Folks, it's 2000 (or 2008) all over again.

[MJ DeMarco]

I'm thinking early 2016.

Paging Ms. Cleo... AGAIN.

 

[Ezio]

How it was in 2000.

"But it was a short and unpleasant ride. By September of 2002, the combined market cap of the Four Horseman had crashed to just $450 billion. Exactly $1.0 trillion of bottled air had come rushing out of the casino.​

Since it had earned $2.6 billion in the most recent 12 month period, its lofty market cap represented a valuation multiple of 210X. And Cisco was no rocket ship start-up at the point, either, having been public for a decade and posting $15 billion of revenue during the prior year.

Nevertheless, the bullish chorus at the time claimed that Cisco was the monster of the midway when it came to networking gear for the explosively growing internet, and that no one should be troubled by its absurdly high PE multiple.

The same story was told about the other three members of the group. During the previous 24 months, Microsoft’s market cap had exploded from $200 billion to $550 billion, where it traded at 62X reported earnings. In even less time, Intel’s market cap had soared from $200 billion to $440 billion, where it traded at 76X. Dell’s market cap had nearly tripled during this period, and it was trading at 70X."

How it will be in 2015 (probably) or 2016.*
​

Needless to say, the absurdly inflated values of the Four Horseman in the spring of 2000 looked exactly like the FANG quartet today. Thus, Facebook reported $2.8 billion of net income in the most recent period, thereby weighing in with a 107X PE multiple.

Likewise, Netflix currently trades at 307X its LTM earnings and Amazon at 950X. Even Google, which has now smacked into the law of large numbers with revenue growth of just 13% in the last year, is valued at 32X.

Moreover, despite its overflowing creativity and competitive prowess, GOOG is not a technology company which has invented a rocket ship product with years yet to run. Nearly 90% of its $72 billion in LTM revenues came from advertising."

These companies probably will be still strong but their stocks will plunge.
​

"In this regard, Cisco is the poster child for this disconnect. During the last 15 years its revenues have grown from $15 billion to nearly $50 billion, and its net income has more than tripled to nearly $10 billion per year.

Yet it’s market cap today at $140 billion is just 25% of its dotcom bubble peak. In short, its market cap was driven to the absurd height recorded in March 2000 by the final spasm of a bull market, when the punters jumped on the last momo trains out of the station.

This time is surely no different. The FANG quartet may live on to dominate their respective spheres for years or even decades to come. But their absurdly inflated valuations will soon be deFANGed."

*The Japanese economy is already rolling over. I doubt this ZIRP-fueled casino can continue to 2017.
Read more here:
http://davidstockmanscontracorner.com/when-wall-street-gets-defanged-look-out-below/

 

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[MJ DeMarco]

I tend to agree... and the leading indicators in 2000 were subtle job layoffs in the tech sector, which we are just starting to see now.

So for those who operate on Slowlane principles and hold big stock positions, you can prepare and be wrong, hence losing out on a 3-6% gain.

Or not prepare and be wrong and lose 50%.

The choice is yours.

 

[MJ DeMarco]

GPRO has tanked, never quite understood how that company could go public since wearable cameras aren't consumable. When the stock was trading in the 70's I was left scratching my head. Today it's a single digit stock, no more head scratching.

Today it's LNKD in's turn, reporting poor earning performance. Stock is down 38%, or a whopping 78 points.

Kinda feels very DEJA VU with some of the tech stocks getting hit hard. If I stock market smelled, it'd be starting to percolate a stink that was last smelled in 2000.

 

[SteveO]

We're thinking of selling our current house now, renting, and seeing where property values are in six months.

I don't think that housing is in a bubble. It has taken a medium drive along the path of recovery. It may falter a bit but the big run-up has not occurred. Apartments seem to be in a bubble though.

 

[MJ DeMarco]

So your saying buy some short options

I don't buy options, I sell them.

 

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[MJ DeMarco]

You writing covered calls on your positions?

For the most part, I don't buy stocks unless they pay regular dividends.

 

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[SteveO]

I have seen the apartment market explode to unsustainable heights in my opinion. I searched for well over a year to find commercial retail or office properties to move the apartment proceeds into. I was able to find one deal but as time progressed, the deals got tougher to find.

Most of the easy single tenant type deals in decent locations were basically break-even events. The only real money being made was the principal paydown and the future rent increases. But if the market went the other direction just slightly, I would be underwater. This is a problem if liquidation is needed at a moments notice.

There were other deals out there but there was always something wrong with them. Poorly located, too much capital improvement needed, not in a growth path, etc....

Not only was it difficult to find something with upside potential, it was difficult to find something that would simply operate with decent cashflow.

I gave up on the quest, bought the golf course and began planning for retirement.

 

[million$$$smile]

I would think having a basic, needed skill or trade would be very helpful during tough times.

Maybe buy 'picks and shovels'. Usually large government contracts are approved and signed a year or two in advance of breaking ground. In times of recession, LARGE construction projects continue. Tools are popular in and out of swings in the economy due to the fact that many that wouldn't be a DIY become one. If your familiar with this market, it might be something to look into in your area.

Also, I believe if anyone had an idea for a good natural product that would deter mosquitos, (ie Zika) I believe it might be the something that would be FB marketable soon...

In times of recession, one can still build a business.

 

[MJ DeMarco]

I do understand that GoPro was insanely overvalued.. but it's just like any other business with 1 prominent product.

What do you think about Beats Headphones? It's more or less the same type of business, "one-and-done", people don't order a Beats Headphone set every month. Yet Apple still acquired the company for over a billion.

There's a difference between a private company whose objective is not to appease shareholders and Wall Street analysts. There's nothing wrong with "one and done" business operations but as a standalone public company I think they are the worst possible investments because of the law of diminishing returns. A new customer may not repeat in years. Throw in that the company is perceived as a TECH company where investors expect FANG like growth. Once they become public, their primary stakeholder shifted to shareholders and suddenly there's intense pressure to keep the growth rates high. It simple isn't possible.

Of course for the owners/executives of GoPro, it works out very richly...

http://www.cnbc.com/2015/12/22/gopro-ceos-new-toy-a-180-foot-yacht.html

For the investors, not so much.

Hence why we here at Fastlane understand the dichotomy where it's the entrepreneur laughing to the bank, not the poor sap who bought GPRO at 90 bucks and now lost 95% of investment.

 

[Tweeve11]

***starts reading about options...***

 

[hellolin]

I think the average wage/salary has gone down in real terms for decades, don't quote me but it ain't working(the incessant money printing )

It is, because on average people's productivity hasn't gone up, but technology has made overall productivity go up, which made people even more expendable, while making higher educated guys more valuable, hence the huge income gap you see now. Think about the assembly line, its truly an innovation that made stupid average joes on the streets a middle class life, because all you need is hard work and you can make a living, but now that's gone throughout the world, even China. We are in desperate need to have the next innovation that can give average Joe a shot at doing meaningful and productive work.

 

[Ubermensch]

@MKHB: Remember when I told you what I was going to do the careers of a few idiot Cushman and Wakefield employees?

If you want hedge fund manager money, you need to to look at the world through hedge fund manager lenses.

Paging Ms. Cleo... AGAIN.

@Vigilante:Facts and Research... smh.

2015 Construction Outlook: An Economic Recovery Finds Its Footing - Published 2015, by Jeff Gavin in January 2015.

@Iwokeup: Check out the article, specifically the section regarding the residential market.

You will find that @SteveO 's view is backed up by - and validated by - a rather high pile of empirical data.

In respect to the author, please read the article in the above link if you want the full story.

I'll quote some of his more salient points below:

"Enough pauses. We are finally in the midst of a sustained recovery. Fundamentals are strong. Growth is ever steady, and momentum assuredly recovers when unexpected events such as severe weather hit. While the pace of the recovery can be frustrating, last year marked the first year where all but one of the major construction markets made gains or stayed positive. As in 2014, some sectors may cool in 2015 while others heat up."

"Engineering News-Record’s Construction Industry Confidence Index survey, 52 percent of subcontractors surveyed reported an improving market with confidence growing throughout the year. That number jumps to as high as 64 percent when looking out the next 12 months

“[2014] marks the first year where the institutional sector is no longer pulling down the other construction sectors,” said Robert Murray, chief economist and vice president, Dodge Data & Analytics (DDA) [formerly McGraw-Hill Construction (MHC)]. “In fact, the recovery in nonresidential is now established. It’s clear we are in broad-based and recognized recovery that is cyclical and reminiscent of 1990s, which led to a 20-year period of stability and growth.”

"This is a recovery being driven by the energy sector, high-tech and resurgent manufacturing,” said Alex Carrick, chief economist for CMD Group."

"
Speaking at the conference, Paul Sheard described a difference in this expansion from others. He serves as the executive managing director, chief global economist and head of Global Economic & Research for Standard & Poor’s. 


“This growth follows the worst depression since the [Great] Depression,” he said. “It’s up and down, but we’re in pretty good shape with moderate growth. There are plenty of positives due to the right policy moves during the crisis. TARP [Troubled Asset Relief Program], the stimulus [The American Recovery and Reinvestment Act, or ARRA], and Fed rate cuts (0–0.25 percent) all helped us avert another Great Depression. Our economy is doing well, and that should continue.”
"

@Cyriex : Pulled this out of my Super Secret Gordon Gekko file.

This is capitalism at its purest, finest and most sublime.

As the data shows, those actually building the economy - and within it - are doing spectacularly.

Growth is consistent.

Deals are closing.

Projects are happening.

 

[MyronGainz]

So how does a Joe Shmo like me with no stock experience capitalize on this market shift? There is quite obviously a lot of sentiment that the market is going to go down. And I watched a commercial for the upcoming movie "The Big Short" which is all about 2008. Its got me thinking, "Hey, I could do that too!".

But with only a few thousand dollars (<10k) and little experience it feels like i would be doing more gambling then educated trading... I'm okay with a certain amount of gambling, but I would like to feel like I was making informed gambles otherwise i might as well just go to the casino....

Any advice on how to take advantage of the current climate? Id hate to look back in a year or two and know i missed out on a good opportunity.

Just don't. Trying to time the market is just ignorant. As stocks fall, you are able to buy to same great companies...but at a discount. Look at buying opportunities in stead of trying to time the market.

 

[Red]

We're thinking of selling our current house now, renting, and seeing where property values are in six months. @Red ?

Not sure how I missed this tag, but I did...

Real estate is a completely local variable. Some areas will continue to grow year over year, while simultaneously, other markets will bottom out. To add to the complexity, some metro areas will have conflicting trends within various price points -ie: our high end luxury (as opposed to plain luxury) is coming back down a bit, while entry-level Single Fam homes in the infill are still rising.

Just for your FYI, if the IRS hasn't changed the rules, you can currently hold any profits on the sale of a primary residence for 18 months before paying any cap gains taxes -but this is usually not enough to capitalize on market trends. Sorry!

 

[JustAskBenWhy]

To address the real estate aspect (and the general investing aspect)...

Your point that any yield is better than no yield only applies when you have unlimited capital -- when that's the case, feel free to jump at any positive NPV opportunity. That said, I don't know too many people (or companies) with enough capital that they can ignore opportunity cost. Spend your limited capital on low yield opportunities now and you'll be making money...but at what cost? (Hint: The cost is not being able to fund the much higher yield investments that will likely come along in the near future and kicking yourself for it.)

You and I both started looking for large multi-family opportunities a year or two ago, and neither of us found anything good. That's not coincidence. Cap rates are below where cost of capital could be in the near future, and again, even if not, there's still an opportunity cost of tying up capital in low yield investments. I happily gave up the search...sounds like you did too (for the most part).

My point is, inaction isn't always bad. Personally, I've stopped taking on any real estate investment opportunities with a time horizon more than three months out. And, for only the second time in my life, I've moved to pretty much an all cash position (other than some SFH rentals). The first time was 2008, about a week before the market crash. I was very lucky with my timing then, and given that I bought a bunch of just-out-of-the-money DIA puts two weeks ago (that I sold today), I was lucky this time as well...

For now, I'm going to spend the next few months focused on my non-real estate business (and writing another book), and hopefully some good real estate opportunities will present themselves in 12-18 months...

J - When I say that "some yield is better than no yield" I am being sarcastic. Nobody has unlimited availability of free capital, but they are acting as though they do... If you actually underwrite to NPV, and if you discount the current delta to the opportunity cost (you and I are both doing things with much less capital for much more profit), as well as the risk of where the cost of money could be in 3 years, not to mention that top-line in RE has been going up for years while people's income has not, it becomes impossible to justify risk of deployment. I agree with you completely. I think we looked at the same time, in the same part of the country, and arrived at the same conclusions...

I have to admit - I am not happy to stop looking. I've got millions of partner capital sitting on the sidelines, some of it right here on FL, but what the hell can I do - I am not bigger than the marketplace. So, I still look, but it's getting more and more comical out there.

I am still heavy on rentals, which I bought before 2013. And I'll buy more if the opportunity is right. I am growing JustAskBenWhy significantly, because $295 is a fair price to keep people from losing thousands and hundreds of thousands in RE due to ignorance. I am helping @TheDamageUndone launch her platform, which will likely be the most important life's work either of us has ever done. And - I would love to co-author a book with you, Jason. Not sure why it hasn't happened yet, but I think we could be quite effective... Inaction doesn't mean inaction. Focus and Diversification can work well together...

 

[SteveO]

I'm very familiar with adding value to properties (I've written books on the topic), and for a $500K investment in energy upgrades to generate $3.5M in additional equity (i.e., 7:1 value to cost) isn't realistic in my experience.

@Ubermensch

Assuming that you were able to generate the additional equity. Of bigger concern is a change in cap rates. If they start expanding, it will take equity down rapidly.

I also believe that all buyers of a property at that size will be very sophisticated. You will need much more proof time and time to take all residual past performance off the radar. This means more like a three year hold. You can sell stories but those stories must be stronger than changing energy levels.

 

[Bellini]

Have any of you read the book "AFTERSHOCK" by Robert and David Wiedemer?

I bought it back in 2011 when it came out and while it's not the most well written book, it is informative. The authors basically remind people that they correctly predicted the 2008 recession even though no one would listen, and are calling for a major 'aftershock' for around 2016. (Which they say will be far worse than the first one) They also give basic recommendations about what to avoid and what to do financially.

Robert Kiyosaki has also been telling people for about 30 years (in books, videos, lectures, etc) that there would likely be a major devastating recession starting around 2016. He got that from his father, who told him that the baby-boomers would start retiring around then / now, and that the social security deficit would start a domino effect.

Obviously if that happens that is only one of many things that would probably be happening simultaneously. Couple that with the results from QE and the myriad of other travesties and yeah, there is likely something bad brewing.

I don't know a lot about economics, but I have a feeling that currently we are being 'propped up' and might be so for a while, which could possibly delay said '2016 recession' for a few years.

I do, however, have a bad feeling about 2018.

I hope I'm wrong. I hope they are wrong.

Best we can do is be prepared.

 

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[MJ DeMarco]

I don't understand your first line... could you please clarify?

On October 7 Go Pro hit 98.00. Today its 9.98.

A business built on "one-and-done" is hard to sustain, especially when you now need to appease shareholders over customers.

In other words, if someone buys a GoPro they might be indeed be a customer but they aren't ordering every month.

 

[hellolin]

Yup, Japan just entered a recession, third world countries are struggling like its 2007, Lots of middle class Brazilians rolling back to poverty as I type, the ISIS rising corresponds to this at the perfect time, so in case that first world countries that do roll into a recession they can start another full blown war in hopes of rising GDP values of their respective countries (And reduce unemployment here of course). I caught this last wave and joined the military to serve the country, and that netted me a free college education afterwards. I am thinking what should I roll into this time, in recession there are tons of people looking lost and need things in their life to make them feel better, shouldn't be very hard to look for problems to solve at a scale of population.

 

[Iwokeup]

SO.....a good time to have a cash position?

We're thinking of selling our current house now, renting, and seeing where property values are in six months. @Red ?

 

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[Fathazard]

Just holding cash now too. Spidey senses are tingling.

 

[GPM]

SO.....a good time to have a cash position?

We're thinking of selling our current house now, renting, and seeing where property values are in six months. @Red ?

I live in a city that is driven by oil and gas, in a province that pretty much solely relies on it. I saw the writing on the wall and sold my place in November 2014. Been renting and watching since then, and glad I have. Houses in the price range I had are not moving. I have a friend in the neighborhood and my old neighbour have both tried selling their places (way nicer than mine was, listed for the same price as mine was) and they have gotten zero interest from buyers.

I went for a bike ride with the ex grumptycat/rich kid in the fall and we counted the number of houses for sale along a lake-front street. Literally 1/3rd of them were for sale. Of course it all depends on where you live, but we are about to get hammered. Prices have not fallen yet, and people think they won't ever (real estate always goes up!), but nothing is selling.... something has to give.

 

[SteveO]

I may not have been as clear as necessary.

PACE allows for, in general, property upgrades... total project values can reach around 20% of the property value.

So, in the $20,000,000 property example, 20% = $4,000,000.

Thus - even if we're speaking conservatively - PACE would allow you to add several million dollars in upgrades to the property.

You are correct in that the $500k LED package would only increase it by around that amount (depending on the price per kWh).

However, the remaining work would be with things like window film, roof repairs and/or replacements, HVAC enhancements, etc.

On the $20,000,000 office building, the window film would be several hundred thousand dollars.

The roof repairs would likely be a couple million.

HVAC could easily be seven figures.

I have made a lot of money repositioning properties. It is a great way to go.

My biggest concern is the current high demand and the number of players in the game that are driving the pricing. There is some ability to generate income though upgrades and, by your plan, reduce expenses. There are some people that feel cap rates could stay at this level or even go down with the uptick in foreign investment. I think there are many other variables that could take them up though. That is the single biggest risk in taking on a project. Especially something that may take years to come to fruition.

 

[SteveO]

Eh... I don't know. I don't think a three year hold is necessary. That strikes me as an overly bearish assessment.

However, changing energy levels equals changing Net Operating Income levels.

When a building owner lowers his energy consumption by 30%, his energy bill drops.

He profits more on the building.

He and his shareholders take more home when it's time for disbursements.

First let me say that you are putting some incredible thought into this and have laid out a great plan. Your initial goals appear to start BIG. I like that. But with a process like this, there will be a lot of learning. Once you have gone though it, you will see it in an entirely different light. The second, third and fourth deals will seem very different with many tweaks along the way.

I have been in these negotiations. If you don't have a full year of operating history with the upgraded numbers, most of these sophisticated buyers will not go for it. If there are less than two years, the buyer will likely want a discount for that time. Two years is the norm to get the old numbers off the books. That means at least 2.5 years plus the time to sell.

 

[SteveO]

Right.

Like any opportunity, the "target market" would be a subsection of the overall market.

I would not approach "Wall Street," institutional owners with my concept.

I would approach Main Street owners - private and individual owners who own mid-sized portfolios.

The guy with a few office buildings between 50,000 square feet and 600,000 square feet? I want to talk to him.

Why not just use the brightest, smartest brokers and identify the properties that would be a good fit?

Hahaha... I think you will find the opposite to be true. The biggest operations are not near as diligent as the private owners.

The brokers that appear to be the brightest and smartest are usually just the best salespeople. I don't listen to their opinions due to the nature of their job.

Don't get me wrong. I am not trying to talk you out of any path. I am simply pointing out my experiences. I have bought and sold properties greater than 10M and have a pretty strong sense of the dynamics.

I do like your hunger though and hope you kick a$$ with it.

 

[Growth & Learn]

Plenty of money to be made right now. Stay calm fastlaners.

 

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[Ezio]

The another PREDICTION about timing.
http://jlfmi.tumblr.com/post/133953173810/is-it-too-late-to-sink-your-teeth-into-fang

 

[hellolin]

ugly out there.....and still lots of these stocks are overvalued

This is what happens when you only play financial speculation without actually trying to increase the productivity of the average Joe. They are still who they were the years ago in relates to knowledge and productivity yet the market went up anyways, that's exactly how you make a bubble. A health economy is backed up by productivity and incentives, since QE was used as the tool to get us out of recession it has always been more up and down swings in the market.

 

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[Mineralogic]

This is what happens when you only play financial speculation without actually trying to increase the productivity of the average Joe. They are still who they were the years ago in relates to knowledge and productivity yet the market went up anyways, that's exactly how you make a bubble. A health economy is backed up by productivity and incentives, since QE was used as the tool to get us out of recession it has always been more up and down swings in the market.

I think the average wage/salary has gone down in real terms for decades, don't quote me but it ain't working(the incessant money printing )