CORPORATE APARTMENT, BALTIMORE – Apartment prices in China just got marked down 25%. Is this the pin that pops the Chinese bubble?
I think it might be… (More below.)
Living Like Squatters
Greetings from Baltimore!
Two years ago my family and I left what you might call a “conventional divorced living situation.”
Kate and I lived in separate apartments with new partners, and we passed the kids back and forth on the weekends like every other divorced couple.
But in the fall of 2018, we cast off into the Unknown together to become traveling squatters.
With nothing but a suitcase and a couple of iPhones to guide us, we circled the globe, floating from town to town, living in whatever cheap accommodation we could find. Along the way, we educated our children in hotel rooms…
Living like this restored our relationship. Kate and I are permanently unifying the family by getting re-married later this year.
Second, we found it to be a much simpler, less stressful way to live. The only thing we had to worry about was where we would sleep, how we were going to get there, and what we would eat. By spending most of our time in countries with devalued currencies like Vietnam, Egypt, India, and Turkey, we cut our cost of living in half.
Finally, we’re giving the kids an excellent education.
We always assumed we’d return to a “conventional living situation” once the trip was over, but we’ve changed our minds. We’re going to continue living as squatters for another year.
We leave Baltimore this weekend and head to Nicaragua. We’ll spend two weeks in Nicaragua, then a week in Florida with Kate’s parents. (I haven’t seen them since we split up about five years ago.) Then we’ll travel to Argentina.
Homeschool Misconceptions
My father is staying with us for a few days. He hasn’t spent time with us in two-and-a-half years.
“I’m really impressed by your homeschool,” he said. “The kids are learning so much every day. And they seem to love learning.
“It’s like they’re studying because they want to and not because you’re making them. They’re so polite and nice to talk to. And they know so much about the different cultures of the world. You guys are doing a great job.”
One of the big misconceptions people have about our homeschool is that Kate and I teach the kids. We don’t. We just supervise them.
Books and YouTube videos (explaining science, history, human skills, etc.) are their teachers. We just provide the environment and keep them on the right path. Then we discuss what they learn. With a subject like, say, mathematics, we make them practice the techniques they’re learning.
Here’s Kate and Penny participating in a free program for kids at the Walters Art Museum this past weekend…
Kate, Penny, and friend at a museum program
One thing that’s missing from our homeschool is friends for the kids. Our kids are sociable and talkative. They’d love some buddies to play with on a regular basis.
Perhaps the kids can find a soccer team or a scout troop to join when we’re in Argentina next month?
China’s Construction Madness
Turning back to China… We spent two months there last year.
The one thing about China I’ll never forget is how much construction there was. Especially condo towers. They were building thousands of them.
We saw them whenever we traveled by train. Dozens were going up in every little town we went through. We could spot them by the empty concrete shells, the blue construction wrappers around the tops of the buildings, and the cranes on the roofs.
From my crude observations, there might have been 100,000 new condo towers under construction across China when we were there last year.
We saw concrete shells and construction cranes everywhere we went
I met with the owners of a real estate consultancy firm in Beijing last fall to ask them about this. They told me in Chinese culture, property is considered the ultimate way for a family to preserve wealth. It’s been this way for centuries. It’s so important, in some cases men cannot get married unless they own a property.
They also told me property prices have soared. In some cities, prices have risen 20x since 2003. One of our friends there told us her apartment in Xi’an had doubled in price in the last three years.
These two factors – strong demand and rising prices – resulted in the incredible construction boom we were witnessing.
The problem is, prices had gotten so high and the supply of new apartments was so great, transactions had started to dry up and prices had started to fall. The owners of the consultancy told me that in Beijing (China’s flagship property market), prices had fallen about 15% in the last two years.
Recession Coming?
Property development represents 25% of China’s domestic economic output, when you include all the upstream activity that makes development possible.
It’s part of the reason China imports 65% of the world’s iron ore, 53% of the world’s copper, and 47% of the world’s steel.
It’s even more important to the prosperity and wealth of the person on the street. If Chinese property prices go into a long decline, domestic Chinese consumption will crash hard.
Yesterday came news that China Evergrande, one of the largest condo developers in China, has announced a 25% price cut on every apartment it’s currently building in China. (That’s 811 projects.)
“Many developers are being hobbled by plunging sales, shrunken cash flow, and, most importantly, loan repayments piling up,” says the South China Morning Post. “More developers will follow Evergrande’s lead.”
Is recession coming to China? We’ll see…
– Tom Dyson
P.S. This is not a good time to be an investor. There are too many dangerous imbalances around us. You want to be sitting on the sidelines in gold right now.
The Dow-to-Gold ratio – my favorite way of representing this numerically – is at 18.25. My strategy remains the same. Sell stocks. Buy gold.
Like what you’re reading? Send your thoughts to [email protected].
FROM THE MAILBAG
Readers turn to gold… homeschooling kids… and making time for family…
Reader comment: Oh my goodness! You’re writing a wonderful, interesting story but stopping in the middle of the cliff hanger drives me nuts. Hurry up and post the rest.
Reader comment: Your notes jumped out at me. I lost a 30-year-old son in 2013. Not a day goes by that I don’t wish we had gone on a camping trip. We did not understand his condition until he passed.
I just want to say always be truthful with family and friends. The help they can offer will be the way to make it through. Remember that you are valuable, unique, loved, and your life on this earth will be awesome. Your children deserve to have you in their lives.
Tom, keep up your great financial work, but most of all, take time to take care of Tom.
Reader comment: I enjoy reading your Postcards everyday. I have taken your advice and started buying gold coins (Vienna Philharmonics). I also started buying small amounts of storage food.
Reader comment: Greetings from Richmond, Virginia! I love reading your Postcards and have invested some of my net worth in gold. Thank you so much for sharing your journey. Please make sure that your dear Penny is fine. Wishing your family and you all the best for continued health and success!
Reader comment: “Stocks Won’t Win This Time” is a keeper article for me. The best ongoing education would be to create this graph of stocks versus gold 10-year returns and monitor into the future. However, I’m not smart enough to understand how to do that. Can you walk your readers through this process of how to go about creating the graph?
Tom’s response: It’s a tricky one to recreate. Each year, you need to calculate the annualized total return of the S&P 500 and gold over the previous 10 years.
For example, over the last 10 years (2010-2019) gold returned 3.3% per year. The S&P 500 returned 13.3% per year, with dividends reinvested. So the S&P 500 beat gold by 10%. That’s the most recent bar, for 2010.
Next you have to figure out the bar for 2011… On January 1, 2021, repeat the calculation for 2011-2020. See which one won: gold or the S&P 500. That’ll be our bar for 2011.
Now repeat this calculation each time a new year passes… This way we get a 10-year rolling performance of gold versus the S&P 500. That gives us a clearer image of the big picture than the annual fluctuations do.
My overall hypothesis is that stock market valuations drive the stocks/gold cycle. (On the chart, the stocks/gold cycle is the relationship between the thin blue line and the red bars.) If this is correct, gold will start outperforming stocks (on this 10-year basis) in the next few years. Then it’ll keep outperforming it for a few more years after that… perhaps by a lot.
Anyway, this chart is central to our strategy. I’ll keep updating it and publishing it in these Postcards.
Reader comment: I have been reading your travels for a while now and sincerely enjoy them. I wish you and your family the very best in the future! All of my grandchildren and children were schooled at home.
I know that you will enjoy Argentina. We are American citizens that own estancias in Argentina. If you ever need anything while you’re there, we have a general manager who can take care of any of your situations.
Tom’s note: As always, thanks to everyone who wrote in! Please keep your questions and comments coming at [email protected]. Kate and I read every note you send us.