http://sg.news.yahoo.com/why-property-market-busts-happen-085048214.html
The above article talks about what causes property booms and busts. According to the author, the bigger cause is demand and supply of money, not the same for property. When demand rises faster than supply for money, interest rates creep up, choking off borrowing for investing. It causes forced selling of properties at a later stage. I believe that is one factor for predicting real estate cycles. But demand and supply of real estate is just as big a factor. Imagine a city that produces 40,000 jobs per year. Each household comprises 3 people. The total demand will be 40,000 homes. But what if 80,000 were built? There would have been 40,000 empty homes and sellers will have to lower their prices drastically to compete with those owning excess housing.
Next, if you're trading stocks using margin, or trading stocks via CFDs, how much leverage should you take? My advice is to leverage no more than 80%. This meant 4x leverage. The more "amateurish" you are, the less you should leverage. Why is that so? let's assume that you are able to exit most stocks using trend following methods within 5% from the top. A 5% drop with a 4x leverage means a 25% drop in your capital. But what if there is a "flash crash" within hours? The biggest observed single day drop in S&P500 is a 15% drop. If you leveraged 4x, your capital would have fallen by 75%. You would have survived to fight another day. If you had leveraged 85%, a similar crash seen in 1987 would have totally wiped you out. The more you leverage, the more you need to trade because you cannot afford big drawdowns. Transaction costs will eat into your return. Your job is to assess the trade offs between getting bigger gains from leverage and increased transaction costs.
Finally, I know I wrote about selling off gold and silver. But I reverted to buying gold / silver on 6 Nov. Since then, silver has risen by 5%. I took a big position and got paid off! Stock markets may be turning positive again. Stand by!
