Bull Markets Since 1871: Duration and Magnitude

DYI Comments:  The above chart was completed in April of 2013 or 24 months ago. Without double counting the month of April this pushes out this cycle to 72.  The median is 50 months which has now been long since surpassed.  Now were in the process of pushing past the average of 67 months. The moral of this story is this market is now long in the tooth which is added to the elevated valuations as measured by sales, earnings or dividends.

 Read What the Bull Giveth, the Bear Taketh Away for the bear market equivalents of the preceding bull table and chart. Butler|Philbrick|Gordillo and Associates demonstrate that, if it follows the median bear market, it will wipe out 38 percent of all prior gains.

All other markets that ran longer in duration except the 1988 to 2000 started at much lower valuations.  Anything is possible when it comes to markets, but dealing with the probable it is hard to imagine launching a continuation of this bull market to the outer stretches of duration.  The U.S., as we all know so well, has sub atomic low interest rates unless there is negative rates and/or another bout of QE it is difficult to fathom a continuation of some length for this bull cycle.

DYI's weighted averaging formula has pushed us out of the market.  For those of you who want a position in stocks to some degree DYI's  stock to bond allocation  is based upon the Shiller PE10. Currently, based on its weighted averaging formula has an investor at 28% in stocks.  Anyway you look at it, this is a very expensive market with future estimated 10 year average annual returns being sub par at best and slightly negative at it's worst.  In my 40 year plus years of experience in observing or participating in markets, this is not the time to be 100% invested or God forbid being on margin! 

DYI

A Warning to New York City – How Singapore’s Luxury Boom in Sentosa Cove Went Bust

My hometown of New York City is currently ground zero for a luxury apartment building boom driven primarily by oligarchs using the units as savings accounts, and foreign criminals looking to launder wealth accumulated via corruption, fraud or worse. This isn’t a new story, I’ve been writing about it for several years (links at the end), but a recent New York Times piece titled, Stream of Foreign Wealth Flows to Elite New York Real Estate, has put the issue front and center. 

Naturally, New York City isn’t the first, and certainly won’t be the last place to encourage hot foreign money to flow into its real estate sector in a haphazard and harmful manner that could have severe long-term repercussions once the boom turns to bust — which it invariably always does.

 I believe the cycle described above will play out similarly in NYC. I can’t tell you when exactly the political outrage will become sufficient to pass laws to cool down oligarch investment, but it will happen. What is so shocking to me is how many people seem to think such a thing can’t happen in Manhattan.

DYI Comments:  Overpay for any asset future returns will be dismal or negative for years (may you live so long).  NYC and especially Manhattan is for the big boys who are going to lose big money due to their leverage positions.  The cash buyers will not go bust but will have many years of sub par returns or modest losses.  In the investment world that is called "dead money!"  A go no
where returns only to be chewed up by inflation.  The age old dripping water torture.  Many will sell out, take their lumps and move to the next hot market hoping to get in early enough and out before that market crashes to make up for their losses.

If I was younger and had family money behind me I'd look to Detroit.  That right Detroit!  In my judgment this city has turned the corner and is doing what it takes to revive the motor city.  This is similar to the investment phase of security markets as exampled by the 1975 to 1982 stock market. Stocks did not improve all that much but they didn't go down further(great time to DCA).  An excellent time to troll at the bottom, for Detroit properties with potential.  IMHO those who have the money, the guts, and staying power will reaped high rewards over the next 20 years in Detroit RE.  If Detroit becomes a hot market (I have no idea one way or another) that would only be icing on the cake and a great time to sell out.

 Rank Nation Metropolitan Market Median Multiple

1 U.S. Detroit, MI 2.1
2 U.S. Rochester, NY 2.4

3 U.S. Buffalo, NY 2.6
3 U.S. Cleveland, OH 2.6

5 U.S. Cincinnati, OH-KY-IN 2.7
5 U.S. Grand Rapids, MI 2.7
5 U.S. Pittsburgh, PA 2.7
5 U.S. Saint Louis, MO-IL 2.7

9 U.S. Atlanta, GA 2.9
9 U.S. Indianapolis, IN 2.9
9 U.S. Kansas City, MO-KS 2.9
9 U.S. Louisville, KY-IN 2.9

13 U.S. Columbus, OH 3.0
13 U.S. Oklahoma City, OK 3.0

Above chart is for residential real estate, commercial properties is where your bang for the buck is located. Low cost residential follows low cost commercial properties.

For my Canadian followers (those who are young and family money) I'd sell out your high flying real estate mania(all of it) move to Windsor Canada jump in the car cross the Freedom Bridge and have boots on the ground in Detroit.
   

DYI