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Strategies & Market Trends : Value Investing

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To: Madharry who wrote (37212)	4/1/2010 12:15:18 AM
From: Spekulatius	1 Recommendation Read Replies (2) of 78670

re 60min piece - i have not watched this one yet. While I agree that some of things that happened around Sept 2008 were outrageous the things that have been done are a fait accompli and there is not much we can do about it. What I am worried about is the future - I think the financial regulation (derivatives) has stalled and worst of all we are trying to reflate the balloon that has popped to many time, using the central banks favorite helium (or probably more fittingly hydrogen) zero percent interest rates. Zero percent interest will punish low risk orientated savers and funnel savers into all kind of assets. The value of those assets will inflate beyond reasonable values and cause a gigantic misallocation of capital. it will not only hurt those that buy these inflated assets, sooner or later it will hurt everybody. So for example the inflated RE market hurt prudent savers who were competing to bid on houses with folks without any income or anything too loose with liars loans. Eventually the banking system blew up , causing the economy to blow up which essentially hurt almost anybody but smart people like Mike Burry. Even the internet bubble, while less harmful, hurt many people that hat to compete with people (at least in the Bay area here) with respect to housing and other goods. By definition when the market cap of those inflated companies get's large enough the stock become eligible for market cap weighted index funds so almost anybody with 401k funds get's hurt when these stocks deflate. So in my book it's a gigantic redistribution and misallocation of capital that hurts the vast majority of people. I see this cycle will get repeated and probably faster than we think. The US central bank wields enormous power since it controls the major reserve currency of the world and the interest rates for the US serve as an anchor for interest rates in the rest of the world. For me saying that the interest rates stay at zero as far as the eye can see (my interpretation of the the Fed's statement is irresponsible, as it will cause new assets bubbles to pop up allover the world. There is not much we can do about that. What we can do and where the collective wisdom of this board could help is spotting the bubble for what it is and finding a way to benefit from it blowing up. This is what Mike Burry did, and we can do that too. This is what Mike's Story taught me. End of my rant.

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