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

If you are just looking at this thread for the first time, and are the general "layperson" most of us are, I suggest you might want to read the first half (125 pages) to get a relatively complete and coherent high level discussion of the possibility a bubble exists. After you do that there are lots of web resources that have more detailed & up to date facts & arguements. It's a pretty easy read -- too easy, if anything, it does not go nearly far enough in depth for my tastes (but then again I am a systems analyst by profession). I personally think this book is mostly worthless, indeed possibly even dangerous in its advice, for the purposes the title claims (how to make money on the bubble popping), but the description of the arguments to for trying to do so are a bit 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 sugggest current housing prices are unsustainable. The arguments are not very complexly constructed, 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 off collctive debt), you will 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, I repeat that this is still the best overall attemtpt 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). 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 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 figur out how to translate this concern into concrete action for my own personal finances.

It is estimated that only 80% of the necessary housing is being built to accommodate the large numbers of people moving into Southern California. For every 3 jobs created in Orange County, California only one housing unit is built. This has driven many OC workers into homes in surrounding areas like Long Beach and Riverside, which has driven prices up in these areas. Many building companies are wary of overbuilding so they are constraining supply. Local governments make more money from commercial real estate, so they have had strong incentives to provide more permits for commercial rather than residential real estate, which has contributed to current housing shortages. An increase in interest rates may temporarily dampen the housing market but as more people enter the rental markets already sky-high rents will go higher driving even more people back into the housing market. I don't see any decline in Southern California housing for a long time. As a result, I don't believe that there will be a housing bust anytime soon to benefit from.

Real estate is local, so you can't judge what may happen in Illinois based on what is happening in Arkansas, which is why I am only discussing my local market. The rule of thumb is that housing increases an average of 6% a year. Some housing markets can go into decline and remain in decline for years. However, these are generally areas that are/were dependent on one industry or one company as an employer. This book is interesting in many respects but I don't feel that his premise applies where I live.

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.