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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (28458)	3/12/2005 1:01:34 PM
From: Ramsey Su	Respond to of 110194

Very good article indeed. northerntrust.com This article made me think about a few things, in no particular order: 1. current household asset/wealth in the MacMansions - one can argue that this "wealth" is of no value because we have to live somewhere. 2. current household asset/wealth in the MacMansions - say if one uses the MacMansion as an ATM (which is basically a loan secured by MacMansion), wouldn't that imply every dollar drawn from the ATM is on margin? Furthermore, the MacMansion ATM allows you to be margined to 70% - 80% - 90% or 100% if you so desire, not the typical 50% against stocks. 3. record household debt, record mortgage debt/value of MacMansion etc. The optimists are suggested that while debt is going up, so are the asset values. In theory, that is true. However, the debt is a fixed obligation with a specific amount. The asset value of the MacMansion is subject to market fluctuations just like stocks. Unlike stocks, which one can cash in millions with a few keystrokes and paying $15 commission, MacMansions generally carry a selling cost of 8-10%. Therefore, asset value of MacMansions should be more accurately described as gross assets. 4. the Nasdaq bubble topped at 5000, tanked to 1000 and finally recovered to the current 2000 range. If the real estate bubble pops in the same manner, I think all would agree that it will make the great depression look like a minor set back. The question has to be how much of a hit can we take? 5. ironically, the pin that is going to prick this bubble may come from China, if you believe this Stephen Roach scenario. morganstanley.com Well, it is not China directly but the effects on the interest rates as the global rebalancing gains momentum. 6. finally, as the Greenspan Fed so proudly padded themselves on the back on how well they dealt with the effects of the equity bubble regardless of whether there were one or not, I wonder how are they going to deal with the effects of the real estate bubble?