Well – the past couple of days, August 20th and 21st, have seen some drama.
To be sure, if you have your wealth stored in the stock market, by August 21st, you were most likely freaking out and pulling your hair, with bits and pieces of your scull still attached to the roots, right out of your head.
On August 20th the Dow Jones Industrial shed 358 points, and the sell-off continued the next day to a tune of 531 points more.
I had no idea what was happening until late at night on August 20th, when I happened to check the news. And that got me thinking to about real estate compared to the stock market.
Why is the Stock Market Dropping?
The commentary is wildly all over the place. Some say that the stocks have been going nowhere but up for years and it’s time for a correction. Others indicated fear of global demand contracting, as indicated in part by Crude Oil at under $40/barrel.
A lot of folks are aware of China devaluing its currency, which indicates that they don’t really know what the hell to do to help themselves get out of a rut. China has been propping up global growth for years, and well – it ain’t growing no more. Europe has put a bunch of band-aids on its’ wounds bet never fundamentally dealt with any of the issues.
Russia, a huge country, has been in absolute disarray. Majority of their economy is driven by oil, and at $40/barrel they cannot live – plain and simple. True – their production costs are very low in comparison to us, but they’ve been in recession for a while now, and if this oil price remains for 6 more months I hate to think of what they might do (and with whom) to make money…
Oil is a big problem and a sword that cuts both ways! Interestingly, while the $40/barrel oil should reasonably result in gas prices at the pump down a lot, which would provide Americans with mush needed reprieve in discretionary dollars, we are not seeing that. We are given some sort of lame excuse that a couple of refineries being off line is keeping the prices at the pump up, but a reasonable observer has to shale their head at how a couple of refineries being off line for a few days can prop prices of gas up to this extent considering $40/barrel crude and storage capacity in both USA and China at close to 100%…
Earnings of American companies are anemic. And to finish the panic off, folks are worried that the FED might actually raise rates, which would obviously tighten things even more as it relates to valuations of everything, from the dollar which is already strong, to obviously the stock market…
What Does the Market Sell Off Mean?
Well, that depends who we are talking about…
One of the most important aspects of the sell-off is that it is happening on a very high volume. While some times, one or two very large players sell a lot of stocks which can cause a disruption in the markets, what we are seeing here is very different. We are seeing people scared and everyone an mass heading for the exit.
The VIX (CBOE Volatility index), which is thought of as the best indicator of fear in the market, jumped up to 28 on the 21st – more than 45% increase on the day. Generally, anything above 25 is thought of as “oh crap I’m scared and there’s a load in my pant”… This sell-off is like a guttural reaction to the confluence of factors; indiscriminate selling across indices.
What are they so scared of?
Simple – people don’t know where the growth is and will be, and based on this they don’t know where to put their money. They check their 401k accounts, see the declines everywhere, and head for the exit – they are taking money out of the market completely!
Does the Stock Market Affect Real Estate Investors Like Me?
Interestingly, this has very little impact on me, and others like me!
In fact, I was speaking to a good friend of mine, Serge Shukhat, who until I called him on Friday the 21st to ask what he thought about all of this, had no idea there was even a sell-off in process. When I called him, he was in his Tesla (an all electric car, btw) making the rounds of his apartments – checking up on things.
I was doing the same, though while I am about ready to buy a Tesla (I just received an OK from my CPA and in 2 months I’ll have one), at the moment I was driving my Nissan Quest with my kids in the back 🙂
Serge and I – we don’t really care about all of this a whole hell of a lot. Sure – the FED is likely to hold off on the rate hikes, which has some implications to our business, but not much. Sure – the inflation is likely going to stay put, which also has some meaning to us, but not much.
Neither Serge nor I have any wealth stored in the paper market. We like Real Estate – we like Cash Flow. So long as people have jobs, we will have nice lives. And should the real economy take a dump, the way we negotiated and financed our units will allow us to come down on our rents by 30% and still be making yield.
Could it get worse for us? Sure, but before guys like us feel any body aches or begin to sneeze, other people are going to be dead… When we see people begin to drop, Serge and I will have plenty of time to react – control – the biggest advantage of real estate!
Real Estate Compared to the Stock Market and What You Can Do Now
I would think times like this personify to people the incredible power of real estate as compared to stock market. I would hope that unlike those people that are pulling money out of the markets in complete disarray because they don’t know a safe place to put it, you know where you should be putting yours – real estate.
And, if you don’t know how to do it right, I would hope that you realize that now is the time to study! If you don’t have them already, download my great free eBooks and audio training to get started.
Best of luck in all of your endeavors,
Ben leybovich
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