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Strategies & Market Trends : SiliconInvestor All Stars Forum
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To: John Vosilla who wrote (898)6/25/2007 9:18:15 AM
From: SouthFloridaGuyRead Replies (1) of 1718
 
John, you've brought up 2002 a number of times. I think that rather than focusing on who was crying or making bad calls, we should look at what that environment taught us.

While Wall St. was crying, a housing bubble was in its infancy. Why? Because housing was the undervalued asset in a world of ~1% short rates and ample liquidity.

As you have said, while those on Wall St. don't see a recession, many involved in housing are seeing and feeling what stock investors felt in 2002.

If we step outside the box, we can see almost a mirror image to 2001-2002, whereby the Fed and global Central Banks to a lesser extent are forced to keep rates abnormally low for fear of debt contagion. This in turn stimulates assets which are cheap compared to interest rates. In this case stocks and maybe some commercial property?

While the above is simplistic (there are quite a few differences between now and 2002 including liquidity and global growth), we can derive from that period that in a world awash in liquidity, money will always search and seek the highest yielding assets. In fact, that could be said for any environment, however, during periods of illiquidity it takes time for that value to be realized and volatility will be higher.
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