Are we in a bubble?  What a question.  Its been asked for centuries and no one seems to get the right answer……until after the bubble bursts.  Economic bubbles occur naturally in many business cycles and across all industries….that’s just how it is.  But, when you are in one its easy not to see it, or even worse, think that it will get even bigger or, worse yet, think that the bubble is here to stay because of some new technology or paradigm shift.  Well that’s all foo foo.

The fabled Tulip bubble of the early 1600’s in Holland is often used metaphorically to refer to various economic bubbles when trying to describe the extreme market pricing associated with very basic goods or services that otherwise have a much lower intrinsic value.   But before the Tulip bubble there was the economic bubble that gripped Spain from 1492-1592, as the result of tons of precious metals being brought into the country from the “New World”, causing wild economic growth and run away inflation…which led to the end of the world-wide-web of the Spanish Empire.  The bursting of both these bubbles led to century long problems for these countries.   Spain has been effectively insignificant for the last 500 years and is bankrupt today.  The Dutch have not been heard from in 400 years.  SO, YES, BUBBLES EXIST and can cause serious damage even to those that have not participated in creating the bubble.

Was the technology bubble leading up to the new millennium a thing?  Did it burst?  Was the housing bubble created from 2002-2009 real?  Did it burst.  Chris Bounds, Austin, Texas says bubbles exist and they all burst.  Being aware you are in one is complicated and forces you to set emotion/ greed aside and be logical.

The entire US economy is in a bubble according to Chris Bounds, Austin, Texas and worse yet, there are geographic bubbles within the Macro-Bubble.  Some markets in the US are in a very basic, garden variety bubble while others are in hyper-bubbles within the overall bubble.  The Nashville, Tampa and Austin markets are just three examples of real-estate related bubbles in very defined geographic areas.

So, without providing investment advice, Mr. Bounds’ current opinion of real-estate related projects is that if you are involved  in one of the hyper-growth areas of the US you should:

1.  Know your exit strategy.  Write it down and date it and then re-read it monthly.

2.  Keep some powder dry.  Be ready for a pull back or a problem.

3.  Be able to move quickly given extreme news….good or bad.

4.  Make sure your partners, investors, lenders, vendors etc, have staying power and wont panic.

5.  Don’t be greedy.  Really….Don’t be greedy.

6. Be thrifty starting TODAY.   Just get real lean right now.

7.  Start pricing your inventory/ services/products down on a regular basis.  Increase required downs.  Pre Credit qualify sales when you can.

8.  Don’t believe anything that anyone says at any time unless you can document it.  The internet or some financial rag is not a source of information upon which to base logical decisions unless you have vetted it yourself.

9.  Look up and read stories about otherwise fine developments and companies that did not survive the last downturn….particularly in markets such as Miami, Phoenix and Las Vegas.

10.   Be honest with YOURSELF!  You will know you are in a bubble when you catch yourself saying ” You won’t believe what I sold that unit for today…some rich dumb ass just overpaid by 50% for that thing and now I am buying a new BMW”

 

Terry Christopher Bounds

Austin, Texas