Courtesy of John Rubino.
Pretend for a minute that you’re a member in good standing of the 1%, with a net worth in the tens of millions of dollars. You aren’t deeply involved in the management of this money, but your financial advisers are heavy hitters and they’ve diversified you appropriately. You’ve got equity stakes in most major and several minor markets. You own three or four trophy properties including a flat in a hot section of London. You also have the obligatory pieces of mid-range “fine art” and, for stability, a generous helping of US, European and Japanese government bonds.
For the past few years you’ve felt extremely smart. Your stocks and bonds went up while your real estate and art surged, giving you millions in new paper profits with every quarterly report.
But something happened towards the end of 2015. Your emerging-market funds went down and your developed-world equities stopped rising. And a couple of hedge funds in which you’ve invested reported losses rather than their customary gains.
Nothing to worry about, said your advisers. When one asset class like equities takes a breather, others like real estate and art go up to compensate. Money, after all, has to go somewhere.
But now it’s 2016 and your stocks are cratering (the papers say it’s the worst start to a year ever), with the oil companies whose dividends you were assured were rock-solid standing out among the losers. Looking for a little reassurance, you pick up a Wall Street Journal and the first thing you see is:
Red-Hot Property Markets Cool as Rich Investors Retrench
Demand for high-end homes in London, New York slows as market turmoil hits global investors.
Boom times for London’s high-end housing market are over. Deal volume for prime-central London has dropped as much as 40% from a year ago.
LONDON—In August 2014, when the housing market here was on a tear, a two-bedroom condominium in one of the most expensive neighborhoods went up for sale at £3.25 million ($4.64 million), a 67% premium to its purchase price six months earlier.
The redbrick home on Cadogan Gardens in Knightsbridge is still unsold, and expectations have been revised. The price has been cut three times, the latest at the start of this year, to £2.5 million.
“It’s a great property,” said Sam Spring, a sales broker at the Chelsea office of estate agency Faron Sutaria, of the 1,250-square-foot home with dark walnut floors and high-end appliances. “It’s just a very price-sensitive market these days.”
In London’s priciest neighborhoods, the housing boom is over.
In New York, demand for high-end homes cooled last year, brokers said. In Miami, South American and European buyers could pull back this year due to a stronger dollar, and prices are expected to fall in Hong Kong, Singapore and Paris, Knight Frank said. Swiss lender UBS Group AG said in October that housing markets in Sydney, Vancouver, San Francisco and Amsterdam appear “significantly overvalued.”
Luxury housing in London became one of the world’s hottest assets. But “the frenzy is gone completely,” said Manish Chande, senior partner at U.K. real-estate firm Clearbell Capital LLC. About 18 months ago “everything was going like hot cakes. Today it’s the total opposite,” Mr. Chande said.
Transaction volumes at the top end of the London market were as much as 40% lower in December from a year earlier, according to U.K. buying agent Property Vision, and inventories of prime properties are mounting. The standoff between buyers and sellers resulted in 2,712 homes over £1 million for sale in prime central London at the end of November, 81% more than in January 2014, according to buying adviser Huntly Hooper Ltd. The difference between initial asking prices and average sales prices in prime central London was at a record 19% in the three months to November, Huntly Hooper data show. The disparity was 9% in the same period last year.
Last year, just a quarter of the 34 homes put up for sale on Cadogan Gardens sold, and almost half were taken off the market, according to Nathaniel Wilde, head of the Sloane Square office for estate agent Hamptons International. On Eaton Place in neighboring Belgravia, home to billionaires and diplomats, only a quarter of the around 50 homes offered were sold, he said.
It was a “tough year on that patch,” Mr. Wilde said. “Lots of homes are still sitting there.”
As you read this you’re running numbers, calculating losses, and projecting current trends into the near future. Buyers of London penthouses also buy fine art, don’t they, so if they can’t afford the first can they keep bidding up the latter? Probably not. And will laid-off bankers and underwater trophy property owners have to sell their stocks to make ends meet, sending equity prices down even further?
Then you turn the page to find:
Investing in 2016: ‘The Only Winning Move Is Not to Play the Game’
The world’s central banks can’t save us anymore.That was the message from some of the world’s most prominent investors at the World Economic Forum in Davos, Switzerland, on Friday.
Their mood here was irritated, bordering on affronted, with what they say has been central-bank intervention that has gone on too long. From this anecdotal sampling, at least, that has created growing distortions in nearly all asset prices—from stocks to bonds to real estate.
Each was resistant to putting on fresh positions and expected asset prices to head downward. In short, they say, the only winning move is not to play the game.
“The trade now is to hold as much cash as possible,” said Nikhil Srinivasan, chief investment officer for Generali, a European insurer with $480 billion in assets. “Equity markets could go down 15% to 20%.”
And you think, okay then. It’s time to stop playing the game. Come Monday you’ll tell your people to sell some stocks. No, a lot of stocks. Cash may yield next to nothing, but at least it won’t go the way of Petrobras or Glencore.
