First, a little background on why you should listen to lil ole me. Bear with me, I know this is wordy.
I foresaw the dot.com and housing bubbles bursting. Really, I did. Well, I still lost my ass in both bubbles, so act on my wisdom, rather than merely agreeing with me but doing nothing. True confession to follow:
In late 1999 or early 2000, I had a little “disposable income” that I wanted to invest. But I had never invested in the stock market and was afraid.
So I did what I always do when I venture into some area of unfamiliarity: I studied up on it. In the case of stocks, I read books. Many, many books. New ones, old ones. I became quite the student. I studied the economic reports and company balance sheets in the Wall Street Journal.
I vividly recall reading one book in particular, about how the stock market works not just in good periods but in bad ones, too. I can’t remember the name of the book, but the guy detailed what had happened in the past, and showed how the market is cyclical, and that in each phase of the cycle people had acted the same as they always had acted in the same phase of all previous cycles.
I know I am being vague, but it was a long time ago, and I can’t remember the name of the book. My point is that I read the book and then looked at the stock market at that time and thought “Wow! The market is over-valued! Price-to-earnings ratios are sky-high! Most of these dot.com companies do not even have any earnings! Dividend and yield are miniscule! The stock market is going to crash!” Okay, I did not say exactly those words, but you get the picture.
And not only did I think it, I put my money where my mouth was, and I shorted a couple of companies (for those who do know, shorting is when you borrow shares at the current price, sell them and re-buy shares later to replace them; if the current price drops, when you buy them later you keep the difference, but if the price increases, you have to pay extra for them). I even remember the companies that I shorted, LU (Lucent Tech) and IBM. LU in particular seemed grossly over-priced. No way could it keep going higher, it was bound to crash. At least that’s what the books said. (Contrary to this information, all the “experts” were saying that the dot.com bubble was different. He he. The experts were probably saying that about the tulip craze in Holland way back when.)
So I shorted those stocks in late 1999 or early 2000. And promptly started losing my ass. In other words, the prices kept going through the roof. If any of you remember, I shorted them at about the worst time ever to short, at least for a small time short-term investor who lacked balls and who could not afford to lose money, at least on paper. When you short a stock, as the price goes up, your account goes down, at least on paper. I saw my hard-earned money going down the toilet and promptly sold my positions shorting LU and IBM to cut my losses. And those stocks kept going up! So I joined the crowd and even “went long” those stocks (I purchased them this time instead of borrowing somebody elses to sell and repurchase later).
A short couple of months or so later, the stock market bubble burst. At first, many people (most?) did not believe it. Keep buying, they said! When the prices drop, the stock market is offering a discount, so it is a great time to buy more! So I did. And I lost my ass. Even though I knew–or at least had the knowledge that in all likelihood–that the stock market was about to crash. All the signs were there, I had the book-smarts to read the signs, but I failed to act upon them. I lacked the courage to do what I thought was right. And I lost thousands of dollars that I could not afford to lose.
Fast forward a few years to the housing bubble. After a little background. We bought our first house a year after my graduation from law school. We sold it five years later for five thousand more than we bought it for: not much, but a cool five grand that we did not have before, and for which we did not have to do much to “earn.” We bought our next house and lived there for ten years. In ten years the purchase price of that house went from $194,000 to $335,000! It was too easy. But just as with the stock market bubble, I knew that something was rotten in Denmark.
I wanted to sell and get an apartment, or rent. But no. I allowed my wife to nix that idea. Rent, and miss out on the income tax deduction? Lease, and miss out on all the appreciation in value that we experienced the last ten years? Are you crazy? So I dutifully said yes dear and we bought our current house (smaller, closer to town, but still almost as expensive as the big house out in the country). (I’m not blaming my wife–I could have overruled her and she would have done what I said. She’s great like that. I take full responsibility.)
That was back in late 2004/early 2005. And for a short while this house “appreciated” rapidly in value. At its peak, it went up in value $35k over what we paid for it in only a year or two.
As with the stock market, though, all the signs were there that we were in a severe housing bubble. I had an online acquaintance who sold his three bedroom one bath starter home in Riviera Beach, California for half a million bucks. Many (including me) chided him for selling out, especially when the value escalated the next year or two and he “lost” a hundred grand or so by selling out. He said a bubble would burst, and I knew he was right, but I just did not have the balls to pull the trigger and sell.
I had never experienced a housing bubble. Always, always, always, houses had gone up in value during my lifetime. Vaguely I recalled a burst bubble in Texas when the oil jobs dried up in the late 70s or early 80s. But that bubble and other mini bubbles had specific reasons, such as the loss of local jobs. And Japan? That was a foreign country in which I had no interest. This is America, I thought, we don’t do housing bubbles.
The best investment that you can make is your house they, the “experts” told us. Believe it or not, people were offering more than the list price for certain houses in certain areas around here. That’s how hot the market was. My confidence grew as my paper gains grew, so I took a second mortgage out on the home and started my own business. At almost the exact wrong time, just as when I shorted LU back in 2000. My bad timing is epic.
Our house is now worth less, at least according to zillow.com, than when we bought it six years ago. Sweet. And LU, if I had not sold my short position, would have made me rich. That stock, as well as IBM and almost all of the stocks in the dot.com craze, plummeted in value. Having “book smarts” or intuition or whatever that warns you of danger is useless if you do not have the courage to act upon that danger.
Flash forward to today: Well, for what it is worth, my danger detector is warning me that we are in trouble in the USA. We have all these “baby-boomers” who are retired or retiring. Somebody has to take care of them in their old age. Somebody has to pay for their social security and their healthcare. They are going to be selling their homes, and down-scaling or going into condos. They will be selling their stocks (too risky) and buying safer investments such as gold or C.D.s or municipal bonds. With the cost of healthcare skyrocketing and the social security “lock-box” having been raided, and our already sky-high deficit, this country is so screwed.
And we seem to be reaching a tipping point as far as entitlement spending is concerned. So many are on food stamps and welfare and corporate bail-outs and this or that special program that nobody cares anymore that we can’t afford it. I think our government will start inflating the money supply to pay for it. Some guy at the Federal Reserve is already floating the idea of inflating the money supply. (You and I would call it printing more funny-money.)
I remember the inflation rates in the late seventies. Old people lose their retirement savings. A mortgage rate cost 12-15%. In inflationary times, people get scared, take their money out of the market and out of banks and buy gold and other precious metals. They are afraid to invest. Without capital, businesses fail, workers are laid off. And the economy goes into the shitter. [Here is another guy thinking along the same Dooms Day scenario as me…1 in 5 mortgages are in danger of being foreclosed!] Bottom line? We are getting perilously close to falling off a cliff with our economy.
But I still think it could go either way. I remember clearly when the country threw the bum known as Jimmy Carter out of the White House and elected Ronald Reagan. It was as if a veil lifted, the skies cleared, and the sun came out all over this land. Reagan cut taxes, reduced bureaucratic red tape, and the Fed clamped down on inflation. But more importantly, Americans re-gained the most precious commodities–hope and confidence in our future.
America is on the edge of a precipice. This election, and the next, will be the most momentous elections in my lifetime. And more importantly, the actions that our elected officials take when we hopefully elect good conservative politicians, will be the most momentous since Reagan’s actions in the early 80s. If you aren’t motivated to vote and to help win these elections now, you have serious problems.
The tea party has given me hope. The proliferation of conservative bloggers, and commentators, and political groups give me hope. But the polls, showing many stupid fuc#ing liberal a$$ho(e politicians–the ones who got us in this mess–being ahead so close to the elections scares me. The polls scare me a lot. Are people this stupid? Can’t they see the trouble we are in? Evidently not. Almost all of us got trapped by the Dot.Com bubble and the Housing Bubble, and 80% approved of Obama when he was first elected. Many have awakened since then, but I fear that not enough have.
Hopefully, those polls are more lies spread by the liberal elite. Or, hopefully, the stupid morons who support the liberal pols will stay home on election day, and those of us who know better will prove the pollsters wrong. One can hope.