is to be pre-armed. However, even though you know information and you believe that information is accurate, and even if you are of the opinion that the economic sky will fall – yet, this is not action.
I am preparing to sell everything. I am going to cash. I will still be doing real estate investing, but I will be only be doing quick flip transactions. I do not anticipate purchasing – the danger is too great! However, if able to purchase at a crazy low price, I will; but, I anticipate not doing anything where I hold property for any period longer than 90 days, so, having an Active Buyers List is important.
I am sharing my opinion with coaching students and advising that they also protect themselves. If I am wrong and the markets go up, and I hope they do, then the worst that happens is that you have extra ordinarily great deals under your control.
Go To Cash
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