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Interesting Bubble/ Recession Article
Old 02-26-2008, 09:50 AM   #1
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Interesting Bubble/ Recession Article

According to this, I should wait until 2013 to buy a house!

This is a good article on historical bubbles and recessions.

"The next bubble: Priming the markets for tomorrow's big crash" by Eric Janszen (Harper's Magazine)

from the article

"Our economy is in serious trouble. Both the production-consumption sector and the FIRE sector know that a debt-deflation Armageddon is nigh, and both are praying for a timely miracle, a new bubble to keep the economy from slipping into a depression. "

His FIRE is not the same as the FIRE here.
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Old 02-26-2008, 12:12 PM   #2
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On average... I would say yes, wait.... but it depends on where you live and what you want...

But, if a good deal come along... take it... that is what I am doing... put a bid on a house that is a good amount below market... and our market was not much of a bubble... just that there is a 'slowdown' in buying...

I expect to take a hit on my house when (and if) I sell, but the 'net' will be worth it...

When I bought my current house, it was during the S&L crisis bubble... and I bought.... well, the market kept going down and someone bought a house like mine for about 10% less (but only $6K).... but that was a year later and I would say not quite as nice (mine had been 'updated' to sell)... so, like any purchase, you can hope to time it right and get the bottom, OR buy when it looks real good and accept that you might not have got 'the best price'...
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Old 02-26-2008, 12:17 PM   #3
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Thanks for the article. His thought of 2013 for a housing bottom could be correct, who knows. The best part of the article for me was that Eric could be onto something, new bubbles forming in alternate energy and infrastructure rebuilding sound like reasonable propositions.
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Old 02-26-2008, 02:35 PM   #4
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I hope he's right...I probably won't be ready to buy until then, anyway.
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Old 02-26-2008, 02:54 PM   #5
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I read this article when it showed up on the newsstand. Eric Janszen is an interesting and intelligent guy. His Dad invented and marketed the excellent Janszen Electrostatic Speakers that were popular premium high fidelity items in the 70s.

I like this quote: FIRE is a credit-financed, asset-price-inflation machine organized around one tenet: that the value of one’s assets, which used to fluctuate in response to the business cycle and the financial markets, now goes in only one direction, up, with no more than occasional short-term reversals. With FIRE leading the way, the United States, free of the international gold standard’s limitations, now had great flexibility to finance its deficits with its own currency.

If this is true,and I believe that it is, it means that Americans with money or access to credit are coming to the same conclusion that those in Latin America, Southern Europe and many other less stable economies came to long ago: you have to own assets if you want to survive.

This is much easier for the rich, who can live well with very low cash returns, and weather downturns without coughing up assets. It is very difficult for the ordinary conscientious worker-saver who feels frightened by the risk and variability involved (and rightfully so), so either does not participate fully in asset inflations, or tends to get there just in time for the bust.

IMO the proper mental image is not of stacking bricks slowly and methodically in a pile to provide for your old age. More like hopping across a stream on slippery stones-each step risky but you have to keep moving anyway.

Here is another great quote, this time from an anonymous writer during the South Seas Bubble:

“One added to one, by any rules of vulgar arithmetic, will never make three and a half; consequently, all the fictitious value must be a loss to some persons or other, first or last. The only way to prevent it to oneself must be to sell out betimes, and so let the Devil take the hindmost.”

I this not a beautiful desciption of a zero sum game?

"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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Old 02-26-2008, 03:19 PM   #6
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The alternative energy bubble is yet to form.

I think the weak dollar is the next bubble which pops (meaning those double digit gains from foreign investments will not be sustained much longer).

I think the financial markets will always find:

a) a way to make money
b) a way to currupt making the money, therefore popping a bubble

The housing boom and S&L scandals were both created by banks wanting to take on more risk to make more money. No one really knew going in (IMO) how much extra risk was being taken to make that extra dollar.
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