Donald Trump reminds me of the bullies who teased me at school.
Anyone who stands up to him gets a put-down: ‘Crooked Hillary’, ‘Little Marco’, ‘Low Energy Ted’. His aim is to get everyone laughing at them, just like in a classroom.
And like all bullies, he only wins by getting you to doubt yourself — rather than getting you to believe in him.
And that’s because it’s hard to believe in Trump.
He’s a liar. He cheated on his wife(s). Heck, he even wrote a book with the ‘Rich Dad, Poor Dad’ guy (Robert Kiyosaki) entitled Why We Want You to Be Rich — ironic, given the authors have notched up five corporate bankruptcies between them.
And yet, in this week’s presidential debate, the ‘Big D’ actually said something intelligent:
“We’re in a bubble right now, and the only thing that looks good is the stock market. But if you raise interest rates even a little bit, that’s going to come crashing down. We are in a big, fat, ugly bubble. And we better be awfully careful.”
Okay, so only a shrink can fully explain why Trump feels the need to label everything ‘big, fat, and ugly’ … yet he’s right on one thing: we are in uncharted financial territory.
Right now, global interest rates are the lowest they’ve been in recorded history. In fact, in many countries interest rates are negative. Since the dawn of civilisation savers have earned interest, borrowers have paid it. That’s now been flipped.
Park the fancy economic talk and think about how ultra-low interest rates are affecting you:
Interest rates are the main reason your house value has increased so much. People aren’t earning more — they’re just borrowing more. That’s how Australia wound up with some of the highest levels of household debt (compared to income) in the Western world.
And ultra-low interest rates are forcing retirees out of (safer) fixed interest and cash accounts, which pay two parts of bugger all, into the (riskier) stock market to earn dividends.
When interest rates go up, as they surely will, the bubble will burst — and house prices will come down.
Here’s you: ‘Dude! When will that happen?’
Here’s me: ‘I have absolutely no idea, and neither does anyone else. Not even the comb-over king.’
Here’s you: ‘So what should I do in the meantime?’
Here’s me: ‘Read on.’
When Will the Housing Market Crash?
I’ve been the Barefoot Investor for 15 years. And for all that time I’ve been warning about our unsustainable debt levels. However, in that time I also bought my family home.
At the time I bought, I was convinced the market was overvalued. But I was sick of renting, and I fell in love. And history had taught me that prices can remain overvalued for many, many years.
Besides, no one can predict the future. As the excellent book Future Babble, by Daniel Gardner, proved, the more famous the forecaster, the more likely they’ll be as accurate as a dart-throwing monkey.
The truth is that there are no answers.
That’s why I saved up a 20 per cent deposit, and factored in a repayment interest rate of 10 per cent. And then I set about working my arse off to get the banker off my back, once and for all.
And lo and behold, over the years, interest rates halved, and the joint doubled in price.
Things could just have easily have gone the other way, of course. After all, I don’t have control over house prices. Or the direction of interest rates. And that’s why I didn’t bet on any of this happening.
I just bet on myself.
When Will the Share Market Crash?
Back in January, things looked grim.
Wall Street had the worst start to the year on record.
The esteemed Royal Bank of Scotland’s dedicated analysts … cracked.
They told their clients to prepare for a “cataclysmic year”.
It made global headlines, and freaked everyone out with their bone-chilling recommendation:
Hold your haggis!
Truth is, scary headlines are good business, especially when they coincide with a market going down (remember that old adage, ‘if it bleeds it leads’). And besides, in an era of 24-7 tweets, and Brad and Angelina, no one ever has time to go back and check what they said.
So let’s do that.
The Royal Bank of Scotland predicted that markets could drop by a fifth, and that oil could drop to $16 a barrel.
How’s that call looking today?
Well, oil is up 40 per cent, emerging markets are up 29 per cent, the US S&P 500 is up 14 per cent, US high-yield bonds are up 13 per cent, and even the ASX 200 is up 10 per cent.
Look, I’m not talking a potshot at a bloke in a kilt.
All I’m saying is that you could be right about a crash in the market, but wrong about the timing. And the upshot is you could be left blowing your bagpipes while the market doubles or triples.
So what can you do?
Well, when all else fails, use common sense.
I’ve long advised people heading to retirement to go from having three months of living expenses to having three to five years of living expenses by the time they retire. That gives you time to ride out the inevitable downturns. The rest of your money should be invested in good-quality shares that will keep your nest egg growing faster than inflation.
Finally, recognise when you’re getting played. One of the oldest tricks in the book is to prey on people’s fears. It gets people to do irrational things — like voting for a big, fat, ugly orangutan.
Tread Your Own Path!