THE FORGOTTEN BUBBLE (July 28, 2026): I have discussed numerous assets which reached bubble status during the past year and which have entered what will become some of the most severe bear markets ever recorded. Cryptocurrencies reached all-time highs less than one year ago, including Bitcoin on October 6, 2025 and Ethereum earlier on August 24, 2025, with nearly all cryptocurrencies since declining by half or more from their peaks. High-yield corporate bonds mostly topped out in the early autumn of 2025 or the early winter of 2026 or both, with many of them sporting all-time low spreads relative to U.S. Treasuries of equivalent maturities. Most commodity producers and emerging-market securities achieved multi-decade zeniths during the first quarter of 2026 and have been forming several or more lower highs, not coincidentally around the same time that the U.S. dollar index touched a four-year bottom of 95.551 on January 27, 2026 and which has since begun a powerful bull market. I expect the U.S. dollar index to reach its highest point since 1985 within a few years.
We can endlessly debate whether or not U.S. stocks have or have not yet begun bear markets, and which sectors are more vulnerable than others. In general, the biggest winners of recent years have been among the most recent percentage losers, partly since those gains had far outpaced earnings and thus left many large-cap and other trendy U.S. stocks at their most elevated levels in the history of any global stock market.
What is discussed far less frequently is that real estate in many parts of the world, including the U.S. and Canada, reached all-time overpricings in real terms. Just as stocks can be compared with earnings to determine whether they are underpriced or overpriced, real estate in any neighborhood can be compared with the average household income in that neighborhood. While many U.S. residents remember the real-estate bubble of 2005-2006 when prices climbed to roughly double their average historic levels, we quietly reached even more elevated overall valuations in the first quarter of 2022. Since then, U.S. prices in real terms have been mostly flat. Thus, residential U.S. housing is vulnerable to a drop of roughly half in real terms. Of course this percentage will end up varying considerably from top to bottom depending upon which part of the country you are looking at, just as it had done from 2005-2006 through 2010-2012.
Any price that is far too low or too high relative to fair value must eventually trade near fair value--with real estate just as with stocks, bonds, and all other assets.
MOST PEOPLE COULD NOT AFFORD TO BUY THEIR OWN HOUSES: I had a friend who was one of the few people to publicly state in 2005 and 2006 that U.S. housing prices would have to fall by about one third overall, which was just about exactly their nationwide average decline from 2005-2006 to 2010-2012 if you don't adjust for inflation. Sadly he passed away in 2006 just before his forecast was set to be proven true. He pointed out to me that he wouldn't have been able to afford to purchase his own home if he had to buy it at the price it was supposedly worth near the end of 2005. That comment stayed in my mind over the next several years. U.S. housing prices today, adjusted for inflation, are more overpriced now than they had been at their 2005-2006 highs with a few exceptions for those cities where housing prices had been especially elevated two decades ago. Here is the proof from the U.S. Federal Reserve which has been maintaining meticulous records:
CANADA HOUSING REACHED TRIPLE FAIR VALUE INSTEAD OF DOUBLE: The media have had all kinds of explanations about why housing prices in Toronto, Vancouver, and some other Canadian cities overall had far surpassed their ratios to household incomes that they have seen during the past several years in the United States. Since February 2022, when both Canadian and U.S. housing prices had mostly peaked in real terms, prices overall for homes in Canada have also declined far more significantly. A simple explanation is that U.S. residents experienced housing prices dropping an average of one third (not adjusting for inflation) from their 2005-2006 peaks to their 2010-2012 bottoms, while in Canada the average pullback was less than 10%. Therefore, people in Canada mostly concluded that Canadian housing prices "couldn't go down." I actually heard a large number of Canadians stating this belief. It is similar to the way that prices for the most popular big U.S. stocks have recently become so overpriced, largely since it has been such a long time since U.S. stock prices had suffered substantial percentage losses. Extreme overconfidence or extreme lack of confidence will almost always lead to unusually overvalued or undervalued price levels respectively.
U.S. HOUSING PRICES FALL TO HISTORIC LOWS EVERY 18 YEARS: I looked back at those times when U.S. housing prices ranged from moderately inexpensive to absurdly cheap. If we go backward from the present, we see that the last bottom for U.S. residential real estate on average had been in 2011. Prior to that, there were even lower lows in inflation-adjusted terms in 1993, while some of the lowest levels since 1950 occurred in the year 1975. It is interesting to observe that these bottoms were separated by 18 years. Continuing the 18-year pattern going backward, 1957 was not as depressed as 1993 or 1975; 1939 and 1903 were both notably undervalued; 1921 was the lowest point in history for U.S. residential real estate when you adjust for inflation. For purposes of this research, I used many of the charts and data compiled by the early and revised editions by Case and Shiller dating back to 1890 that are summarized here:
If we now extrapolate forward then we may conclude that 2029 is the next year in the 18-year cycle of bottoms and is only three years away. Since the year 2029 corresponds with similar potential lows for many other assets including popular U.S. stocks and high-yield corporate bonds, and perhaps other assets such as cryptocurrencies, it fits the pattern of previous bottoms. Notice the correspondence between U.S. stock bear-market bottoms and U.S. real estate being depressed; 1921 was one of the lowest points in history for the U.S. stock market, as was 1939, while U.S. stocks had been especially depressed in December 1974 which of course is very close to 1975.
THERE WILL BE VARIATIONS FROM CITY TO CITY DURING HOUSING'S BEAR MARKET: From their 2005-2006 peaks to their 2010-2012 bottoms, there were wide regional variations in the percentage losses for U.S. residential real estate. In many cities in Ohio, Arizona, Nevada, and Florida, prices fell by roughly two thirds if you don't adjust for inflation which is roughly double the nationwide average over that time period. I have studied this phenomenon to determine if there was any way to know in advance which neighborhoods would experience the largest percentage losses. It would be useful to know that the most overvalued real estate fell by the most, or that prices had dropped the most where there was the highest level of overbuilding, or that there was some other repeatable pattern, but unfortunately I couldn't find any consistent behavior. It will probably be the case that the current decline will similarly feature greater or lesser regional losses than the nationwide average, just as it has already done in Canada where Toronto real estate has so far retreated substantially more than Montreal real estate.
In places where real estate fell by more than the nationwide average during its 2006-2011 bear market, it was often much more than the average rather than modestly more. Partly this could be due to the fact that if a family has purchased a house with a modest down payment and its price has fallen by 15% or 20%, then that family will probably conclude that prices will rebound eventually and will keep making all necessary mortgage and other payments. However, if prices are down 40% or 45% and the remaining mortgage balance is considerably higher than the current value of the property, then the chance of that family deciding to stop making payments and default, eventually probably being foreclosed and evicted, is many times greater. A higher rate of default also tends to lead to a surge in the inventory of properties for sale in any given area, thus adding to supply relative to demand and often depressing prices further especially in the short run. This problem could be exacerbated with the dramatic rise in the percentage of properties worldwide which are owned by investors rather than being owner-occupied. Investors have no emotional attachment to anything, whereas owners occupying their own homes are much more likely to hold onto their properties into multi-year adversity.
THE NEARLY SIDEWAYS MOVE IN U.S. REAL ESTATE IN REAL TERMS SINCE FEBRUARY 2022 IS PROBABLY MOSTLY DUE TO THE VERY STRONG PERFORMANCE OF U.S. LARGE-CAP INDEX FUNDS: Probably the main reason that U.S. housing prices in inflation-adjusted terms have been nearly exactly flat for the past 4-1/2 years is that a buoyant U.S. stock market has made it very easy to borrow money and to sustain the illusion that assets of all kinds will keep indefinitely rising in price. As a result, fewer people so far have sold their houses out of a need to raise money or out of concern that falling prices for stocks and high-yield corporate bonds could spread to residential real estate.
THE INVENTORY OF NEW U.S. HOUSES HAS SOARED TO ITS HIGHEST POINT SINCE 2009, WITH LIMITED MEDIA COVERAGE: Have you read the headlines about the inventory of new U.S. housing climbing to its most elevated point since 2009, which was 17 years ago? I thought not. While this is an important story and has ample supporting data from reliable sources, it doesn't fit the media's narrative about an alleged "permanent shortage" of U.S. residential housing. In early 2022 we actually had a real inventory shortage which by some measures was the lowest on record since the start of the baby boom around 1950, when hardly any homes had been built since the 1920s due to the Great Depression and very depressed prices for houses and many other assets, thereby making it uneconomic to build throughout the 1930s and 1940s.
I don't usually go to Crypto Briefing to get information about U.S. housing prices, but they ran a valuable article on this topic at the end of June which was passed over by most of the mainstream media:
THE INVENTORY OF EXISTING U.S. HOUSES HAS RISEN, BUT REMAINS WELL BELOW THE DISTRESSED LEVELS OF 2009-2012: If I walk around where I live, there are a lot more houses for sale now as there had been four years ago, although there are far fewer houses for sale than I remember from 2009-2012. As the above article stated, the inventory of existing [just as for Treasuries, people don't like the word "used"] homes is a much more modest 4.5 months of supply. I expect existing home inventory to first rise sharply before the biggest percentage losses occur for U.S. residential real estate.
Just as a multi-decade low for housing inventory led to record prices in both 2005 and 2022, multi-decade highs for inventory are consistently followed by dramatically lower housing prices. A few years ago the Covid crisis and stay-at-home popularity led to multi-decade inventory highs for office building rental space, which not surprisingly soon led to a nationwide decline of about half for office rents. I have no doubt that after housing prices fall by large percentages and the inventory of existing homes becomes much greater, the media will mention how "obvious" it was that prices would have to drop due to the record inventory that they have so far refused to report. The media are expert at telling you anything after it is too late to benefit from it.
U.S. LONG-DATED TIPS HAVE BECOME UNUSUALLY COMPELLING FOR PURCHASE: In other financial developments, long-dated U.S. Treasuries continued to form higher lows, while long-dated U.S. Tips yielded over 2.99% fixed during part of last week, meaning that when you add a CPI rate of 3% then you get a 6% total return. This return will fluctuate with the CPI for the next three decades, but even if there is deflation you will get 2.99% guaranteed with this yield free of state and local income taxes.
Here is a very recent article explaining the little-appreciated advantages of Tips whenever they are especially undervalued:
The end of the above article states an important point about the internet bubble in 2000 which applies even more strongly to the AI bubble in 2026:
In the decade from June 2000, the Vanguard Inflation-Protected Securities Fund VIPSX doubled your money, while the S&P 500 SPX lost you 15% - before inflation.
MARGIN DEBT REACHED 1.5 TRILLION U.S. DOLLARS, FAR EXCEEDING PREVIOUS TOPS EVEN IF YOU ADJUST GENEROUSLY FOR INFLATION:
S&P 500 PRICE-TO-SALES ON JUNE 5, 2026 FAR EXCEEDED COMPARABLE DATA FOR ALL GLOBAL STOCK MARKET TOPS EVER RECORDED:
INVESTORS ARE WILLING TO ACCEPT CORPORATE BOND YIELDS THAT ARE FAR TOO LOW RELATIVE TO GUARANTEED U.S. TREASURIES:
Disclosure of current holdings:
Below is my current asset allocation as of 4:00 p.m. on Tuesday, July 28, 2026. Each position is listed as its percentage of my total liquid net worth. The long positions should add up to just about exactly 100%, while the short positions all use U.S. Treasury bills as collateral since those count as 99% cash.
As recently as last week, I added to TLT, PSQ, EDV, and LTPZ, in addition to purchasing the TIPS which mature on February 15, 2053 with cusip 912810TP3, whenever each of these was at or near a multi-decade low. TLT is heavily shorted, pays just about exactly 5% in annualized dividends, and has been forming marginally higher lows since it had touched 81.92 on October 23, 2023 at 5:40 and 5:41 a.m. Eastern Time.
The order is as follows: 1) U.S. government bonds; 2) shorts; 3) bear funds; 4) precious metals; 5) individual U.S.-listed stocks.
17-Week/52-Week/26-Week/13-Week/2-Year/8-Week/3-Year/5,10,30-Year TIPS/4-Week/6-Week/20-Year: 27.12%;
TLT/VGLT long: 17.25%;
VMFXX/TIAA Traditional, TIAA money market/bank CDs/FZDXX/FZFXX/SPRXX/SPAXX/BPRXX/Savings/Checking long: 15.37%;
EDV long: 5.33%;
LTPZ long: 4.84%;
I Bonds long: 3.86%;
PMM long: 0.01%;
XLK short: 28.88%;
QQQ short: 24.31%;
GDXJ short: 1.40%;
SMH short: 1.38%;
PSQ long: 10.65%;
Gold/silver/platinum coins: 11.21%;
UTZ long: 3.04%;
CAG long: 0.73%;
GPK long: 0.42%;
WEN long: 0.17%.
