What Famous Billionaire Investors Have to Say About Current Market Conditions


One of the things I learned early in life is that it’s very important to choose your role models wisely. When it comes to investing, that means I pay particular attention to individuals who have a net worth in excess of a billion dollars. Going on that logic, two gentlemen in particular have had a profound impact on my understanding of current market conditions and my expectations moving forward.

Those gentlemen are Warren Buffett and Ray Dalio.

As most people know, Warren Buffett is the best stock investor on the planet, with a current net worth of over $70 billion. Although Ray Dalio is 20 years younger than Buffett, he’s already amassed over $16 billion in personal net worth, and his Bridgewater Associates manage over $120 billion in capital.

Current Market Conditions

The thing these two gentlemen have in common is they view the current market conditions as being very unique. For example, when in your lifetime have you seen interest rates at 3.5 percent on a 30 year mortgage for 7 years straight? That’s right, never.

As Ray Dalio has described to numerous news organizations since 2009, the United States is at the tail-end of a much larger market cycle. This larger cycle moves in 75 to 100-year phases — whereas the typical business cycle (the one everyone is accustomed to) moves in 7 to 10 year cycles.

Related: The Real Estate Market: How to Analyze and Predict Cycles

For example, the world experienced a significant downturn in 2000 and again in 2008. These smaller cycles can be found as simultaneous frequencies traveling on a much larger wave. If you look at the chart below, you will see how interest rates have moved over the past 100 years.

Screen Shot 2015-06-16 at 3.55.06 PM

So what does this mean for the typical real estate investor? Well, that’s the magic question. In fact, that’s such a difficult question that Buffett and Dalio both are hesitant to surmise the outcome. What we do know is that the path forward is likely to be unprecedented.

Unprecedented Trends

In March 2015, Charlie Munger, the billionaire Vice Chairman of Berkshire Hathaway, said, “This has basically never happened before in my whole life [he’s 91]. I think everybody’s been surprised by it, including all the people who are in the economics profession who kind of pretend they knew it all along. I was flabbergasted when rates went negative in Europe. How many in this room would have predicted negative interest rates in Europe? Raise your hands. [No hands were raised.] How can I be an expert in something I never even thought could happen? It’s new territory. I think something so strange and so important is likely to have consequences.”

When interest rates are kept at all time lows, bubble conditions start to emerge. For example, the country’s GDP growth in the 1st quarter of 2015 was a measly 0.2%. That’s not healthy, especially after 7 years of low rates. In fact, Alan Greenspan, the former FED Chairman, openly stated that it wasn’t healthy in February of 2015.

Ray Dalio is famous for saying that one of the most important key drivers for the economy’s health is for the nominal growth (or GDP) to remain above nominal interest rates. Right now, that’s not happening. The situation is analogous to an individual locking in a super-low interest rate on a highly-leveraged property as the borrower’s income is decreasing. If these macro conditions persist, the results will likely cause the equity markets to self-correct or crash. These deflationary pressures, with respect to GDP growth, are likely to have an enormous impact on the value of the dollar during the next recession.

Typically, in a normal business cycle, the Federal Reserve will simply adjust interest rates to spark the economy and get it back on track. Now that interest rates are already pegged at all time lows, there’s only one tool left to fix the problem. That tool is increasing the monetary baseline, or in common terms, print more money. This simple act of devaluing the dollar is commonly referred to as quantitative easing.

Unique Circumstances for Real Estate Investors

Ray Dalio says that history has proven that the only way countries have historically re-emerged from long-term deleveraging cycles is through the inflation of fiat currencies. So if this actually materializes in the United States, real estate investors will be faced with unique circumstances. On one hand, if you’ve borrowed money at a low interest rate over a 30-year period, the inflation may exceed the interest you owe on the loan. That means you could potential make money on the loan itself (assuming inflation exceeds the loans interest rate throughout the duration of the loan).

From a pessimistic point of view, higher inflation would mean the cost of building new properties would create increased production costs. This means the cost of capital expenditures will make sustainment of tangible assets expensive to the owner. Additionally, if fewer properties are being built, an under supply and under demand may drive market prices down. Over the long haul, the two conditions will likely offset each other, but in the interim, investors might experience unique consequences.

As any smart real estate investor knows, interest rates change the value of everything in the market. Although FED Chairwoman Janet Yellen has signaled a gradual increase in rates during 2015, I think the bigger concern is the lack of tools the FED has at its disposal to spark the economy during the next downturn. As a real estate investor, I think it’s very important to think in terms of a long-term strategy. We don’t know what’s going to happen, but we can expect these artificially low and long-lasting interest rates to have a significant impact on our near future.

It’s like being used to driving your own car, and now you have to take the bus – the ride is less comfortable and convenient, and in all circumstances you won’t reach your destination as fast. For individuals that are trying to turn and burn properties, they could potentially assume risk in getting caught in the market chaos.

Effects in Real Estate Markets

In May 2015, Warren Buffet had an interview with a CNBC news anchor, and he was asked if there were any current bubbles in the market due to persistently low interest rates.

Related: How to Profit From a Hot Real Estate Market (Even if it’s a Bubble)

Buffett replied, “Its affecting real estate in a big way, and you can see why. Low interest rates have changed the value of real estate dramatically, and it’s changed the stock market somewhat dramatically.” Here’s a link to the complete interview.

In short, if your strategy is long, I think you’ll have a better chance of enjoying the benefits of inflation eroding the cost of interest while enjoying the benefits of normalized rates in the coming decades. If your strategy is short, you might want to consider the potential impacts of dramatic shifts in the market and how it might impact your approach. As a final note, don’t forget to diversify your capital and protect your downside risk!

Author’s note: Billionaire Ray Dalio made a 30-minute video to educate the public on how the economy works like a machine. The video is extremely useful and simple to understand. I might add, Ray Dalio called the housing bubble in 2008 and beat the stock market by over 40% that year. Here’s a link to the video.

What do YOU think about current market conditions? Do you agree with these billionaires’ assessments?

Leave a comment, and let’s talk!

About Author

Preston Pysh is the founder of The Pylon Holding Company. Preston's videos on financial investing have been viewed by millions of people around the world. He has been featured on shows like the Colbert Report and the History Channel. He takes great pleasure in taking complex ideas and making them accessible.


  1. Joe Howell

    So then this makes me take a step back as I try to achieve my goal of following through on the 7 years to 7 figure wealth path @joshdorkin has out there (www.biggerpockets.com/7years). Correct me if I am misunderstanding both concepts (the 7years strategy and the point of this article), but it says in the article, ” If your strategy is short, you might want to consider the potential impacts of dramatic shifts in the market and how it might impact your approach.” Is short more along the line of flipping (hold for only UP TO a year)?

    I’m trying the approach of gaining an additional 4 units this year, hold until the end of next year and then go from 10 units up to a 20-25 unit complex based upon the realized equity. If inflation hits, this increases the equity greater than the current (1%?) pace, correct? On the flip side, it will then take more to buy that 20-25 unit in 2 years than it does now, correct? Then the market will correct itself and the value of the 20-25 unit complex is now lowered and making my potential equity diminish and then delaying the plan from 7 years to 10 or more years. Is this how to look at the situation?

    I understand that we don’t know what the market is going to do in the future, but I’m trying to figure out how to remain cautious and stick to my plan of early “retirement”, but not overleverage myself while trying to build the equity and make the jump into larger and larger complexes.

  2. Kyle Hipp

    Great article. Ray Dalia is a rare man with a better understanding of the economy than most. That video is fantastic and I have referenced it many times to folks. One misstep I see is that quantitative easing is not really printing money but providing liquidity for already existing value/currency. Another important concept that helped me was understanding the difference between monetary and fiscal policy. Monetary policy is set by the FED whereas the federal government controls fiscal policy and we need some help on the fiscal side. The sectoral balance approach by Koo provides a lot of insight as well as to why the US needs to run a budget deficit as a trace deficit nation. CULLEN Roche over at pragcap.com has helped me a lot in understanding the macroeconomic picture and that was were I first saw the ray dalio video you referenced.

  3. Brent Seehusen

    Just like any cycle, the people that get caught holding property that they overpaid for will feel the pain. Those that searched out good deals with generous cash flow should be able to weather the storms much more easily. I think to some extent, all asset prices are overpriced right now due to the artificial nature of the current rate environment. Real estate still offers the best opportunity to find deals that are priced below market due to inefficiencies in the market. It’s much more difficult to do that with stocks and bonds. So you have some built in margin of safety IF you buy right and don’t over extend yourself in the process. High inflation is only one possible outcome. The 25 year deflationary spiral facing Japan is another possible outcome. The best move is to position yourself to deal with a wide variety of outcomes and I think buying healthy cash flow is one of the best ways to do that.

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