When dominoes begin to fall – OWTW

🇹🇷  COLD HOT TURKEY

Earlier this year, in the Insider Newsletter we highlighted a corner of the market that was left for dead by investors. Namely, Turkish stocks.

As we said at the time, after a decade-long bear market, the Turkish stock market declined some 60% — even more dramatic when you consider the S&P 500 was up about 200% during that period.

And what do you know…

Turkish stocks really took off this year. They are up 73% (while the S&P 500 is down nearly 20%).

Sadly, we can’t trade Turkish stocks (as Interactive Brokers account holders).

Otherwise, we would’ve stuffed our faces with them as many Turkish stocks were sexier than a wet T-shirt contest for Playboy at the time. For instance, we highlighted a highly profitable — and dirt cheap — commodities company to our Insider Newsletter readers.

Ah, the ones that get away…

❓  WHAT’S UP WITH GOLD?

Gold is on the move.

Since November, old man gold looks like he just found out about viagra.

For now, though, it appears gold is simply reacting to the weakness in USD, which we think is simply taking a breather.

Having said that, as loss of faith in all our “hallowed” institutions, “experts,” and assorted pointy shoes accelerates, it’s hard not to see gold take off.

The “problem” is we just don’t know when that is.

So what to do, then? For us, we have a modest position in precious metals that we can always ratchet it higher if need be. Granted, we’ll probably miss out on some of those initial gains. But we’re not going to pretend we’re smarter than we are and try to “time the market.”

🤷  ALL THINGS TRANSITORY…

Feels like a lifetime ago, when — back in February 2020 — we started warning that lockdowns will bring about inflation and shortages. Fast forward to today, and this pesky stuff is now part of our daily lives. We recently set up a dedicated inflation channel in our Insider private forum, where members can share their own experiences with all things “transitory”.

Insider member Stefan shared an insight into what appears to be a rapidly deteriorating UK housing market:

Just had a conversation with someone I know. They work for one of the largest new home builders in the UK. Early this year they had buyers on waiting lists for the houses. They said in the past month or two, 1 in 3 house sales have pulled out of the deals.

Another member, Sean, added:

My sisters house is up for sale and they haven’t had any views for two months

We’ll share some thoughts on real estate in a moment. But first, a gem from the land down under, courtesy of member Anissa, who sent this in from Sydney.

Fancy a cold drink? No problem. But it’ll cost you extra.

🏠  WHEN REAL ESTATE DOMINOES BEGIN TO FALL…

Okay, real estate…

In last week’s Insider Newsletter issue, we shared our thoughts on what the next 12 months will look like for one of the most bubbly property markets on the planet — Australia.

But really, you can probably apply the same framework to any Western real estate market. Matter of fact, based on what you’ve just read about the UK housing market, the UK appears to be in Step 1 right now.

Anyhow, here’s how we think it all goes down:

Step 1: We’ll see volume dry up. Many folks will mistakenly believe that they just need to “sit it out.” Wait and “things will get back to “normal.” They won’t, but anyway, that’s the first step.

Step 2: Those rolling fixed-term debt will roll it from about 2.5% to something exceeding 5%.

That’ll hurt. No more $5 cappuccinos and as for that Netflix subscription, poof, gone. So there will be ramifications for multiple businesses well beyond the real estate market. Think discretionary consumer spending. You don’t want any of that isht in your portfolio.

Step 3: Then, within a few months, sales will come through at substantial discounts, setting new price levels. Many will close their eyes and tell themselves they just have to wait it out. “It’ll come back. It always does.” Remember, the vast majority of folks haven’t the foggiest idea how bond markets function and as such will just be relying on ringing local real estate agents in order to be “informed.”

This won’t work because real estate agents, for the most part, are just as clueless. They are aware of price signals, but couldn’t tell you why the yield curve inversion is a terrible sign for the economy and what this means for mortgage rates.

So in essence, folks will be fumbling about hoping for some miracle. Meanwhile, some won’t be able to. Wait, that is. Cappuccino fasting, not being enough. Hence the new prices being set.

Step 4: All the abnormal gains made in the pandemic (free money does that) will rapidly be given back and the real results of the lockdowns will now be felt. Namely, diminished balance sheets of corporations, who now are dealing with a multitude of issues. Supply chain inflation, waning demand (credit driven consumerism being the final stages of a crack up boom), intensifying stagflation, and rising input costs.

All of this will be tossed into the cauldron, only to have rising interest rates sprinkled on top, further biting into disposable income, which wasn’t too hot before.

In essence, it promises to be a (stagflationary) shitshow.

👕 IT GETS WORSE

And on that note…

It Gets Worse Shirt

Check out all our merch here.

Have a great week ahead!

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