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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: DMaA who wrote (2189)	3/16/2004 10:31:25 AM
From: mishedlo	Respond to of 116555

some dated articles on housing bubbles was posted on the FOOL perhaps something of relevance here 216.239.39.104 Bubbles in Real Estate Markets March 2002 Bank behavior also plays an important role in exacerbating the collapse of real estate prices. A decline in the price of real estate will decrease bank capital directly by reducing the value of the bank's own real estate assets. This will reduce the supply of credit to the real estate industry. In addition, supervisors and regulators react to the resulting weakening of bank capital positions by increasing capital requirements and instituting stricter rules for classifying and provisioning against real estate assets, further diminishing the supply of credit to the real estate industry and placing additional downward pressure on real estate prices. The abrupt drop in the flow of credit to the real estate market will put further downward pressure on real estate prices. This is also likely to diminish lending to other sectors of the economy as banks try to rebuild their reserves and capital to cope with the increased risk of default. Concluding Comment In economies where banks are the main source of financing, this can have a devastating impact on investment and economic growth. Moreover, as the Asian financial crisis has made evident, an economy with a decapitalized banking system is highly vulnerable to external shocks such as foreign exchange crises that can severely damage the real economy. Thus the banking sector's importance and link to the real estate sector not only amplifies the real estate bubble but also can have major implications for the overall stability of the economy. ### comstockfunds.com Monday, September 22, 2003 Real Estate In summary, we believe that real estate will be the main catalyst for the deflationary environment we expect is inevitable. This is the result of the tremendous demand for RE since the mid 1990s driving valuations through the roof. The prime driver of the appreciation was the liberal lending policies of banks and mortgage institutions. The combination of the lax lending and the demand from homeowners to continue to borrow against the equity in their homes, have placed RE in a vulnerable position. The rising prices have moderated substantially, while until just recently the borrowing and lending continued at record levels. This dropped homeowners' equity to record lows. Since every valuation ratio of real estate is presently at record highs, if the slowdown in appreciation turns into an actual decline in values, the present economic recovery and stock market recovery could reverse and be potentially devastating to the financial environment. ### 216.239.41.104 Freddie Mac and Fannie Mae: Where the Domain of the Housing Bubble and the Domain of the Derivatives Bubble Intersect June 9, 2003 (EIRNS)—Freddie and Fannie function to buy housing mortgages from mortgage lending institutions. By doing so, a mortgage lending institution, which has just issued a mortgage, can sell that mortgage to Freddie or Fannie for cash; it can then use the cash to make a new mortgage, and sell that mortgage to Freddie and Fannie, and so on, in the same manner several times over. As indicated in yesterday's briefing, Freddie and Fannie can carry out this operation by issuing three types of highly risky obligations: 1. corporate bonds that Freddie and Fannie issue; 2. Mortgage Backed Securities (MBS), in which Freddie and Fannie pool a group of mortgages together, put a guaranty on it (for which they earn a fee), and then they package these MBS to insurance companies, pension funds, international investors; etc; and 3. outright derivatives, which Fannie and Freddie have. However, the success of this whole scheme depends, among other things, upon continuing to keep interest rates low. Were interest rates to spike up, this would convulse the Mortgage-Backed Securities market, and the derivatives market of Freddie and Fannie.

To: DMaA who wrote (2189)	3/16/2004 10:37:34 AM
From: MulhollandDrive	Read Replies (1) \| Respond to of 116555

" All economics from Marx to Freedman has as its fundamental premise, scarcity" i think that fundamental premise may prove wrong, i think it doesn't calculate sufficiently the human's ability to adapt and innovate for example if we see oil prices held artificially high by supply constraints, the drive for alternative energy (and the perceived future profitability) takes hold and the next thing we know we're talking about the next big thing, renewables...the "scarcity" of oil at some point become moot..a self limiting scarcity resulting from innovation... i think innovation/productivity ultimately always trumps scarcity. (not to say that temporary supply bottlenecks OR temporary demand bulges will not create generate temporary economic false templates) hell, we can manufacture "real" diamonds now.... you can't get a better description of the false "scarcity" argument than that. (this is why i tend to scoff at the "shiny metal" economic template. ) abc.net.au 'Fake' diamonds prove harder than the real thing Artificial diamonds made from gas have turned out to be surprisingly hard, harder even than natural diamonds, according to United States researchers. The team at the Carnegie Institution's Geophysical Laboratory in Washington says the super-hard diamonds should be useful for industrial processes. "We believe these results are major breakthroughs in our field," Chih-shiue Yan, who led the experiment, said in a statement. "Not only were the diamonds so hard that they broke the measuring equipment, we were able to grow gem-sized crystals in about a day." Writing in the online issue of Physica Status Solidi, Mr Yan and colleagues said they grew the crystals using a process called high-growth rate chemical vapour deposition. In the process, hydrogen gas and methane are bombarded with charged particles, or plasma, in a chamber. They subjected the crystals to high-pressure, high-temperature treatment to harden them further. The diamonds were heated to 2,000 degrees Celsius and put under pressures between 50,000 and 70,000 times sea-level atmospheric pressure for 10 minutes. The resulting diamonds were at least 50 per cent harder than natural diamonds, they found. "This has opened up an entirely new way of producing diamond crystals for a variety of applications, such as the next generation diamond-based electronics devices and cutting tools," Carnegie's Russell Hemley said. Real diamonds are made from carbon under pressure. -- Reuters