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Global overvaluation of real estate is a bubble of epic proportions. Which begs the question, what's next?

Charles Hugh Smith wrote an interesting article recently in which he noted that even as US stock markets climb to new heights, insiders have been selling like crazy. This is called distribution, and you can read about it here, in a story titled The Moon's a Balloon - and about to Pop.

As stock markets reach new highs, there are other sources that confirm insider selling far outstrips insider buying in the current market, such as this current summary of insider activity at MSN Money Central. Unfortunately, this link updates every week, so if you are reading this three years from now, it will probably show loads of buying because by then everybody should hate the stock market.

Anyway, as Wall Street pumps the new highs, I got to wondering where all this money being cashed out of the stock market will end up in the long run.

My conclusion?

Real estate.

Now, since real estate is tremendously over-valued, why would this make sense?

Let's consider a potential chain of events which could lead to such an outcome.

Real estate tanks. The economy tanks. The stock market tanks. The US dollar tanks. Interest rate go up. Defaults and foreclosures climb, real estate tanks further. Real estate is now a stupid investment, right?

Everybody hates real estate, it is such a stupid investment, why couldn't we see this coming etc. etc.

The middle class and the working class just paid the highest prices ever for an asset class that has been decimated. Who wins in this scenario, and how?

The banks, in the event the owners hold on - higher interest rates, you know.

Wealthy investors who are buying up property "on the cheap", in the event stretched owners can't hold on - concentration of land ownership from the middle to upper classes accelerates.

If the stock market is being hyped to new highs now, while insiders are getting out, it's certain that the next big thing is not the stock market, the stock market's time is done. It's time to go back to value investing, and where is the positive cash flow of the future? It's in something called real estate, from something called rent, but not until after prices go back down again. A long way down.

I may not be Shiller, but I will say with confidence, that in the spring of 2007, I called the Next Big Thing -sometime in 2009-2012, this will all come to pass. Sorry I can't be more specific, I'll leave that to the economists.

Cheap realty is the next big thing. Your comments are welcome.