Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Will there be a Stock Market Crash?

I’m not afraid of the stock market; instead I’m afraid of the U.S. real estate market. However, I believe both the stock and real estate markets are unstable and dangerous.

The real estate market scares me because most Americans participate in it. In particular, Statista estimates 65.1% of Americans owned homes in 2019. Pundits are happy because that number has grown from a low of 63.7% in 2016.

Notably, America’s highest rate of home ownership was in 2003, just before the Great Economic Meltdown of 2007-2008. In 2003, U.S. home ownership hit a high of 69.3%. Unfortunately, the Mortgage Crisis exposed the fraud behind that figure.

Why I’m Afraid of Real Estate but not Stocks

Remember, the economic crash of 2007 began when they exposed many mortgages as fraudulent. The infamous NINJA (no income, no job, no assets) loans, were the most flagrant of mortgage industry abuses, but there were many other scams going down.  

In 2007, it was real estate not the stock market that brought that down the economy and caused most of the suffering. Now real estate is bubbling again in America.

Moreover, there have been stock market crashes that did not trigger economic downturns. Those crashes include the burst of the bubble in 2000 and the Black Monday Crash of 1987.

One reason stock market crashes do not always lead to catastrophe is that ordinary people rarely rely on stocks for income. For instance, Gallup estimates only 55% of Americans owned stock in June 2020. In addition, most Americans do not hold most of their money in stocks.

Has the Real Estate Market Gone Mad?

Real estate frightens me because it appears the American real estate market is going mad.

For example, home sales grew by 16.5% between late August 2019 and late August 2020, Zillow estimates. Moreover, the median US home price grew by 8.3% between August 2019 and August 2020, Zillow estimates.

Conversely, America’s gross domestic product shrank by 32.9% in 2nd Quarter 2020, The Guardian estimates. In addition, 1.43 million Americans filed for unemployment insurance benefits at the end of July. In contrast, US GDP shrank by 8.4% in the worst quarter of 2008.

I have to ask how are people without jobs in a shrinking economy supposed to pay for all those houses they are buying. NINJA loans? Frighteningly, NINJA loans could be the answer, MarketWatch reports that US mortgage interest rates fell to a new low of 2.46% on 27 August 2020.

Hence, cheap credit is fueling the current home buying splurge as in 2003-2007. For instance, MarketWatch claims U.S. sales of new single-family homes rose to the highest level since 2006 in August 2020. I think the housing market has gone mad and entered bubble territory.

That housing bubble could soon burst and bring down the entire economy.

Is the Stock Market Insane?

Similarly to real estate US stocks are hitting post coronavirus highs. The S&P 500 hit a year-to-date high of 3,508.01 on 28 August 2020 and fell to 3,500.16 on 31 August 2020.

However, I think the stock market is safer and healthier than the real estate market, for one reason. The stock market appears to be doing a good job of weeding out sick companies and rewarding moneymakers. Meanwhile, real estate is not.

For example, Mr. Market paid 22₵ for zombie department store JC Penney Company Inc. (OTCMKTS: JCPNQ);and $6.97 for dying department store Macy’s Inc. (NYSE: M), on 31 August 2020. Macy’s revenues shrank by -44.54% in the quarter ending on 30 April 2020.

In contrast, Mr. Market paid $3,450.96 for a share of Amazon (NASDAQ: AMZN) on 31 August 2020. Amazon’s revenues grew by 40.23% in the quarter ending on 30 June 2020. In addition, Amazon reported quarterly revenues of $88.912 billion and a quarterly gross profit of $36.252 billion on 30 June 2020.

The Real Estate Market is Insane

Meanwhile, home prices are rising when financial data shows many Americans have no money to pay for homes. Frighteningly, the Aspen Institute claims 30 to 40 million Americans could face eviction because of the Coronavirus Depression.

In addition, 29% to 43% of American renters could be face eviction for nonpayment of rent by the end of 2020. Hence, 29% to 43% of American landlords could have no income and face foreclosure by the end of the year.

Consequently, today’s sky high real estate prices could come crashing down in December as all those rental homes hit the market. Thus, the market Americans need to fear is real estate.

I think American real estate could come crashing down by the end of the year and drag everything else down with it. Moreover, I think a real estate crash could drive stock prices up.

Real Estate will Crash

People could pull their money out of real estate; if they still have it and put it into stocks. Hence, the stock-owning class, the rich, will get richer, while the property owners everybody else loses everything.

That sounds like an unsustainable economy to me and a recipe for violence and civil unrest. For instance, what happens if large numbers of people resist eviction with violence? One frightening possibility is the meme, “have your gun out and loaded when the sheriff comes” going viral.

In conclusion, real estate scares me because it could destroy ordinary people’s lives and trigger violence. I do not think the stock market could hurt ordinary people’s lives and trigger violence.

Be terrified, America’s real estate market is insane, and it is about to crash. Hence, it could be a good time to buy stocks. I predict the stock market could soar to new heights while the real estate market comes crashing down to earth.