China's effect on U.S. Markets

[Josh Goff]

What should we be worried about or watching for in regards to the U.S. real estate markets?  I haven't been keeping up with the details (and even if I did I wouldn't truely understand the correlation) but I'm in the middle of moving forward with a few new deals and want to understand any negative impacts.

Thanks!

Josh

[Ryland Taniguchi]

China had been manipulating the currency by pegging the yuen to the dollar. This kept the yuen artificially weak so that it could continue to export cheaply to the U.S. and the world. This also has caused low interest rates in the US as deflation was simultaneously exported to the U.S. People may worry about hyperinflation but deflation has been the concern of the Fed.

The US did the same thing as China did in the last 15 years to grow out industrial base during the roaring 20s. After World War I, America required that European debtors pay their debts in gold. America after World War I stockpiled 70%+ of the worlds gold supply and his caused capital flows to pour into the U.S. This also caused the hyper-inflation in Weimar Germany in 1921-1924. In economics, you can only stimulate an economy through increasing consumer spending, government spending or investment spending. If all these "pump primers" fail, history shows that the only way to prime the pump is to print money and purposely stimulate the economy by making your exports cheaper. The problem is that other nations will copy and this leads to the Smoot Harley tariffs that shut down the world economy in the 1930s.

China pegging the yuen to the dollar is doing the same thing as the Gold Stockpiling by the U.S. after World War I. With this yuen peg strategy, capital flows poured into China and caused a decade boom. The artificial boom will end in a major decade of deflation for China.

China is the US in the 1920s. They will go into a ten year global depression like the US did in the 1930s. I think it will happen during the next major cycle crash around 2025. We are in 1998 all over again. In the short run, we'll see the 2000 crash all over again before a long crazy ride in real estate. The party will end in 7 to 10 years and it will be worse than the 2008 crash. 

How do you prepare? You maintain a portfolio of real estate for inflation and liquidiiy for deflation (cash, treasury bonds and cash value life insurance). Your must get out of the buy and hold long term mindset. With crazy high interest rates being driven by global deflation and here to stay for a while, expert a roller coaster in real estate every 18 years. Buy low and sell high. Rinse. Repeat. Don't buy to hold for 30+ years.

I am selling all my real estate in 5 to 7 years, wait out the peak, make money brokering hard money, packaging land for developers, making realtor commissions and wholesaling deals. I think there is like 5 more years to buy real estate and then go to a service model with the systems we have in place.

Don't believe in doomsday. It makes you a horrible investor. As Rothchilds say, invest when there is blood in the street. Or Warren Buffett says be greedy when others are fearful and fearful when others are greedy. When I look around, I am seeing greedy real estate investors now and so be fearful.