Why Assets Will Crash by Charles Hugh Smith

Posted by freedomforall 2 months, 1 week ago to Economics
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As the chart illustrates, the top 10% own 84% of all stocks, over 90% of all business equity and over 80% of all non-home real estate. The concentration of ownership of assets such as vintage autos, collectibles, art, pleasure craft and second homes in the top 10% is likely even greater.

Consider a pleasure craft that retails new for $120,000. In the boom era of rising stocks and housing, a used boat might fetch $65,000. But as the wealth of the small pool of households able to buy and maintain a costly craft evaporates, the number of qualified buyers evaporates, too.
The seller might be aghast by an offer of $35,000 and reject it angrily. Six months later, he's praying someone will take it off his hands for $15,000, and in another six months, he'll accept $500 just to get out from underneath the insurance, slip-rental and licencing fees.
This is how it happens that boats that were once worth tens of thousands of dollars are set adrift by owners who can no longer afford to pay slip fees, and vacation homes are abandoned and auctioned off for overdue property taxes: the market for these luxuries dries up and blows away, i.e. goes bidless--there are no buyers at any price.
Once housing and real estate valuations fall, that will trigger a decline in the value of all other costly, narrowly owned assets, which will reinforce the reverse wealth effect.
SOURCE URL: http://charleshughsmith.blogspot.com/2020/05/why-assets-will-crash.html


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  • Posted by Abaco 2 months, 1 week ago
    I have a few colleagues who acquired nice cabins near Lake Tahoe during the great recession. I'm hoping to do something similar. But...no drop in real estate yet. And, real estate in nearby areas of Nevada continue to climb - but that's just people continuing to escape Cali...
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    • Posted by 2 months, 1 week ago
      imo, commercial and retail RE will be 50% lower in the next year. Mall retail was already on life support before COVID. Commercial will be hit by increasing numbers of proven work from home that no longer need office space. Residential will fall if unemployment doesn't recover significantly. Vacation property and short term rentals should be in for a big decline, too, for the reasons CH Smith mentions. Probably see significant defaults by larger AirBNB investors whose cash flow is cut to zero by decline in travel. RE has been in a bubble that deserved to pop for 15 years; RE has been overpriced for 40 years in cities.
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      • Posted by Abaco 2 months ago
        Commercial real estate was already on life support here in Cali. It took a severe beating that started with the great recession and never really improved much. Out here, much of the luxury weekend properties have stayed pretty high and that is driven by the big money in Silicon Valley.
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      • Posted by $ jbrenner 2 months ago
        I am seriously considering buying a REIT that shorts the commercial real estate market. This hurts like you can't imagine. Why? When I was in high school, I was responsible for being the first to distribute "This house just listed/sold in your neighborhood" post cards. My then real estate broker wanted to go from the #5 Century 21 in NJ to the #1 Century 21 in America, ... which we did in the mid-1980s. Now it has been all replaced by Zillow.
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  • Posted by mccannon01 2 months, 1 week ago
    Also in the article: "The price of superfluous assets such as boats, vintage cars, collectibles, art and vacation homes can quickly fall to a fraction of bubble-era valuations, destroying much of what was always fictional capital." the ending part of that statement "what was always fictional capital." is telling. I suspect we're about to discover a lot of "fictional capital" if this lock down crap continues.

    As I was reading the article I was thinking now might be a good time for me to go shopping for that nice sailboat I always wanted, but wait! I don't want all those fees and maintenance hassles at this time in my life.
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    • Posted by 2 months, 1 week ago
      Hole in the water to pour money into.
      I still want one as an escape route.
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      • Posted by mccannon01 2 months, 1 week ago
        We are of the same mind here. They can also be a reasonable escape from property taxes if you can find a nice piece of water on which to set up residence. I could do it on my own, but the wife would nix that idea long before it could take root, LOL!
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        • Posted by 2 months, 1 week ago
          No wife giving me suggestions, but it's hard to find an affordable sailboat with room for my Magnepan speakers. [grin]
          https://www.stereophile.com/floorloud...
          Might have to switch to the mini model speakers.
          Hard to have room for a veggie garden, too, but the bounty from the sea is a partial replacement.
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          • Posted by mccannon01 2 months, 1 week ago
            Forgive my ignorance, but I'm not an audiophile and never heard of or saw this type of speaker system before. You piqued my interest and I had to search out more info. I ended up on the manufacturers site and looked at a couple of different models. They are big (looking at the 30.7 and 20.7). I couldn't spend too much time, but I'm going to have to revisit these again, especially how they work. I'm wondering how they would make my keyboard sound given if I had a decent amp to drive them (right now I'm using a pair of EV powered speakers and don't have a separate amp).

            Yeah, you'd need a lot of boat to use them, LOL!
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            • Posted by 2 months, 1 week ago
              I first heard them when I was in college and couldn't afford them; just fell in love with the sound when I first heard them. Mine are about 30 years old and I bought them in 2010 about a year after they were refurbished at the factory in MN. They make a wonderful lifelike presentation of music, but you need room for them to sound best. (They are not a "rocker's" speaker- they won't deliver chest pounding bass or movie explosions, but are great for jazz, vocals, most instrumentals. Yes, they do sound better with amp that can deliver high current, e.g., Carver TFM series from the 90's.)
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