You Know It Is Time to Short the Economy When...
.... your paper prints headlines that say "Economists: Zero chance of Arizona recession." I am sure Houston would have said the exact same thing, right up until oil prices dropped to $30 and suddenly there was like a 100% chance. When the Arizona Republic makes a definitive economic prediction, bet the other side.
Anyway, I am considering this headline to be a flashing indicator of the top. In 2005 I wrote about another such indicator that told me the housing market had peaked:
So, to date [May 31, 2005], I have been unconvinced about the housing bubble, at least as it applied to our community. After all, demographics over the next 20-30 years are only going to support Scottsdale area real estate.
However, over the weekend I had a disturbing experience: At a social function, I heard a dentist enthusiastically telling a doctor that he needs to be buying condos and raw land. The dentist claimed to be flipping raw land parcels for 100% in less than 6 months.
For those who don't know, this is a big flashing red light. When doctors and dentists start trying to sell you on a particular type of investment, run away like they have the plague. At Harvard Business School, I had a great investment management class with a professor who has schooled many of the best in the business. If an investment we were analyzing turned out to be a real dog, he would ask us "who do you sell this to?" and the class would shout "doctors!" And, if the investment was really, really bad, to the point of being insane, the class would instead shout "dentists!"
Which reminds me that in the last 6 months I have started hearing radio commercials again urging folks to get into the house-flipping business and make their fortune. Whenever institutions start selling investments to you, the average Joe, rather than just investing themselves, that should be taken as a signal that we are approaching a top**. About 12-18 months before oil prices tanked, I started getting flooded with spam calls at work trying to sell me various sorts of oil exploration investments.
** Postscript: In 2010, when house prices were low and some were going for a song in foreclosure, there were no house flipping commercials on radio. That is because Blackstone and other major institutions were too busy buying them up. Now that these companies see less value, you are hearing house flipping commercials. You know that guy who has a book with his fool-proof method for making a fortune? So why is he wasting his time selling books for $2 a copy in royalties rather than following his method?
