I read a blog entry today by Cramer that I couldn't agree with more. It's the reason that in my earlier blog entries, I couldn't find safe yield for my cash. He writes:
"Everything's a bubble. Mortgages? Bubble. Private equity? Bubble. Buybacks that lever companies? Bubble. Copper? Bubble. Corn? Bubble. Farm land? Bubble. Ethanol? Bubble. Solar? Bubble. Tech without earnings? Bubble. Office real estate? Bubble. Brokerage trading profits? Bubble. Hedge fund creation? Bubble. Derivative creation? Bubble. ETF explosion? Bubble. China stock market? Bubble. Blackstone? Bubble. "
To this, I'd add lots of other assets, including gold and residential real estate. When I searched for non-bubble categories last year, the only ones I came up with were German and Japanese residential real estate, which there are no investment vehicles for. Owning your own business is also not a bubble.
I can vouch for the fact that private equity is a bubble. I am coming across lots of private equity offerings now. This was a true wealth generator for the rich the last 8-10 years, generating 30% annual returns, available only to those with over 10-20 million of investable assets. Wall Street is now packaging them and marketing them to the next tier down.
I totally agree with Cramer. Bubbles have been around for many YEARS now. Will they pop? Probably. But when they pop, we will be too scared to invest in them. I only know of two people who timed the 2002 market low perfectly.
It seems to me most retail investors are invested somewhat in gold or hoarding a huge amount of cash (which many have borrowed against their home). But if you're afraid of bubbles, you would have missed out on the entire stock market bull run from 1981. Or like me, you would have waited 12 years to buy a house before throwing in the towel. When I bought my house, I was 100% sure I bought at the top. Years later, my home's unleveraged value is up 25-30%.
What can we do? Keeping cash under the mattress is guaranteed to make us poor in 20 years. We have no choice but to play the bubbles and limit the downside. Use protection.
Life is short. If your family needs more space than in your apartment, don't avoid buying the house if you can afford it. Get a predictable fixed mortgage, follow the conventional mortgage rules instead of what the loan officer sells you. You've already saved a bundle with the housing correction. You could wait until the market bottoms next year, or the year after, or in 5 years. But you and your children will also be a year, or two years, or 5 years older. Builders are welcoming low-ball offers these days.