The Worst Asset Class to Own During the Collapse

from The Wealth Watchman

Discerning the Times

 

“It was the best of times, it was the worst of times”…

Those truly immortal words from Charles Dickens’ story, “A Tale of Two Cities”, are timeless.  When I was young, I wondered what on earth those lines even meant, but believe me, I don’t wonder any longer.

As I’ve all grown older, I’ve come to realize that those lines can apply to almost any age you could live in.  In every single generation, there are those who are primped, oblivious, wicked, or simply living in a fake, bubble world.  While alongside those awful types, are the very honest and righteous among us, who are fighting for a better world, or just the hope of seeing a little justice before our time on earth is up…

That’s why the words recently spoken in a Bloomberg article are such a troubling sign that many uber-wealthy elites, even many ‘insiders’, like everyone else in our time, simply don’t have a clue…

Investment in Ego

Yes, this article recently demonstrated that having wealth does not guarantee either foresight or intelligence.  On the contrary, it confirms that the newest fad for the uber-wealthy(buying “Ultra-luxury homes”) is a perfect symbol for the utter decadence and irredeemable narcissism of our age.

For you see, not only are these coveted, $100+ million dollar homes more in vogue than ever, by the financial elites, they are considered a safe and rock-solid, anti-bubble asset!

“Holy cow!  $100 million bucks for a house?!  Who, in their right mind, would pay that?!”

Plenty, believe it or not.  Lest you doubt the verity of that statement, take a look at a few houses that have actually found buyers for over sums that large:

This house, the Copper Beech Farm, recently sold for $120 million dollars in Connecticut.

 

Source: Christie’s International Realty

 

Or how about this 35,000 square foot, palatial residence, out in Beverly Hills, with its own vineyards, and listed for an unbelievable $195 million dollars?

 

Marc Angeles, Coldwell Banker via Bloomberg

Marc Angeles, Coldwell Banker via Bloomberg

Now, brothers, if you’re looking at all this and thinking:

These folks are sinking billions in homes at new all-time highs?  Didn’t they learn anything from the last housing bubble whatsoever?

Then don’t feel bad, as you’ve got more street smarts than many billionaires on this point, at least. It doesn’t matter what country these elites seem to be from either, as “caution” and “discretion” don’t even seem to register in their language’s vocabulary.  In fact, when one of these property moguls was asked in the Bloomberg article, about the danger of there being another bubble, this is what he said:

“The fact that asking and sales prices for ultra-luxury properties are reaching new heights isn’t a sign of problems in the broader market and shouldn’t raise concerns that last decade’s housing bubble will be repeated, Conn said.

“I think of this market as fundamentally different from the rest of the market,” Conn said in an interview Thursday on Bloomberg Television’s “Market Makers.” “In order to buy one of these properties, you have to be in the billionaires club.”

Sooooo, this gent thinks that these buildings(which can only be afforded roughly by a few thousand folks on earth) will sustain their elevated values indefinitely?  And he circularly bases that belief on the notion that the great wealth of “the billionaires’ club” will always shield them, and their peers from experiencing losses like everyone else experiences?

What could possibly go wrong?!

That’s not all though!  If you thought this sort of hubris took the cake, then wait til you hear the reason given by this man, as to why such homes are highly-prized right now by the elites(from the same article):

“People want trophy homes,” Eyal Ofer, a Monaco-based shipping and real estate magnate, said in interview earlier this week at the Milken Institute Global Conference in Beverly Hills, California. “They’re a scarce commodity. And they’re better than gold because you can boast about it.

And just like that, with one painfully-honest statement, you have the entirety of our age, wrapped up snugly, in a single soundbyte.  The “value” to such people isn’t even about the money, because, they’ve already got “all the money”.  The perceived, greatest value is solely to be found in how much one can puff themselves up over it.  

2008’s Victims

The truth about billionaires though, is that they’re normal people, just like you and I.  Not only are they not immune to losses, they can lose wealth with the best of them.  If you trust wealth to be your ‘high tower’, your wealth will fail you, and 2008 is a stark reminder of that truth.

Just consider these few billionaires beneath, who didn’t see the 2008 financial crisis on the horizon, and lost vast sums because of it:

Bjorgolfur Gudmundsson: who made a fortune as a shareholder of Iceland’s largest bank, Landsbanki, filed for bankruptcy in 2009, is now literally broke and penniless.

Sean Quinn: or how about Irish property Mogul, Sean Quinn, who at one point was worth over $6 billion dollars?  He’d been flying high, until morning he woke up to find that the property bust had wrecked Anglo-Irish bank, which he’d placed much of his fortune into.  He went from $6 billion, to being forced to file for bankruptcy, which he only recently was discharged from.

There are dozens of cases, just like these ones, from the last financial fall-out alone.  The point is: wealth is not a constant in this life, it is truly “easy come, easy go”. Nothing is more fickle than monetary success.  

The Unspoken Danger

When liquidity was revoked in 2008, the banks all seized up, lending stopped, and housing values(including most “ultra-luxury” properties) collapsed.

Statements like the one in the Bloomberg article, are proof that many of the uber-wealthy in our time, have already forgotten the invaluable lesson that 2008 should’ve enshrined for everyone.

They’re still not asking the tough questions that common sense should demand of them.  Questions like:

“Have the problems, excesses, and debts of the system been fixed since 2008?”

“If not, what will happen the next time there is a liquidity event?”

“Without easy credit, and endless, central bank money flowing from the spigots…where would interest rates really be?”

“If those interest rates wouldn’t be 3 or 4%, on a 30 year loan, but rather 10% to 15%(or higher), what would my “trophy home” be worth on the open market?”

To be sure, these questions alone should make someone think twice before sinking that kind of wealth into such an asset….but remember this crucial point:

In the next economic event, when the banking system locks up, credit is gone, and the cash stops(or is ‘bailed-in’)…the crisis won’t merely be a banking crisis, but a sovereign, currency crisis….international in scope.

Because this is true, the most important question for those wealthy individuals should be this:

What will the literally penniless, rage-filled masses do when they come across a property like the one I just bought?

Remember Dickens’ account of the French Revolution?  The masses had become so angry at the wealthy among them, that they actually began to systematically kill off an entire class of people.

For those who think the sort of societal unrest we’re now seeing in Ferguson, Missouri, or Baltimore, Maryland, are “one off” events, which will quickly blow over….you are sorely mistaken.

Ferguson and Baltimore are the dress rehearsal, folks…..the main event hasn’t even begun yet.

Remember 50 million people in the US(roughly equal to entire nation of Spain) are only barely getting by due to things like food stamps, and EBT/SNAP programs.

I remember vividly, getting a picture of just how bad things will be when the system ends.  Two years ago, in my hometown, there was a “glitch” in the EBT/Snap account system….and the EBT cards stopped working…

Guess how long it took for the looting to begin at the local Wal-Mart?

1 hour.

Within 1 hour, folks had gone from being angry, to being looters.  They literally walked into the store, in droves, not waiting for the system to even come back up, and began loading up on goods, and walking out of the store with them.

As they did so, they said things like, “They owe us,” and “These are ours.”

All sense of morality and decency was gone, instantly….all that mattered was grabbing what they could get, before someone else did the same.

Brothers, the EBT system failed for just a few hours that day, and the looting had already become widespread…so let me ask you this:

What on earth will happen when the EBT system goes down…..and never comes back up?

People are going to lose their minds.  They’ll be livid, they’ll be fearful, and make no mistake….when they start roaming for places to loot….and they see $100+ million homes dotting the landscape….

What do you think they will do?

What happened during the French Revolution, that Dickens wrote about?

Let me be clear: that Revolution was a wicked & bloody calamity, which only made things 10 times worse in France.  The reason that’s true, is that the people had undergone deprivation and injustice for so long, without any relief in sight, that when they snapped, they snapped hard.  The wealthy aristocrats there had to literally flee for their lives, many fled to England.

This time though, the problems will be global and instantaneous.  Where will the uber-rich flee to then?  How important in that moment, will it have been to have a “trophy home”, that you could brag about?  Homes like that will be the ultimate target, and the ultimate liability to anyone dumb enough to own them.

Conclusion

Sadly, I don’t think I’ve ever seen a world that is more ripe for another catastrophic French-type Revolution scenario.  The entire world seems a monstrous tinderbox, just waiting for a spark.  Some places are worse in this regard than others, and the US seems one of the most extremely ripe cases.

We’ve pretended for far too long that everything’s hunky dory with the American experiment, the truth is far uglier than that, and deep beneath the surface, troubling tensions have never been higher in my lifetime.  From economic tension, to social tensions, from racial tensions, to political tensions….things which have simmered for decades, are now starting to come to a boil.

When that boiling pot spills over, it will tragically set many things aflame in our world(whether those things were part of the problem or not).  When that moment comes, I guarantee that folks who bought such homes simply to brag about them, will suddenly wish that nobody knew who they were.

I promise you this: these people boasting about their yachts or their mansions are making a most historic and tragic miscalculation:

Now is not the time to boast about your 9 figure mansion, now is the time….to survive.

Mob justice is never justice at all.  However, mobs don’t care about what is civilized, they don’t care if you truly are part of the problem or not….that’s why they’re mobs!  The only thing that matters to mobs are the perceptions they hold, whether true or not….And there are fewer, tangible(and sometimes, apt!) targets for those kinds of mobs in our world…..than $100 million dollar “trophy homes”.

This time though, will be different than 2008  This time when system goes down, no one will step in to save it.  This time most banks will close their doors for good, and the few who don’t will likely bail-in all those “bullet-proof” folks, who trusted in their riches to save them.

At that point, anyone who wore such wealth on their sleeve, will not simply be in danger of losing their fortunes, but perhaps even their lives.

My one piece of advice to those still looking to buy such properties, is this:

Be sure to ask if your newest trophy has a proper moat and drawbridge listed in its amenities.

I have a feeling you’re gonna need em’!

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