When You See the Cops Coming, a Bubble Is About to Burst

The crowd was about to riot…

Dozens of shoppers were lined up outside the doors waiting to buy the hottest fad in the country.

In no time, they began jockeying for position. There was a mad rush to the front.

The crowd got so unruly that employees called the cops to keep the crowd out of the building.

No, this wasn’t a mob scene outside of Wal-Mart or Target on Black Friday. And the shoppers weren’t fighting over the next Beanie Baby or Furby.

The scene was the office of a Toronto condo developer on April 30, 2017.

And the crowd was fighting to put money down on a condo more than two years away from completion.

(You can watch the full madness in this video clip.)

Folks, this is what a bubble looks like…

When people line up around the block to buy something, the end is near.

We saw this in 2005 during the Miami real estate craze. People waited hours to buy pricey condos in paradise. Two years later, condo prices plummeted about 50%.

At The Palm Beach Daily, we hate losing money. And buying at the top of a bubble is a surefire way to go broke.

Here’s why…

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The Greater Fool Theory

Markets have experienced manias for centuries. The first recorded one was the tulip bulb craze in 1636. Yes, tulip bulbs.

In 1980, people lined up to buy and sell gold and silver. The craze lasted for weeks. Two years later, gold was down 65% and silver was down 90%.

Some of the most famous manias have been over toys…

  • In 1996, people fought over Tickle Me Elmo dolls.
  • In 1998, people stampeded stores to buy Furbies. 
  • In 1999, there was the Beanie Baby craze.

Chart

Shoppers vie for the last Furby at a toy store

All these crazes had one thing in common: They operated on the greater fool theory.

Whether it was tulips, condos, or Beanie Babies, people thought there would be someone out there who’d pay more than they did for something. Eventually, you run out of fools.

And we’re going to see that in the Toronto real estate market.

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The Fear of Missing Out

As we told you at the end of March, Toronto real estate was up 22% in 2016. The year before, it was up 15%. And price gains are accelerating.

The latest numbers show Toronto real estate is up 30% from this time last year. Look at the chart below to see how prices really started increasing in 2016.

Chart

This price appreciation is causing FOMO (fear of missing out).

Those who haven’t bought real estate see people getting rich. Sitting on the sidelines becomes painful. Eventually, they jump in… at exactly the wrong time.

Just like those waiting to buy Miami condos or Furbies, everyone standing in that line in Toronto will lose money in a couple of years because they’re buying at the top.

Massive lines are a sign of a mania. All manias lead to busts. Avoid them.

Regards,

Nick Rokke, CFA
Analyst, The Palm Beach Daily

P.S. Tomorrow we’ll show you how the Canadian mortgage crisis is almost an exact replay of the U.S. housing crisis. Now, a special chart watch from my colleague Chris Lowe, editor-at-large for Bonner & Partners…

CHART WATCH

By Chris Lowe, editor-at-large, Bonner & Partners

Today’s chart reveals a shocking collapse of work for men in America.

It shows the labor force participation rate of working-age American men (between 25 and 54 years old) going back to 1965.

The lower the rate, the more people there are who have exited the labor force altogether—folks with no jobs who are no longer even looking for work.

Chart

As you can see, it’s been a remarkably steady decline over the last roughly half-century.

As of last year, about 12% of prime working-age men had left the workforce.

That’s an army of about 7 million American men who have completely dropped out of the system.

—Chris Lowe

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MAILBAG

Cryptocurrencies continue to be our most popular topic. More feedback on the fast-growing asset for Palm Beach Confidential editor Teeka Tiwari…

From Robin D.: I feel I have been deceived. When I subscribed to The Palm Beach Letter, I was assured I would be getting Teeka’s cryptocurrency research and updates. Now I understand that to get that information I also have to buy Palm Beach Confidential. This is a classic bait and switch. I’m angry.

Teeka’s Reply: First things first, I want to apologize for any confusion. The Palm Beach Letter and Palm Beach Confidential are two very different services.

In The Palm Beach Letter, I focus on ideas that are usually income-driven and very safe.

The mission at PBL is to help subscribers grow their nest egg safely. Occasionally, I will recommend what I call a “smart speculation.” These are ideas that are highly speculative but have tremendous upside.

Cryptocurrencies are a perfect example of smart speculations. I’ve only made four such recommendations in PBL, and they are up 1,001.8%, 220.7%, 85.8%, and 319.4% respectively.

In my other service, Palm Beach Confidential, we have a very different approach. We only focus on smart speculations. In that service, we’re always looking for homeruns.

That means the risk profile in Palm Beach Confidential is completely different from that in The Palm Beach Letter.

The other issue is that many of the ideas I recommend in Palm Beach Confidential are too small to bring to the 79,000 readers we have at The Palm Beach Letter.

There isn’t enough liquidity in some of these smaller names to absorb that much buying pressure.

However, since I love the crypto idea so much, I wanted to introduce it to our greater readership.

And in fact, some of these cryptocurrencies have grown big enough that we feel comfortable recommending them to PBL subscribers as smart speculations.

As this trend continues, we expect to add more smart speculations to the PBL portfolio. In the meantime, if you’re interested in getting in sooner, for a bit more risk, you can learn how to join Palm Beach Confidential below.

From Josh L.: I just wanted to say thanks for the great work on cryptos. I finally opened an account with Abra and purchased one bitcoin and some of your recommendations. You are doing a great job.

IN CASE YOU MISSED IT…

Palm Beach Confidential editor Teeka Tiwari has traveled over 30,000 miles and met with bitcoin millionaires, venture capitalists, and industry insiders for a reason—to find the most explosive cryptocurrencies in the world.

Some of his picks have already shot up 281.8%, 286.4%, and 896.9%… with plenty of room left to run higher.

For the first time, Teeka’s revealing his system for picking these cryptocurrency winners.

And he’s so confident his system can make you money, he’s guaranteeing that you’ll have the chance to make 1,000% gains off his cryptocurrency picks over the next year

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