Friday, November 14, 2008

Market Cycles

As discussed repeatedly in the past, investment classes follow a general twenty year pattern. The previous bull market from 1980-2000 was in American stocks and it was a 20 year bear market for commodities. We are now in a bear market for American stocks and a long term secular bull market for commodities which began in the year 2000. The following chart helps visualize asset performance since the beginning of this decade:

Click on the chart below:



Any rally in the stock market provides a strong selling opportunity and any pull back in the commodities market provides a strong buying opportunity. The same goes for bonds as their recent strength will subside and their values will fall off a cliff. The real estate market is plummeting and has a long, long way to go before reaching a bottom nationally.

It's interesting because many homeowners still have an opportunity to sell their homes and receive some of the artificial paper wealth created during the bubble years that will soon be erased. The reason for this is because it is still a "stigma" in this country to be a renter. People would rather own a home that is falling in value that costs them significantly more money every month because if you are a renter you are considered lower class in our country.

That will change over the next few years. As prices continue to collapse, people will begin to look at homeowners the same way they now look at renters. This moment will likely mark the time to look at real estate as an investment because the increase in sellers who become renters will have the impact of driving home prices down and driving rents higher. The will generate cash flow opportunities for investors entering the market.

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