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Weiss' Warning: a Housing Bubble

11/01/2002 12:00 am EST


Martin Weiss

Chairman, Weiss Research, Inc.

In previous years, some of the most crowded events at Money Shows have been panels focused on more aggressive growth stocks and high-tech issues. In a clear sign of the times, the conservative Dr. Martin Weiss, whose Safe Money Report focuses on capital preservation, spoke before standing room only crowds. Martin now foresees a bubble in real estate and recommends a safe-haven portfolio.

Says Martin Weiss, “If the great tech bubble of the 1990s taught us anything, it should have taught us that all bubbles eventually burst. Nevertheless, millions of Americans are now investing in another bubble – real estate. Do not let low interest rates or tales of ballooning real estate values lure you in.

“We have isolated three phases of a real estate boom. In phase one a stock market crash forces corporations to cancel expansion plans and commercial real estate collapses. Just in the last year, sales of office buildings nationwide have plunged a whopping 58%. In phase two ailing companies lay off workers and mortgage defaults rise. This is also already happening as the rate of unemployment has jumped by a third in the last year. As a result, we are now witnessing the worst mortgage delinquency rate in 30 years, the worst foreclosure rate on home mortgages in 52 years, and the largest number of foreclosures of all time.

“Phase three has not happened yet. This is the phase in which residential real estate collapses like a house of cards. Two powerful factors, plunging consumer confidence and a glut of new homes on the market, are pushing real estate markets closer to the cliff. Meanwhile, the cumulative value of all residential real estate in America is now estimated at around $23 trillion – more than double the $8.6 trillion market of all NYSE stocks. When this real estate bubble bursts, all hell is going to break loose.

“What should you do? Strongly consider selling vacation and/or investment real estate. These areas will be hit first and hardest. If you are considering a purchase, wait. Do not assume more debt than you can afford. Sell all banking and construction stocks. Sell all REITs. Maintain a conservative, 'safe haven' portfolio. We recommend that 60% of your assets be invested in three-month T-bills or Treasury-only money funds. Another 20% of your assets should be in three- to five-year Treasury notes. An additional 10% can be invested in Enerplus Resources (ERF NYSE). New investors should buy at 17-1/2 or better. Finally, we suggest a 10% position in gold mining shares. The five stocks that make up our gold position are Royal Gold (RGLD NASDAQ), Newmont Mining (NEM NYSE), Agnico-Eagle Mines (AEM NYSE), Durban Rooderpoort Deep (DROOY NASDAQ), and Glamis Gold (GLG NYSE).”

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