Are We a Living In A Financial House Of Cards?

Dear Reader, Anne's and my son Kyle, and his partner Jamie Rosenwald with their firm Beach Front Properties have had remarkable success investing in real estate.

Having purchased their first apartment building over 17 years ago, they have made substantial money in investment after investment for themselves and their investors. In the mid 2000's when other investors went wild buying real estate at crazy prices, Kyle became highly selective, buying in often un glamorous markets where prices had had no great run up.

After the real estate collapsed in 2008, Kyle, Jamie and their investors again began actively buying.

Today, I'm sharing with you a portion of the powerful insight Kyle offered Beach Front investors in a biannual letter dated 2/28/14 so you can be aware of his perspective as you invest or protect your money.

While no-one can accurately predict the future, based upon his extraordinary track record, I think you will find Kyle's comments very much of interest in what he calls "Where is the Black Swan hiding today?"

"Definition: The black swan theory or theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight."

"As a history major in college, I enjoy viewing past as prologue and don't mind being viewed by others in the industry as overly cautious. During the boom days of the mid 2000's, I called myself Chicken Little as I knew the sky would fall.

"Today my tea leaves tell me that we (the world) survived a massive over leveraging of the intertwined financial system. This was done through some fantastic financial engineering by various government organizations who simply moved the liabilities from banks to taxpayers all over the globe via opening up their balance sheets (printing money / running deficits). Not to mention savers all over the world who saw interest rates drop below inflation and were encouraged to buy (prop up) assets or face the punishment of losing purchasing power for doing nothing.

"What I'm saying is that I believe that the bill for the tech bubble and then the credit bubble (fostered to get us through the dot bomb explosion) never got paid and is hanging over all of our heads. I am convinced that this house of cards will collapse and the balance sheets of last resort have been used.

"While I don't know where or when the black swan will appear, I suspect it will be a sovereign debt / bond crisis in China, Japan, Europe or the US and will spread quickly around the globe.

"Unlike the last bubble period when I found comfort on the sidelines and keeping my cash, I believe my money is safer in hard assets which provide yield. This is because I don't know any currency in the world which is tied to anything but investor confidence in that country's ability and willingness to pay its debt. So instead of over leveraged fiat currencies I continue to favor the following ... [At this point Kyle mentioned real estate markets and deals in which he is investing]"