Hereby I will prove how the realty boomers arguments are false.

What are the boomers arguments?

1.) Buy today, houses always increase in value in the long run.
WRONG. House prices cannot increase more than incomes in the long run. This is obvious if you think about it. If house prices go up more than people can afford to pay, buying stops, like it has stopped now.
Even Warren Buffett have pointed out that houses don't increase in intrinsic value. Unless there's a bubble or a crash, house prices simply reflect current salaries and interest rates. If a house is 100 years old, it's value in sheltering you is exactly the same as it was 100 years ago. Then came the maintenance as the house didn't renovate itself. It also has taxes, and insurance - costs that always increase and never go away. The price of the house went up about as much as salaries went up.
To put this is simple perspective, vegetable were costing Rs.5-6/kg when 5 digit salary was a rarity.
Today, the prices have gone up by about 4 times but so have the salaries. So, sounds very much like the reasoning people use now when they talk about how much their father's house appreciated "in the long run" without considering that salaries rose a proportional amount.

2.) Renting is just wastage of money.
WRONG. As said before renting is now much cheaper per month than owning. If you don't rent, you either:

* Have a mortgage, in which case you are throwing away money on interest, tax, insurance, maintenance, costs that increase forever.
* Own outright, in which case you are throwing away the extra income you could get by converting your house to cash, investing in bonds, and renting a similar place to live for much less money. This extra income is sufficient for emergency expenses,retirement etc.

Either way, owners lose much more money every month than renters and that's assuming prices don't correct to very high level & everything is smooth in the economy.

3.) As a renter, you won't have any money left as you will spend them on vacations,cars & hence won't have equity/savings etc.
WRONG. Equity is just money. Renters are actually in a better position to build equity/savings through investing in anything but housing. Renters can get rich much faster than owners, just by investing in conservative stocks & bonds.

* Owners are losing every month by paying much more for interest than they would pay for rent. The tax deduction does not come close to making owing competitive with renting.
* Owners must pay taxes simply to own a house. That is not true of stocks, bonds, or any other asset that can build equity/savings. Only houses are such a guaranteed drain on cash.
* Owners must insure a house, but not most other investments.
* Owners must pay to repair a house, but not a stock or a bond.
* Owners lose their money as house prices reduce. The EMI's remain constant in spite of reduction in rates. At the end of loan tenure, they would have paid almost twice than that of current renters who will buy at logical rates. Keep interest rates in mind. Most of the EMI is not principal amount but interest.

4.) There are great tax advantages to owning a house.
WRONG. Many people believe you can just reduce your income tax by the amount you pay in interest, but they are wrong. Buyers may not deduct interest from income tax; they deduct interest from taxable income. And even then, the tax advantage is not significant compared to the large monthly loss from owning.

If you don't own a house but want to live in one, your choice is to rent a house or rent money to buy a house. To rent money is to take out a loan. A mortgage is a money-rental agreement. House renters take no risk at all, but money-renting owners take on the huge risk of falling house prices, as well as all the costs of repairs, insurance, property taxes, etc.

5.) RE is based on local factors, it's not a national phenomenon. RE of Delhi-NCR,Bangalore & rest of the cities has nothing to do with Pune RE.
WRONG. Lending rates remain the same throughout the country. ALL loans are harder to get. This will drive prices down everywhere.

6.) A rental house provides good income. So, you can rent if you have purchased as investment.
WRONG. Rental houses provide very poor income in hyped areas and certainly cannot cover mortgage payments. Remember there is almost 300% difference between EMIs & rent for the same house.

It's pointless to do the work of being a landlord if you can make more money with no risk, no work, and no state income tax by investing in assured good returns bond.

7.) If owning is a loss in monthly cash flow, but appreciation will make up for it.
WRONG. Appreciation is negative. Prices are going down. It only adds to the injury of already high EMI's.

8.) As soon as prices drop a little, the number of buyers on the sidelines willing to jump back in increases.
WRONG. There are very few buyers left, and those who do want to buy will be limited by increasing difficulty of borrowing now that many house owners are near bankrupt as they don't save anything at the end of the month due to high EMI's.
No one has to buy, but there will be more and more people who have no choice but to sell as their payments rise. That will keep driving prices downward for a long time.

9.) House prices never fall atleast in Pune.
WRONG. If you see the RE scenario of 1996, prices crashed by 50% & took a whole 7+ years to recover.
Exact 1996 scenario may not be there today but strong correction is inevitable across the city.

10.) House prices don't fall to zero like stock prices, so it's safer to invest in real estate.
WRONG. House prices won't be zero, but the equity or the principal amount you paid can be zero or even negative. What you will pay as EMIs later in actual terms is not for the principal amount but only the interest as house prices dip. So, you will be only serving the bank.

11.) Prices will soften gradually, won't crash immediately.
WRONG. Prices are falling off a cliff. No one knows exactly what will happen, but it looks like prices will continue to fall for long time. These are just more manipulation of buyer emotions, to get them to buy even while prices are falling.

12.) The bubble prices were driven by supply and demand alone.
WRONG. Prices were driven by low interest rates and risky loans & good returns for investors in initial phases of boom in 2004-05.
Prices went up, interest rates went up & buyers savings went down. So prices are violating the most basic assumptions about supply and demand.

13.) There is lack of land.
WRONG. Ample of land is available & continue to be even in future in Pune. Sales volume are down. Even in Japan (small country with less land), prices went down. Current prices here are the same as that of 23 years ago. If we really had a housing shortage, there would not be so many vacant rentals.

14.) If you don't own, you'll live in a cheap neighborhood later.
WRONG. For the any given monthly payment, you can rent a much better house than you can buy. Renters live better, not worse. There are downsides to renting, such as being told to move at the end of your lease, or having your rent raised, but since there are thousands of vacant rentals, you can take your pick and be quite happy renting during the crash. There are similar but worse problems for owners anyway, such as being fired and losing your house, or having your interest rate and property taxes adjust upward. Remember, property taxes are forever.

15.) There's always someone predicting a real estate crash.
TRUE, yet irrelevant. There are very real crashes every decade or so. Even a broken clock is right twice a day.

16.) Local incomes justify the high prices.
WRONG. The mortgage should be more than your 3 years earning. It is much higher today. Most are already in danger/red zone.

17.) You have to live somewhere.
CORRECT. But that doesn't mean you should waste your life savings on a bad investment. You can live in a better house for much less money by renting during the down slide in RE.

18.) It's not a house, it's a home.
WRONG. Wherever one lives in it is home, be it apartment, condo, bungalow , mansion or house. Calling a house a "home" is a manipulation of your emotions for profit.

19.) If you don't buy now, you'll never get another chance.
WRONG. History proves otherwise.
Here's a beautiful quote from a analyst:-
"The real issue isn't whether you will be stuck being a renter all your life, she says. Its whether you'll get so scared about being shut out that you'll buy at the market's peak and be stuck in a property you can't afford or sell."

20.) It would take major economic recession or a major earthquake that wipes out this area in order for the price to fall by over 50%.
WRONG. Even today, if the prices fall by 50%, there will still be very few people who can buy at this levels due to uncertainty in jobs & most importantly high EMIs. Also, look at the rental rates for equivalent houses. Which loss per month is larger? EMI or rent?

contd....
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  • Roof can always be rented

    Originally Posted by Ninja_Chacha
    To diversify one's investment in different basket is probably the best idea to mitigate the loss of investment in case of any particular area of investment not doing well...no denying that...

    But the dilemma of the guys started earning from last 6-8 years cannot follow this approach... Given the crazy prices in RE and high inflation, If one is owning RE then he will not be able to save any considerable amount in other investments...And if one is investing in various baskets then eventually he/she have to consolidate and put it all in RE...everybody needs a roof over his head... sooner or later!!!


    Friend,

    I have my own roof over someone else's head. Its an old roof and not too good!

    I rent and have a far better roof over my head. Once can rent all his life and have some real great roofs over his head. These 2 are not correlated and this is an old Indian myth centuries back from when people did not rent!

    Times have changed and so must we! :)

    cheers
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  • Originally Posted by wiseman
    I remember the time I put in 80k into the market (regular stocks, not any great multibaggers) in 1989 and thanks to Harshad, by early 1992 it ws in excess of 8L.

    These kinds of bull runs happen every 5-6 years. Doing such things in multiple bull runs has made it much much bigger. Even after putting money in real bad stocks once in a while, one can invest in stocks (regular bluechips) and in 10-15 years see much more than the 30L being discussed.

    So, its not THAT impossible!

    cheers


    Harhad days are long past..10 fold return in 3 years is probably a once in a life time happening..bull runs do happen these days as well..not to the extent seen in the early 90s..i'm for investing in blue chip companies..but you cannot have all your investments in stocks either..just as you can't put all your eggs in the RE basket..I have bought stocks myself through the IPO route, normal purchase route and made good profit on those investments...I don't see myself putting a significant amount (anything in excess of 5 lakhs) in stocks though..
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  • Nothing ventured, nothing gained

    Originally Posted by AnkitS
    Harhad days are long past..10 fold return in 3 years is probably a once in a life time happening..bull runs do happen these days as well..not to the extent seen in the early 90s..i'm for investing in blue chip companies..but you cannot have all your investments in stocks either..just as you can't put all your eggs in the RE basket..I have bought stocks myself through the IPO route, normal purchase route and made good profit on those investments...I don't see myself putting a significant amount (anything in excess of 5 lakhs) in stocks though..


    5 lakhs is not a small amount. I could show you ways to multiply this around 50% pa through some astute trading (nothing fancy, just some basic charting techniques and common sense).

    But stocks are perhaps the best way to build wealth, if only one would spend some time to learn and some time to profit from the swings.

    Btw, Harshad days may not really be gone in the sense of opportunities. Those were early, amateurish days where one made money only upwards. Today money in stocks (and stock derivatives) can be made in many ways and with returns far in excess of what Harshad days gave us! :)

    cheers
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  • These kinds of bull runs happen every 5-6 years. Doing such things in multiple bull runs has made it much much bigger. -- wisey

    I see. Oh ok. Same like what is happening in RE. After all there are parallels between the Stocks and RE. So from 2009 brief slump price have doubled in many areas. Now better part in RE is that you only invest a part of the money (rest wil be funded by bank and cost of carry will be equal tot the interest payment). So instead of investing 5L and then discussing like invested crores in stocks with unending theories , a silent bull end up in investing 10L (rest 40L from bank) and then see money grow 6 times in 3 years :D (50L to 100L minus 40L) to . And the fun part is the lender/bank does not gain anything from the appreciation (but again neither from depreciation). Think this is better way of putting in perspective of stock traders and how they have been left in dust by bulls.


    Buying property at realistic rates with reasonable leverage is what the Bears are propogating. How do you think many of them got rich, anyway? -- wisey

    Oh ok. So you are assuming all bears are rich. Let us go with this for time being. We have digested bigger things in past :).


    Bears don't outright ridicule RE of today! -- wisey

    Man how many years you can bury head in the sand? Answer is 3 years :D . At last seeing softening of stance from bears for first time. So foolish. In 2009 it was better to have this soft stance and rather today you could harden it up (like 2009). 2009 stance was like "only buy if you want to court disaster .... no jobs ... companies not dogin well ...". See tonne sof threads and some sticky ones as well :).

    the over-leveraged genuine buyer is sure to see significant pain when this rise tapers off and he's left stuck with a property that is a huge burden on his finances and which he can't even get rid off. This happens when you enter at the tail-end of a spculative bubble -- wisey

    So how does one decide
    1) Its a bubble
    2) Its fag end of it (subject to (1) being assuuummmeddd true :D)

    If one would have gone with bearish advice for last three years , would have been repenting since then. The net effect being bears prevented many people from riding the no brainer bull wave.

    Harhad days are long past..10 fold return in 3 years is probably a once in a life time happening..bull runs do happen these days as well - ankitS

    well said. But one cannot rule out the same but again would be foolish to keep waiting for one as well (as it may never happen). Just like bears kept predicting that "peak of bubble has arrived" ... since 2009 (sound like some product advt now like ... since 1952 aapki seva mein ... dabur:))

    I have my own roof over someone else's head. Its an old roof and not too good! -- wisey

    Renting is not a bad option. Its better to rent that over leverage. But if its in your means thatz it read again ... "renting is NOT A BAD option ..".
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  • Originally Posted by compuwalah
    These kinds of bull runs happen every 5-6 years. Doing such things in multiple bull runs has made it much much bigger. -- wisey

    I see. Oh ok. Same like what is happening in RE. After all there are parallels between the Stocks and RE. So from 2009 brief slump price have doubled in many areas. Now better part in RE is that you only invest a part of the money (rest wil be funded by bank and cost of carry will be equal tot the interest payment). So instead of investing 5L and then discussing like invested crores in stocks with unending theories , a silent bull end up in investing 10L (rest 40L from bank) and then see money grow 6 times in 3 years :D (50L to 100L minus 40L) to . And the fun part is the lender/bank does not gain anything from the appreciation (but again neither from depreciation). Think this is better way of putting in perspective of stock traders and how they have been left in dust by bulls.


    Buying property at realistic rates with reasonable leverage is what the Bears are propogating. How do you think many of them got rich, anyway? -- wisey

    Oh ok. So you are assuming all bears are rich. Let us go with this for time being. We have digested bigger things in past :).


    Bears don't outright ridicule RE of today! -- wisey

    Man how many years you can bury head in the sand? Answer is 3 years :D . At last seeing softening of stance from bears for first time. So foolish. In 2009 it was better to have this soft stance and rather today you could harden it up (like 2009). 2009 stance was like "only buy if you want to court disaster .... no jobs ... companies not dogin well ...". See tonne sof threads and some sticky ones as well :).

    the over-leveraged genuine buyer is sure to see significant pain when this rise tapers off and he's left stuck with a property that is a huge burden on his finances and which he can't even get rid off. This happens when you enter at the tail-end of a spculative bubble -- wisey

    So how does one decide
    1) Its a bubble
    2) Its fag end of it (subject to (1) being assuuummmeddd true :D)

    If one would have gone with bearish advice for last three years , would have been repenting since then. The net effect being bears prevented many people from riding the no brainer bull wave.

    Harhad days are long past..10 fold return in 3 years is probably a once in a life time happening..bull runs do happen these days as well - ankitS

    well said. But one cannot rule out the same but again would be foolish to keep waiting for one as well (as it may never happen). Just like bears kept predicting that "peak of bubble has arrived" ... since 2009 (sound like some product advt now like ... since 1952 aapki seva mein ... dabur:))

    I have my own roof over someone else's head. Its an old roof and not too good! -- wisey

    Renting is not a bad option. Its better to rent that over leverage. But if its in your means thatz it read again ... "renting is NOT A BAD option ..".


    Last time builder and economy was bailed out by Govt. but now govt. themselves are in trouble.

    Who is going to bail out sovereigns now?
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  • Originally Posted by abeerbagul
    For past 1 year, mutual funds such as HDFC Equity (G), IDFC Premier Equity (G) have given more than 20%.
    Please check data on moneycontrol.com for mutual funds.

    While criticizing RE, people quote the worst performers. And for glorifying MFs, you are showing the best performers, that too in a short span of last 1 year.

    I have also done MF investments (ELSS), and recommend them for a long term. But one should bear in mind that no fund in the world can guarantee index beating returns. The top performers keep changing every year. In RE, at least you can get an idea about future prospects of an area. But in MF, you can't do anything. Sometimes the fund manager changes and so do the fortunes of the fund.
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  • Originally Posted by wiseman
    I think you need to understand the bear message a little more correctly.

    First of all, remember, some of the bears have made tons of money in many avenues of investment (including RE) and therefore are talking with all-round experience (something the bulls of today may not really have - mainly because they have only seen the bull run in RE from 2002/3/4/5)!

    What they want to say exactly is how many like expat are putting it. If a majority of people are jumping in as investors - never mind the price, anyway I'm going to dump it on margin after 6 months - and therefore driving price to unrealistic and unsustainable levels, however much the perceived "demand", the over-leveraged genuine buyer is sure to see significant pain when this rise tapers off and he's left stuck with a property that is a huge burden on his finances and which he can't even get rid off. This happens when you enter at the tail-end of a spculative bubble (like so many people are learning all over the world, including China.

    Buying property at realistic rates with reasonable leverage is what the Bears are propogating. How do you think many of them got rich, anyway? :D

    cheers


    You are assuming that the bulls on IREF have less experience than the bears. Or that all the bulls have made or seen money only during the 21st century bull. The only person we know about for sure on these forums is ourselves. So let us not pay too much attention to what people claim about themselves. I do not do any profiling of the person I communicate with. If we play the game fairly, it is not even needed. It is not difficult to mutter words like midcap, metals, derivatives, shorting, leverage, bail out and what not. It takes 10 minutes to pull out plethora of articles on how the US bubble went burst, how the Japanese market went down a spiral and then super simplify the world by stating that India will follow one of these.

    "price to unrealistic and unsustainable levels": I am yet to find a way to know if prices have reached this level. One who claim to know this, should be sportsman enough to accept failure when things go exactly opposite to his prediction. The bears here claim that prices are at this level ever since I got RE conscious. Despite almost 100% price appreciation in 3 years, they stick to their guns that have backfired. Excuses can always be made (like Digvijay Sing thought that Congress would get majority in UP, and when it actually got 1/5th of that figure, he suddenly found that the party structure in the state was weak) Had what they forecast actually happened, my God, they would have skinned us alive.

    Will any bear tell

    1. RE of which areas in Pune is realistically priced?

    2. If none, then RE of which cities in India is realistically priced?

    3. If none, then RE of India in which year was realistically priced?

    Cheers :)
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  • Good and right question fatichar. Answers to these will get is the baseline on which all bear arguments stand.
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  • Originally Posted by wiseman
    5 lakhs is not a small amount. I could show you ways to multiply this around 50% pa through some astute trading (nothing fancy, just some basic charting techniques and common sense).

    But stocks are perhaps the best way to build wealth, if only one would spend some time to learn and some time to profit from the swings.

    Btw, Harshad days may not really be gone in the sense of opportunities. Those were early, amateurish days where one made money only upwards. Today money in stocks (and stock derivatives) can be made in many ways and with returns far in excess of what Harshad days gave us! :)

    cheers


    Slight correction to your statement:
    Today money in stocks (and stock derivatives) can be made OR LOST in many ways...." :D
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  • Originally Posted by wiseman
    Friend,

    I have my own roof over someone else's head. Its an old roof and not too good!

    I rent and have a far better roof over my head. Once can rent all his life and have some real great roofs over his head. These 2 are not correlated and this is an old Indian myth centuries back from when people did not rent!

    Times have changed and so must we! :)

    cheers


    Thats a personal choice wiseman...might be working for you...

    Again, I am saying the same thing what you are saying...I can always rent and lead a comfortable life...or else I can buy now and have a conservative savings...a tough choice to make...

    Aspiring to have a roof over your head and also want to have a decent savings is not a myth...its a goal for me...working and inching towards it...
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  • The best predicter of a fall in RE prices is here - after 3 long years, Wiseman is (at least according to the one line picked out by Compu) becoming a soft bear !!!!!

    When Wiseman becomes a full fledged bull for RE - maybe then would be the time to sell and run for the exit, because when the last bear is converted to bull - that is when the bull run ends.

    Anyone who thinks we havent had a bull run in RE in the last 3 years doesnt even know what a bull run is.

    In every bull run, a wall of worries is climbed by the bears - who get converted one by one.

    When the last bear climbs on to the bull bandwagon - that is when the bull run ends, because there are no more fools left to sell to.

    And the great bear market will start.

    We are still waiting for Realacres to climb on the bull bandwagon - the day he throws in the towel, market will finally crash !!!
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  • Originally Posted by compuwalah
    These kinds of bull runs happen every 5-6 years. Doing such things in multiple bull runs has made it much much bigger. -- wisey

    ..".


    Compu,

    The really seasoned guys do not disclose their holdings OR returns on this forum.

    I know a guy (and now his methods), who has made well over 1000% last year on Stocks and Derivatives. Something you can only dream of in RE (unless you are Vadra and married DeamGirl!).

    This year he will almost certainly surpass this performance. And he is not playing with small money.

    So, as I said, lets not get too sarcastic when targeting people who might be just a little too rich for us!

    And I have bought RE during the depths of 2002 recession and also seen gains. Let me assure you that my stock (and recently options) gains have been far more.

    cheers
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  • Originally Posted by Venkytalks
    The best predicter of a fall in RE prices is here - after 3 long years, Wiseman is (at least according to the one line picked out by Compu) becoming a soft bear !!!!!

    When Wiseman becomes a full fledged bull for RE - maybe then would be the time to sell and run for the exit, because when the last bear is converted to bull - that is when the bull run ends.

    Anyone who thinks we havent had a bull run in RE in the last 3 years doesnt even know what a bull run is.

    In every bull run, a wall of worries is climbed by the bears - who get converted one by one.

    When the last bear climbs on to the bull bandwagon - that is when the bull run ends, because there are no more fools left to sell to.

    And the great bear market will start.

    We are still waiting for Realacres to climb on the bull bandwagon - the day he throws in the towel, market will finally crash !!!


    OMG ... Need to put trace on wisey's comments going forward :).
    So when wisey says RE is good , that is the time to exit RE. :D
    Mods !! Is there some kind of alert service as I sometime do not login on the forum for days.
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  • Originally Posted by wiseman
    Compu,

    The really seasoned guys do not disclose their holdings OR returns on this forum.

    I know a guy (and now his methods), who has made well over 1000% last year on Stocks and Derivatives. Something you can only dream of in RE (unless you are Vadra and married DeamGirl!).


    I am happy for him that his stars are good. BTW how many time he lost 2000% before gaining this 1000 % ?

    Originally Posted by wiseman


    And I have bought RE during the depths of 2002 recession and also seen gains. Let me assure you that my stock (and recently options) gains have been far more.

    cheers


    Just curious of its in percentage terms or in absolute terms ? Again happy that stars have been smiling at you.

    RE loans being funded largely by loans, your exposure is limited but upside is good (has been marvellous for past few years).
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  • I used to think that we had 3 yrs before the Indian RE bubble bursts and this was based on the way the credit crisis which originated in the US in 2007-08 has been spreading across the world. Euro has felt it for the last 2 yrs but China, Australia, India, Brazil and Canada havent felt that much of an effect yet and so the next places the crisis was going to spread were these areas.

    The oil rich nations are still humming along nicely (except Dubai which is not oil rich).

    But the last few months have made me change my mind. I think we are going to see RE prices go up for another 5 yrs atleast. This serious problems to Indian RE at this stage are a slowdown in IT, crazy bank lending, political instability, border issues with China, Oil prices rising too fast and causing a rupee collapse.

    I think we have seen the worst of the Euro crisis and a full blown Euro crisis is not possible anytime soon. Italian elections, german election and spanish problems are all manageable by having summits and more +ve statements from ECB.

    Falling oil prices are going to provide a boost to the world economy in general and India in particular. So over the next 5 yrs I am long rupee, long RE, short gold, short commodities and long stocks. This one single factor can cancel out a lot of pain that has been built up in the system due to the credit crisis. Energy supply is going to up at a very nice pace over the next 5 yrs (solar, wind, shale oil, shale gas, iraq, canada oil sands, synthetic oil etc)

    China will show it has achieved a soft landing (dont trust data coming from China but the market is going to have to reply on it and with fear generally going down they wont be bothered) and this will save Australia and Canada.

    Euro has seen a lot of pain and its time for a bounce back. Chinese export growth will slow down but internal consumption will provide the necessary boost.

    India will see nice growth with lower interest rates and govts more focused on reform.

    We will see a correction in the market over the next 3 months but would not suggest to anyone to dump stock in favor of gold or commodities. Pick up those crap stocks which go up the most in a bull rally and you should be fine.
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