Avoiding the Next Crash & Investing in the Next Boom
In January 2012 I told people on MarketWatch not to miss the upside coming in American stocks. In June of 2014, I told people to sell their oil and gas stocks, most of which were cut in half by December 2014.
Today, I am telling people that the next few years are lining up for some very negative events in parts of the world that will effect your portfolio. In my special report “The Two Most Important Trades You’ll Ever Make — Avoiding the Next Crash & Investing in the Next Boom” I discuss how to protect yourself and how to preserve your lifestyle.
Coming Home Again
This article originally had three topics, which became two, when I decided to keep my office. As I discussed with several of you, I was planning to move my office home to save on driving, as I am not a fan of the commute on the days that I will not be meeting with clients, which is about twice per week. While the input I received from you was positive about my giving up my office, and I do appreciate the supportive thoughts, I decided that for now, keeping my office in Elm Grove made sense. I will however be working from home on most Tuesdays as a compromise with myself.
Also contributing to keeping my office was that after looking for two years to find a partner on my insurance business, I found somebody who met all of the criteria I was looking for: honest, hard working, conscientious and experienced. His name is Mark Leow and he comes with 25 years of experience.
Mark was actually the managing agent who first hired me in 1994 to my first job out of college. Two years ago Mark retired, at a fairly early age, to spend more time with his family and lock in his pension. Mark is coming on board to work about three-quarters time to help with what has been an increasing workload on the insurance side. He is an expert on senior insurance needs including medicare supplement, long-term care and life insurance. So, welcome Mark aboard the next time you stop in or at either of the open house days I am planning this holiday season.
Now, onto the remaining two subjects which are remarkably timely and important.
Real Estate is a Buy!
For the past two years I have suggested that the day was coming to jump back into real estate. Today and the next few years are those days.
If you will remember, in December 2010 I wrote an article which included the phrase “…the Gift of Real Estate” in which I suggested working with family members to buy a piece or two of real estate. For most people that is still excellent advice if you are unable to buy a first or second home, or investment property on your own.
Earlier this year and whenever he has been interviewed since, none other than Warren Buffett has repeatedly said to buy single family homes. As luck has it, I know several bankers who are telling me the same thing that Buffett is saying. I believe them.
What is going on is that over the next few years the baby boomers will be able to sell their homes in preparation for retirement, as their mortgage debt falls and home values slowly increase.
Here it is important to understand some demographics. The Boomer generation is aged 50 to 64 now. They are starting to retire and downsize their homes. Until about half of this process is completed home prices will only increase in price slowly. Why is this so? Because the “X” generation, those of us in our 40s to middle 30s, is not big enough to accelerate the process. It will not be until much of the inventory is soaked up and the “Y” generation demands homes that we will see demand price push.
So, in buying a property, do not expect much appreciation until the 2020s. The main reasons to buy property are to enjoy it, make income and/or hold it as a long-term investment. Focus on quality at value prices, not absolute low prices, as junk is still junk even if it is cheap.
The story I have been telling people to motivate them is to remember a time they were driving down a road or riding in a boat and somebody pointed out a property or properties. The story usually goes like this, “so and so, bought that 20 years ago when it was (insert dirt cheap price here) and now it’s worth (insert not dirt cheap price here).” In about twenty years those stories will be told again and the people who buy over the next few years will be “so and so.”
For many of us, buying real estate seems like a difficult proposition given the rather large down-payments (10% to 25%) that banks are requiring right now, and probably will require for years. I have two kids going to college in the next decade, I understand tight budgeting. This is why I mentioned talking with family, if you can, about partnering. Of course, most importantly, if you want to get ahead, living beneath your means, even if you don’t think that is possible, is the most important first step.
I know real estate is not a get rich quick plan, but it is probably one of the best ways for people to generate real returns on their money over longer time periods. As such, I have asked a friend of mine to help clients and those who contact me explore real estate in Wisconsin. His name is Rich McNelis. Rich is with the Stefaniak Group, which is a very well known real estate firm. His experience was good enough that he was telling people when to get out of the real estate market. Now, Rich is telling people to get back in. He is a residential and investment property expert with extensive experience in markets both in southeastern Wisconsin, as well as, “up north.” Rich and his absolutely top notch assistant Shayna can help you buy or sell property. If you call them, please mention me, he’s paying me in Chilean Sea Bass. Beyond a meal, cocktail or boat ride, I receive no compensation from Rich, this is strictly me trying to help folks out.
I have also recently developed a relationship with the Wealth Club of Milwuakee. The WCM was formerly a real estate only group, but has branched off into other avenues for wealth generation from business development to adding me to discuss investing in the stock and bond markets in ways that are more similar to the very wealthy and the most successful hedge fund managers. The next meeting is on Thursday, November 1st at 6:30pm. Stop in and say hi if you have the time. I’d like your input as I am helping develop next year’s agenda and workshop content.
Energy and Agriculture Boom on Tap for America
If you have been following me on MarketWatch.com you will know that I have been talking about energy producers and agribusiness firms for almost a year now. These two industries are about to launch a boom in America that will last a very long time. Of course, much of the boom will be used to pay down accumulated national and household debts, but it will be one of the biggest booms in American history nonetheless.
What many people do not realize about American oil and natural gas production is that it is way up the past few years. Here we see that the number of oil rigs operating in America is up over 500% the past four years.
Having been to Texas and North Dakota the past two years I can vouch for the rapid development going on in both places. The Williston Basin in North Dakota, which I discussed in my mid-year letter “Freedom from OPEC,” is a modern day gold rush.
Here I will mention that gasoline prices are not down much (prices do fall almost every autumn) due to one core reason, lack of refining capacity. While there has been some refining capacity added in North Dakota, throughout America it remains relatively flat. Until America adds refining capacity, something no administration or Congress has allowed for 35 years, do not expect gasoline prices to fall.
Natural gas production has increased so much due to shales that prices have plummeted leading to more and more electricity generation moving towards natural gas and away from coal. This is wonderful for the environment and for American industrial competitiveness. Our energy costs are expected to remain significantly below nations such as China that we will see some manufacturing return to our shores.
The processes known as hydraulic fracturing and horizontal drilling are driving the increase in U.S. natural gas and oil production. These new technologies are increasing proven reserves and will continue to increase reserves for another decade or two. The United States, presuming we do not reduce mileage requirements or deliberately flare-off natural gas past the 2015 deadline, should have enough oil and natural gas for the next three or four decades to buy us time to get to a more sustainable energy model.
What I am about to say is as somebody known to be a strong environmentalist. Fracking is not terrible for the environment. There have been problems, however, most were early in the learning curve and as a result of government imposed deadlines to use mineral right leases that sped things up sometimes too fast.
Today, there are very few problems with fracking that states, the EPA and companies can not handle. In fact, in many instances I have studied, the oil and natural gas industries are ahead of government on safety issues. Nobody wants to kill the golden goose.
Agribusiness is already booming, but expect it to become even more important as mouths are added to the planet and many of those mouths want meat. Cattle and hogs require a lot of corn and grains. The U.S. has the arable land and water to feed much of the world. We will need to stop the silliness of ethanol soon, but that will come in time.
With regard to farming, Jim Rogers has been saying for years now that more young people ought to pursue the field (sorry for that pun). We are developing a shortage of farmers as the current generation of boomer farmers is ready to pull the plug and the “X” generation is small and largely disinterested (not me, that is a business I will get into someday soon).
Clients already have water, agriculture, oil and oil services investments in their portfolios. More commodity linked investments are in our future.
In my upcoming book, The American Resource Boom, I cover the exciting developments for America in depth. Clients will receive a free copy of the book when it is out, hopefully late this year. Until then, please follow along on MarketWatch.com where I will touch on an item or two per week.
Your forward looking advisor,
This letter contains forward looking statements that may not come true. Past performance does not guarantee future results. This letter is intended for informational purposes only, and reflects only my thoughts and opinions in general, and do not constitute individual advice. Opinions expressed may change without prior notice.