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

To: mishedlo who wrote (26210)	3/23/2005 4:18:01 PM
From: Haim R. Branisteanu	Respond to of 116555

The issue of housing is much more deeper than Heinz even mention. After the S&L fiasco and the mini - bubble in housing in 1989 it took almost 6 years for prices to stabilize and another stock market bubble for prices to come back. One important issue many ignore is the fact that stocks need a 50% margin or you have a margin call. So leverage is 1:2. In housing the "accepted" leverage is 1:5 (20%) and in many cases mush higher , not to mention interest only loans. .... and there are no margin calls ..... but outright foreclosure or bankruptcy Not as in 1989 most mortgages are packaged as MBS and sold to insurance companies who also issue annuities and to pension funds who pay your pension and from which you pay your remaining mortgage. if one recollects the fiasco of Long Term Capital due to Russian default just multiply the same 10 to 15 times or even more which brings us to the fact that at least $3 to $5 trillion of funds will be needed to stabilize the RE market - ups - numbers are easy to post but did any one counted 3 trillion ? So who will supply the capital for stabilization? Massive devaluation and inflation will only stabilize the housing market which in turn will not go over without substantial financial pain and may lead to a serous depression which AG avoided after the stock market bubble. Just think how many items go into a new house / apartment aside from the construction related activity with it's subcontractors. Well, well above the average stock portfolio of all the population (including those without). The only positive thing about RE v. stock - RE still has a residual value if it is inhabited.