Some of you may know that aside from trading, I own and operate a residential real estate company in North Florida. Our company is very much entrenched in the market and I can tell you that the market has been red hot. So hot, in fact, that we are having trouble finding homes for people to buy. When we do find a home, it usually has multiple offers and becomes a bidding war, especially in the investor market.
When it comes to investment real estate, investors are coming out of the woodwork and newbie investors are pouring out of the latest real estate investing workshops anxious to make millions in real estate. It seems that every time I open Facebook or check my email, I see a new ad for real estate investment seminars or opportunities to join an investment group that wants to make you rich.
Amateurs always join the party late, when the pros are already heading for the door. I get calls from many newbie investors, asking me to find them houses to buy. The problem is there are no deals anymore. We have actually turned some investors down as a waste of time, because we can’t find a deal that works for them.
Recently, we’ve begun to notice a little softening in the resale market. There’s still a relatively high demand, but the multiple contract offers seem to be dwindling.
Before the crash of 2008, I was heavily involved in the real estate investment market. I have been a professional real estate investor, a real estate appraiser and a broker for the past 30 years.
What I see happening right now is the exact thing that happened just prior to the crash in 2008 and believe me, I know the signs. Amateur investors are jumping in an already saturated market and soon will be losing their shirts. Just like in the stock market; amateur mom & pop investors get in too late after the big gains have already been made.
Liar loans are back along with 100% financing and interest rates are at all-time lows. Many homes are selling at or above their list price and novice investors are buying homes for way too much money and either operating on minimal profit margins or they end up upside down and lose money.
The US Treasury in conjunction with its partner Central Bank has managed to create a bubble in every market. Just like they did in 2007 right before the stock market and real estate bubble popped. Only this time it’s much bigger and much worse.
Take a look at the chart below to see where real estate prices are today relative to their prices at the top of the last bubble of 2006-07 and this chart is nearly a year old.
The Case-Schiller Home Price Index shown below indicates that home prices nationally have reached similar levels to where we were in the 2007 bubble highs.
Many people think this is great, that real estate has bounced back, but the truth is that real estate has come back due to an artificially created market induced by low interest rates and easy money. This creates a bubble of artificially over-inflated valuations which eventually peak only to crash again.
So When Does it all come tumbling down?
The Fed has created multiple and colossal bubbles in the stock market, bond market and in real estate. I think the real estate bubble will actually be the last bubble to pop and the first domino to fall will be the bond market, IMO.
I think the bond market will crash causing interest rates to rise, thus making homes less affordable. Monthly payments will not only be more expensive due to higher interest rates, but many lenders will dry up, making real estate loans harder to find and approval standards will get tougher.
There’s no way to determine the timing of the collapse, but things are already starting to falter in the stock and bond markets and in certain segments of the real estate market. If you’re a real estate seller, take advantage of it now and buy gold and silver to insure yourself against the next major economic crash, because this party will be ending before you know it.
As expected, we had a huge surge in the price of gold and silver after Wednesdays FOMC announcement, but it stalled today at the upper resistance line of the bull flag pattern.
Next week is options expiry and the central banks will again try to pull gold back down to cover options payouts for the month. Although this time may be a little different as we have several events next week that could cause huge gyrations in the markets.
First we have the Presidential debate that is supposed to take place on Monday, however, there are rumors that Hillary may bail and cancel the debate on Monday. Hillary’s campaign is in free fall and if she cancels, that will be the end of Hillary as a Presidential contender and she will probably drop out of the race shortly thereafter, which would cause a disruption in the force for the Democratic Party.
Even if she proceeds with the debate, it is believed that Trump will crush her, causing a huge reaction in markets the next day. Many believe that if she drops out, the Presidential election will be postponed by President Obama until 2017.
But the most important event taking place this week will be on September 30 at 4PM. That’s when China’s Yuan officially becomes a reserve currency within the IMF’s Special Drawing Rights (SDR). The announcement is being conducted at 4 PM after the close of the markets on Friday for a reason. If there’s going to be any fireworks, they will probably happen on Monday.
Let’s get back to our technical analysis of the gold chart. If you look at the red uptrend line from when this bull market began last December, you can clearly see that it is merging with our bull flag pattern. If the cartel tries to bring gold back down next week, they would run into support at the red uptrend line. This could stop any pullbacks in its track and send gold surging again, especially with the events coming up next week.
Next week will be a critical week for the markets and if gold surges, I expect a break of the bull flag resistance and then on to new highs.
Stock Market: (SPY) (QQQ)
The stock market peaked in mid-August and started a major decline in September (blue line). I expect continued downward movement at least until it hits the (red) uptrend line. That will allow for a pause. If it breaks the major uptrend line, then I expect the real crash in stocks will begin to gain momentum.
Energy Stocks: (XLE) (UNG) (USO) (LNG)
Not much has changed in energy stocks, but the chart of oil has formed a major megaphone pattern. This could break either way, depending on the events of war which appear to be rumbling in the Middle East, especially in Syria between Russia and the U.S.
(SLW) January 2017 CALLS
(GDX) January 2017 CALLS
(RGLD) January 2017 CALLS
(SPY) December 2016 PUTS
Dave Kranzler: Housing Market Is Going To Crash Again