Dow, Home Sales Plummet – How to Enjoy the Crack-Up Boom

Is our Crash Alert flag still flying?

Yes? Good…good…

The Dow went down 312 points last week…setting hearts aflutter. More than US$900 billion in stock market wealth has vanished since July 19th.

“New home sales tumble,” is the headline next to the Dow update on the Money page of USA Today. Builders are reporting worse-than-expected results. Economist Mark Zandi says he expects 2.5 million homeowners to default. And the tab for the foreclosure crisis is now predicted to rise to US$113 billion.

“How to Enjoy the Crack Up Boom” was the subject of our first little speech in Vancouver (our second speech is recalled below).

In order to fully enjoy a Crack Up Boom you have to understand that a Crack Up Boom is not all it’s cracked up to be, we explained. It is fundamentally a feature of monetary inflation, not of real economic growth. Easy come, easy go.

But the trouble is, just as you can’t tell the difference between a real dollar and an inflationary dollar that was just created out of thin air yesterday, neither can you tell the difference between a real boom and an inflationary one. To the observer, they look almost exactly alike.

And to make matters worse, the present boom has generated both real wealth…and crack up wealth…often mixed together in the same place. There are people who are building healthy, profitable businesses in the midst of an incredible bout of speculative fever.

But the secret to success in many things – business, war, investments and marriage – is often just to avoid tempting targets of opportunity and stick to a winning strategy.

In your financial lives, the most important thing is to make sure that your own business…your own careers and income sources are solid. And that takes constant and faithful attention. You let yourself get distracted and you are heading for trouble.

That was the prevailing theme at the Agora Wealth Symposium last week – pay attention! Every speaker gave a version of this advice: it’s your money, ultimately YOU are the one who is going to have to figure out where the safest – and most profitable – place for it is.

Investors are always at risk of being led into temptation. Who wants to hold onto a stodgy old stock at home – even if it is yielding 5% – when a sleek new model down the street promises to double in a single year? And with modern communications, there’s now the thrill of cosying up with a little exotic number from Asia.

There are good stocks…and there are fast ones. Right now, they’re all on the move. In the words of a famous sportscaster – look at those Zimbabwe stocks run! Yes, this year, no stocks have run faster than those from that forlorn African nation.

Of course, you wouldn’t let yourself be distracted by Zimbabwe stocks…but how about a little enhanced leverage? Hedge funds are still taking in money at a record pace.

Or how about a condo in Miami? As reported in this space, 20,000 new units are under construction in Miami.

“I’ve got a unit down there,” said a man from Ohio. “I don’t know what to do with it. I bought it a few years ago for US$1.2 million. Now, some guy slipped an offer under my door for US$1.7 million. I don’t know whether to sell. Or hold. I’m afraid all those new condos will cause a collapse. Then, I’ll wish I had sold when I had the chance.”

“Well,” we dared to offer advice, “you have to stick to a winning strategy. Is it a place to live, an investment…or a speculation? If it’s an investment and it gives you a decent yield…as a place to live…why sell? But if it’s a speculation, you have to refer to the speculation rule.”

“What’s that?”

“Be brave when others are fearful…be fearful when others are brave.”

That was the best counsel we could come up with. We wondered for a moment whether property buyers in the greater Miami area were fearful or brave. We don’t know, but the guy who slipped the offer under the door must have been a George Armstrong Custer.

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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