Customer Reviews

How to Profit from the Coming Real Estate Bust: Money-Making Strategies for the End of the Housing Bubble

5 star:		(17)
4 star:		(4)
3 star:		(3)
2 star:		(1)
1 star:		(3)

 

 

SUMMARY:

I personally think the advice about "profiting" from the bust in this book is mostly worthless, indeed possibly even dangerous, but the arguments about whether there is a bubble & how to recognize it IMO are better.

DETAILS:

The first half of the book (which another reviewer suggests you could skip -- !!!) is actually the most useful IMO. It gives a general summary of the reasons that suggest current housing prices are unsustainable. The arguments are not very complex in construction, but I don't fault the book for it, I think it has a target audience, and that is the general public, not the subset who have a firm grasp of macroeconomics & math. My biggest gripe with this part of the book is that he expresses some facts in a misleading way, to my mathematically semi-sophisticated eye. For example, on p. 62 he has a graph of total US debt and GDP vs. a 45 year time axis. To the "untrained eye" (and he supports this impression in his text), it looks like debt is growing much faster than gdp. This impression is created by the fact that both are under $5trillion in 1957, and by 2002 gdp is $10t and debt around $34t. However, I suspect if you graphed the RATIO of debt to GDP (which is really the issue, what multiple of gdp is debt, i.e. very roughly, how many years of earnings collectively would it take to pay it off), you'll see the ratio MUCH higher at the start of the period than now, you'd probably see a decline in the graph slope for many years, then maybe an increase starting around 1985, based upon an eyeball evaluation of the two curves. That would have been a MUCH more meaningful graph, a more useful historical perspective. Maybe he thought that too abstract for his intended audience, being a derivative of the data (change over time in the rate of change of the ratio), but in this particular case I believe he has made more out of those historical numbers than is really warranted. The problem for me is, when you see that once you start to trust less all the rest of the arguments he makes, you instead find yourself wondering "what did he leave out or misrepresent this time?" But with that caveat, this is still the best overall attempt to make a case for a housing bubble, with the possible exception of a "Special Survey" done by the magazine Economist on 5/29/2003, which looks at the issue from an international perspective.

The last 1/2 of the book (the ostensible purpose, "how to make (or save) your money when the bubble bursts") seems even less well thought out. I'm not a professional investor, but I have been doing it a couple decades now & I came out of reading this book with very few viable (IMO) ideas on how to achieve what the title promises. For example, buying cash rich companies -- he lists msft, csco, intl, dell, nok. This advice is totally bereft of the context of stock price or p/e, and I'm sorry, a dollar is worth a dollar, and you can't say a company with cash is a good buy without even referencing how much cash you will pay for that cash!!! The suggestion of convertible bonds is also curious, I admit I have not looked at them much in my years, but my intuitive reaction is, won't these only do better than normal bonds as the stock price INCREASES (i.e. as it approaches the conversion price?), these bonds pay a lower rate & make up for that with the option to convert to shares at a fixed stock price. The value of that conversion option drops with the stock price (indeed for convertibles close to strike price, stock price changes are MAGNIFIED in the convertible pricing). So if what he suggest comes true, convertibles will be a WORSE buy than plain old bonds, overall. (maybe he suggests convertibles just as a safer alternative to stocks, and not necessarily better to buy than plain old bonds? If that's what he meant he should have SAID it though). And regarding gold pricing -- I actually have one raw gold producer that he mentions on my watch list right now, they are a major player in many other metals markets as well (copper, silver, etc). Having that POV, I can tell you that he has totally ignored the whole question of decreased industrial demand that would come with the kind of financial catastrophe he envisions, very relevant given the exposure this particular stock has to these other metal productions. Heck that is the reason that I am still on the sidelines, reduction of demand in China (which is creeping up in the news more in recent weeks as they attempt to engineer a "soft landing" to a badly overheated economy) could totally take the floor out from underneath a lot of these raw material producing companies.

Finally, while by no means suggesting this is a fair way to evaluate his advice in this second half of the book -- since the whole argument is predicated on the collapse of the housing market, which has not (yet) happened -- it should be noted that a quick review of many of his suggested strategies shows that anyone following his advice in the one year approx since he finished writing it (he mentions this being the beginning of June 2003) would have vastly underperformed the market, or even lost money, in the interim.

So, in short, I find the first half the book (is there a bubble, why) a pretty good introduction to the argument for it, not perfect, but perhaps the best one out there. I find the other half (what will happen to the economy when it bursts, how to profit/protect yourself from it) very much unsatisfying, and I am stuck where I started, thinking "I think there is a serious risk here" but still unable to figure out how to translate this concern into concrete action for my own personal finances.

*** UPDATE 9/12/04: Since writing this review on 5/2/04, I have found and read John Talbott's book from 2003 on the same subject,
"The Coming Crash in the Housing Market : 10 Things You Can Do Now to Protect Your Most Valuable Investment." Having read that, I have changed the title of the review, & I would now change my statement in my review above that this book is 'perhaps the best introduction to the argument for a housing bubble out there.' I now believe the Talbott book is better, the statistics in that book are more carefully and rigorously presented, and do not seem to suffer from the misleading presentations you see in this book. In other words, although both books make essentially the same argument, the Talbott book makes it more completely & convincingly.

Back in 1999, when investment bankers were ordering $400 bottles of wine at lunch and Dow 36,000 was a credible forecast, not a joke, John Rubino was offering bear market strategies to readers of his column in TheStreet.com. Here's what he wrote on Oct. 21 of that year:

"Put simply, stocks are as expensive as they've ever been and the economy is running out of slack. Labor is so tight that companies are having to pay up to keep good people. Health care and energy costs are rising again, and interest rates are up across the yield curve. The inevitable result: higher costs of borrowing and doing business, lower corporate profits and sinking stock prices."

Rubino was clear-headed enough at the height of the stock market bubble to see the tunnel at the end of the light. Now he is sounding the alarm about the housing bubble. It's well worth listening to.

You don't need to be an economist or a financial expert to grasp the warning signals he points to: credit policies that have become shockingly easy, to the point where a down payment on a home has become optional; high levels of consumer debt, and soaring home prices. Meanwhile, job creation and income growth are stuck in neutral and profligate government spending has undermined the value of the dollar and left the U.S. up to its neck in debt to the rest of the world. Rock-bottom interest rates have been pumping air into the bubble, of course, but so has the relatively new process of securitization, a feat of financial engineering that allows government-sponsored agencies like Fannie Mae and Freddie Mac to create a virtual bottomless pit of new credit that is beyond the reach of anyone to regulate. Rubino does an admirable job of walking the reader, step by step, through this financial maze, explaining how it has held together so far, and how it could fall apart. He posits a number of scenarios for how things could play out, from the merely worrisome to the terrifying.

There are so many moving parts to the global financial engine, it's best not to get too hung up on exactly how or when the bubble will pop. Inevitably it will, and you'll understand why after you've finished the first half of the book. The second half of the book is your roadmap. It outlines a variety of strategies for sheltering your investment portfolio as well as your real estate assets from the post-bubble fallout. These include investing in commodities, particularly gold; selling stocks short, buying stocks in recession-resistant sectors, and buying bear-market mutual funds. Even if you don't think there is a housing bubble, the second half of the book offers a good investing overview that will serve you well no matter where you think we are in the business cycle. Rubino also offers a variety of defensive moves for home owners ranging from the drastic - selling, trading down to a smaller house, or moving to a less-overpriced housing market - to the less drastic but more complicated strategy of shorting housing stocks to hedge the value of your home.

Full disclosure: I used to edit Rubino's columns for TheStreet.com. So I have long known what new readers will soon discover: He's a talented financial writer with a deep understanding of the markets and a knack for explaining complex things in a simple and lively way. His advice was worth listening to in '99 and it is even more so today.

Like a smooth attorney summing up his case to the jury, John Rubino gives you every reason in the world to be very careful now that real estate has superseded stocks as the investment of choice. Written in June, 2003, Rubino is early. But "early" means you won't get knocked down if you head for the door.
Real estate is a much more serious bubble than stocks could ever be because not only does it involve the roof over your head, it also constitutes your biggest debt, a huge amount of employment and business activity, and enough political ramifications to cause major tremors under our political landscape in the event the author is correct. Additionally, there is no liquid market for real estate as there is for stocks. That means there is no October '87 to clean out the system in one fell swoop. Real estate busts take years to work through the system, with all the resulting hardships and recriminations that go with the bursting of a bubble.
Rubino wasn't as prescient as Robert Shiller who published "Irrational Exuberance" in the same month as NASDAQ topped out above 5000, but if real estate does crack, this time nobody can say they weren't forewarned.
The first half of the book is an excellent detailing of how the real estate market works, its history, and how the current bubble came to be. This is interesting reading for those who need to get current on the dangerous game we're playing.
The last half of the book gets more specific, giving you a good overview of the alternatives to keeping you money in real estate, including everything from lifestyle changes to tax consequences to his main concern - safety.
All in all, an excellent (and concise - 250 pages) synopsis on what more and more experts are warning is our next major crisis.

I never thought I'd say this about a finance book, but I couldn't put this one down. It is fascinating, logical, concise, well-written, and occasionally quite funny. Despite the catchy title, it is about more than just the regional housing bubbles we are experiencing right now: it is a primer on the entire lending industry and how badly it's gotten out of hand.

Just to be clear about it, this is not a "doom and gloom" or "the sky is falling"-type book. There are no histrionics to be found here, only well-researched facts and common sense presented in a very reasoned manner. Whether you own real estate or are thinking of eventually buying, and whether or not you are convinced that some housing markets are overpriced, this book will give you the background and advice you need to protect your assets and possibly even to profit enormously.

I have to comment on one of the other reviews here, by "A reader from San Diego, Ca," which implies that Rubino ignores the laws of supply and demand. This is an unfair accusation because it cites bad data: as a matter of fact, San Diego's home supply has increased at exactly the same rate as its population growth. They have both increased by 7% in the past 5 years. In the same time period, San Diego home prices have increased by 110%. The person who posted that review is clearly more interested in rhetoric than in facts but I wanted to set the record straight.

The whole "How to Profit" thing is a little overdone
these days, but this book's timing is good enough to
make up for the unoriginal title. Here in California,
real estate is clearly a bubble, and Rubino does a
good job of laying out the causes and consequences.
Then he fits the housing bubble into the big picture
which, if he's right, is absolutely terrifying. In a
nutshell, we've been borrowing like crazy for the past
twenty years, and now we're eating our home equity.
Pretty soon we'll run out of wiggle room and the whole
system will crumble. People who borrowed to the max on
overvalued houses will go bankrupt and the companies
that are inflating the housing bubble will crash. And
the east and west coasts, where home prices are
highest, will have the hardest time. All things
considered, it's a tightly-reasoned, well-written,
very scary argument.

One tip for readers: You can skip the "Housing
history" section (it's interesting but not necessary
to understanding today's housing bubble) and go
straight to the second section, where Rubino explains
how the housing bubble happened and why it's going to
pop.

Don't know what it's like in other places, but here in New York City, all I can say is DAMN. A friend who paid $700,000 a few years back for an nice but unspectacular condo says it's now worth $1.5 million. Apartments the size of walk-in closets rent for $1,500 a month. Who knows where the money's coming from, but there's no doubt about how all this will end.  

Meanwhile, the author of this book has been busy. I Googled "Rubino housing crash" and found some interviews that readers considering buying this or a similar book might find useful. There's an hour-plus webcast on Jim Puplava's Financial Sense Online, in which Rubino makes some aggressive (to put it mildly) comments about the big banks, derivatives, and gold. Also interesting is a profile/interview in something called Bacon's Rebellion, a site dedicated to Virginia politics and economics. Both, I think, make a compelling case that housing-and maybe the whole economy-is headed for trouble, and that Rubino gets it. (...)

If the names Stephen Roach, Marc Faber, Bill Bonner, Bob Prechter, or Jim Puplava are familiar to the reader, then John Rubino's well written, easily digestible, and quite convincing summary of the bear case (not just in real estate, but also in the US equity market) should be old news. However, if these names are unfamiliar, the reader would do well to plunk down the money to buy this book, consider his argument, and give some thought to preparing for possible bad times should they occur.

Rubino spends the first part of the book laying out a case for why a bubble exists in the real estate markets, and then uses the second part of the book to explain possible strategies to protect assets and even profit. The hedging strategies are well organized, but I doubt most people would consider shorting housing/fannie/freddie stock or buying gold/silver bullion. It would also be unrealistic to expect people to abruptly move from their overpriced houses in California/Boston, leaving friends, families and schools behind. The asset protection strategies could have been more detailed (in the same vein as the books by Martin Weiss). Rubino could have made his real estate bubble case stronger by using more local market information, statistics, and graphs (a la John Talbott in his highly recommended book The Coming Crash in the Housing Market).

Overall, this book would prove valuable for people unfamiliar with the risks in the economy and the possible outcomes if this risk ever manifests itself in the economy and the markets.

This reviewer cannot help but add as an aside that given the current conditions (early 2004) in the United States of unhealthy financial asset and real estate valuations, burgeoning debt and its financing by foreign nations with their own unpredictable agendas, high budget and trade deficits, and wage pressure brought on by globalization, it might not be a bad idea for the reader to recognize that the potential downside risk may be much greater than any potential upside, and act accordingly when planning for their financial future.

I read Rubino's book and it scared me. I pray he wrong, but I had a hard time disputing his argument. Before becoming a writer I'd been a real estate developer in Utah during the 80s boom. When the market turned, it fell into a freefall. Everyone who is thinking about speculating in real estate should be forced to read his book. That is unless they enjoy the pain of loss.

This book was way ahead of its' time!! Bottom line, if you have not read this book yet, you should do yourself a favor and pick up a copy. I really mean that.

In July of 2004, I read this book and it was my first exposure to the concept of the 'housing bubble'. I knew of no one talking about this. In fact, I was tuned into the media and fellow wage earners who pretty much all believed that "housing only goes up".

Now, just about 9 months later, Forbes magazine, Fortune magazine, CNNMONEY.COM, CNBC, my local paper, the Wall Street Journal and several credible economists and analysts (including Stephen Roach, the chief economist at Morgan Stanley)have made the term "housing bubble" almost household. Jim Cramer, of Mad Money on CNBC, won't touch the mortgage stocks!

Rubino was in the early crowd and how appropriate, since Rubino was one of the people who predicted a tech stock bust when others were saying "tech stocks never go down". Yeah, right! How is Nasdaq doing these days???

Just so you don't believe this book was written by some boob making an extra buck on a 'conspiracy theory', John Rubino has the credentials (as if the above paragraph wasn't enough proof). John was a Wall Street Financial Analyst and a regular contributor to thestreet.com as well as Individual Investor, Ziff Davis/Smart Business, Online Investor and Consumer Digest. He now writes for Fidelity, Kiplinger's Personal Finance and CFA Magazine. Not too shabby!

So, this is a guy who has been in the trenches, not some dimestore critic on Amazon.com!

Since reading the book, I've done a little research myself. It's shocking. 1/4 of all homes purchased are investment properties and a large percentage of those were purchased through home equity loans on the first property.

Also, look at some of the creative lending practices going on, if that doesn't convince you that we are staring at a very real bubble with horrific ramifications, I don't know what will.

We have a propensity to believe in what we want to, rather than looking at facts and common sense. Common sense should tell you that the price increases on the coasts are way out of line.

If you are thinking of buying a house today or in the future, or if you are thinking of selling your house, then you need to equip yourself with this knowledge. Believe me, you will be happy that you spent the small change to understand what is happening in the housing market.

I highly recommend this book as well as Rubino's book with James Turk, The Coming Collapse of the Dollar, which sheds some light on where the markets and the US are headed. It's really almost a part two to this book!

I very rarely give my stamp of approval on Amazon.com's books (I am a writer myself) but these books are invaluable to your investment book collection!!!

While I generally agree with his eye balling method on the Debt/GDP ratio, his analysis only tells one side of the story. As a licensed accountant myself, I will tell you that numbers alone only tell one side of the story, the other side is what makes up those numbers. Yes the debt ratio was greatest around the 60's, then GDP started to pickup, but after 1985, the pattern reversed again but is still better than the 60's, thus making Mr. Wilson's argument very convincing. Yet we must not be too complacent, the underlying reasons for the debt ratios still need to be investigated.

There are two kinds of debts: good debt and bad debt. Good debts are usually tax deductible, they are usually debt incurred for the purposes of generating future revenue for the debtors; bad debts are usually not tax deductible, such as consumer debts on credit cards etc.

Any astute observer can tell you that a large percentage of debt in the 21 century can be attributable to two sources: mortgage debt and consumer debt. I don't know about you but my parents and relatives don't have credit cards in the 60's and they bought their vehicles with cash, not financed. This suggests to me that the debts in the 60's were of a highest quality debt meaning they were created for good causes, i.e., business/investment ventures for example. In fact, a good argument can be made based on this observation, because the data shows the standard of living improved beginning in the early 70 to about 1985 then debt started to pickup again. Only this time, the majority of debts were attributed to consumer debts and real estate speculation. This alone should be the cause of concern.

I am not saying Mr. Wilson's analysis was incorrect. I am saying that based on the graph alone, there is not sufficient evidence to prove the null hypothesis that the standard of living in the 21-century is better than the 60's.