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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 (43528)	10/14/2005 8:05:45 PM
From: ild	Respond to of 110194

Date: Fri Oct 14 2005 15:55 trotsky (Bleuler) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved your dividends and SS payments received are definitely measured as income that counts toward the savings rate calculation. recall, the US savings rate had a brief upward spike when MSFT paid its special dividend of $3/share. capital gains are a different matter, for a good reason: when you cash that gain in, someone else must buy the investment from you. it merely 'wanders' from one hand to the next. this can not possibly increase the savings rate. someone else's savings become yours when you sell, that's all. regarding real estate, it is true that inflation has bailed out investors time and again in the long term - although i seem to recall that the '88-'90 mini crash which led to the S&L crisis killed many RE speculators that had been active in the 80's boom. i would like to point out though that the current situation is unique in EVERY respect. the best comparison i can come up with is Japan's 80's RE boom, which ended with prices falling for 14 years in a row. i'm not pulling this claim out of a hat - residential real estate has never been more overpriced in terms of yardsticks such as income, rental yields and deviation from trend, and what's even more important, it has never been more leveraged than today. average equity ownership has shrunk to its lowest level ever, and at the same time, as a corollary, bank assets tied to residential RE are at a record high. i believe this to be an extraordinarily dangerous situation, since a protracted price decline will likely begin to feed on itself - similar to what has happened in Japan. the surfeit of overconfidence that has accompanied the boom has led to both borrowers and lenders biting off far more than they will be able to chew in the event of even a mild initial downturn. this is why i believe the next downturn won't be mild at all - more likely it will become a very long lasting grinding bear market. i don't doubt that savvy investors can always make money in just about anything, but most of today's private RE speculators don't strike me as particularly savvy. i'm only relying on anecdotal evidence here, but when i hear of people who have never had any experience with this market buying third and fourth properties on credit sight unseen in the hope of making speculative profits ( some even buy worhtless stretches of desert on e-bay - the equivalent of otc-bb stocks in the late tech bubble ) , i intuit that 1. the end is near and 2. it won't be pleasant.