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

To: orkrious who wrote (31873)	5/5/2005 7:17:59 PM
From: ild	Read Replies (2) \| Respond to of 110194

Stocks are not sexy anymore. So many scandals, insider stealing your dough. Real estate is much better, great leverage, never goes down, you can live in it etc From today's Fleck: New Dawning on an Old Oriental Bubble Meanwhile, I thought it might be useful to delve into a subject I've been thinking about, but have not written about: The difference, thus far, between what Japan experienced in the last 15 years (since its bubble popped in 1990) and our post-equity-bubble experience. A key point I've been aware of, but embarrassingly slow to really comprehend, has been the fact that the big bubble in Japan occurred in the real-estate market. Lots of folks, including myself, have talked about the Nikkei at 40,000 and how absurd it was. It was absurd, but the Nikkei was only dragged higher because of the complete madness in real estate, which was far more absurd. When Japanese real estate (and stocks) started to sink, it infected the country's financial system. Bad loans throughout the financial system, together with the collapse in real-estate values, fed on themselves. That combination helped to precipitate the environment that Japan has experienced, in which it's seen real estate decline for 14 years, and it's been unable to extract itself from the consequences of its dual bubbles. It's my belief that Japan's experience of dual bubbles has been underemphasized. Fed Meddling Feeds a Mania Here in America, we had a wild stock bubble, but when it burst, there was not a lot of bad debt and defaults that impaired the financial system. Yes, we had a couple of sizable implosions like WorldCom and Enron, but they were more isolated events. However, in the real-estate mania that Greenspan has fomented -- in an attempt to bail out his equity bubble -- he has succeeded in creating a Japanese syndrome, if you will, here in America, where we see the complete abdication of responsibility in real-estate lending standards. As everyone is now aware, anyone capable of fogging a mirror can essentially get a 100%-financed home, and scores of people have more than one real-estate "investment." Powering this mania has been not just low rates but the ubiquity of financing and easy credit. This has been the major factor in driving prices to wild levels, and allowing people to live beyond their means, via the housing ATM.