Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: jeffreyagray who wrote (177571)	9/4/2001 11:31:12 PM
From: goldworldnet	Read Replies (1) \| Respond to of 769667

Homeowners: Living in the newest bubble? Eric Winig Back in March of 2000, when stock market euphoria reigned and the Nasdaq briefly topped 5,000, there was scant discussion of the chance of a market decline. Anyone who dared to be bearish was written off as "not getting it," and relegated to laughingstock status on CNBC. That's what happens in bubbles. The herd gradually warms to an idea that seemed insane at first -- say, that stock prices can rise 20 percent a year forever -- but eventually is accepted as gospel. There is a new bubble today, and it is far bigger and more dangerous than the Nasdaq-mania ever was. In fact, the expansion of the housing bubble is one of the main reasons the economy has not sunk under the combined weight of mass layoffs and plunging stock prices. Look at it this way. With stocks in the toilet, commodity prices plumbing new lows, and precious metals in a 20-year bear market, home prices are the lone appreciating asset these days. Indeed, prices in Washington, D.C. skyrocketed 18.6 percent in the second quarter, according to the National Association of Realtors. So what are consumers doing with this newfound source of wealth? Are they saving for retirement? Socking away some funds for the kids' education? Just putting a little something away for a rainy day? Surely you jest. This is America, and in America we spend it until it's gone. And then we spend what we haven't got. And when the credit cards are maxed out, and the cashier smiles, and says "Sorry, that card's been declined," we don't worry. We know we don't need to call a debt counseling service, or restrict our quality of life, or even cut back spending on luxury items. For we own homes that are guaranteed, simply guaranteed, to appreciate in value. So we head down to the local mortgage office and take out a home equity loan. And the cycle begins anew. The result is that Americans own less of their homes today than ever before, even with prices at an all-time high. Homeowners collectively owned more than 80 percent of their homes in the early 50s; today that figure stands at 55 percent. And while Alan Greenspan tells us homeowners have become more "sophisticated," the specter of overleveraged consumers cashing out equity to buy that new DVD player makes my blood curl. Make no mistake, we will all pay the price for the bubble, just as the economy suffers now from the horrible malinvestments made in the telecom and Internet sectors in the late '90s. In fact, the fallout from the housing bubble will be far worse, because people don't live in their stock certificates. And they generally didn't borrow upwards of 90 percent -- or 100 percent, in some cases -- to buy them. People in D.C. should be especially sensitive to the prospect of a real estate crash, considering the area's experience in the late '80s and early '90s, yet most local "experts" continue to point to strong demand and scant supply as evidence of a healthy market. Of course, there was rabid demand for shares of PSINet when they traded at $60 apiece. Now, they're essentially worthless. Local investors were tripping over themselves to buy MicroStrategy stock at prices north of $300. Shares in the Vienna-based software maker now trade below $3. I was a guest on a radio call-in show recently, and the host asked "What have investors learned from the current downturn?" The answer, as I told him, is "not much." Most investors have learned nothing from the stock market debacle -- "I'm in it for the long haul" is still a popular refrain among those whose net worth has been decimated -- and they are compounding their mistake by rushing into the next hot area. Some people just never learn. washington.bcentral.com * * *