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

To: russwinter who wrote (56812)	3/25/2006 1:14:07 PM
From: UncleBigs	Read Replies (3) \| Respond to of 110194

While an initial 5%-10% decline in real estate values may not change behavior too much, I think people are very aware of what their house is worth. I see the psychology running the same as all cycles....denial, then migration, then panic. Right now we are in big time denial. Most people still believe that real estate never goes down for long. Sure it's a little soft but values aren't going anywhere. They aren't making anymore land. Real estate as a superior investment is deeply ingrained into the masses. Many people view their home as their retirement fund especially in California. It is their justification for spending all that they make and then some. In their minds, they can always sell their house and move to Arizona, Oregon, Washington, wherever it is cheaper and retire. When this group starts to become fearful that their retirement fund is at risk, I think we see another big wave of supply coming to the market. This group saw the internet bubble burst and have been saved by the housing bubble. They aren't going to watch this go up in flames as well. The wildcard is the Fed. There is still a huge Bernanke "put" in place. The public truly doesn't believe that the Fed will allow real estate to crash. If necessary, we'll have 1% fed funds again and another leg to the real estate boom. Right now however, Bernanke is going the wrong way on them. So now the stage is set. Sellers are lining up but not hugely motivated yet. Buyers are frustrated and angry. Many have resigned themselves to being renters for a very long time. Others will jump on the first signs of weakness but most have just simply been priced out of the market. The conditions are in place for a bust. A credit bust, real estate bust, stock market bust, economic bust. However, most people just don't believe the Fed will allow it to happen. The stock market has gone straight up ever since Bernanke's appointment. In fact, the stock market seems to be trying to get a jump on the Fed by forecasting the end of rate hikes and the beginnings of easing. It's like the cocaine addict who has the withdrawal shakes but is not worried because he's quite sure the drug dealer is coming over shortly. It's really all in the Fed's hands. The markets and psychology are positioned lopsided that Helicopter Bernanke will live up to his name. If he disappoints, it could get ugly real fast. The language for this next week's fed meeting is very important. The markets will want an acknowledgement of potential weaknesses and assurance that the Fed will defend them with easy money policies. 25 basis point hike with happy talk and no end in sight will disappoint the markets.

To: russwinter who wrote (56812)	3/25/2006 1:32:02 PM
From: kris b	Respond to of 110194

I'm trying to figure out the psychology behind the housing market-economy linkage now. Think we have perhaps around 80% of homeowners, who may be largely indifferent to the fact that a part of their big windfall is being given back" What will happen to their psychology when the Great RE Job Creating Machine goes into reverse resulting in 20%-25% real(not falsified numbers reported by government) unemployment? The whole Ponzi scheme rest on massive world wide credit bubble which supports phony/parasitic/not needed jobs related in any way to an array of bubbles. When economies of the world go back to normal (due to massive credit contraction), all these people will become redundant and get fired. Envision the world economy as another Nortel. How many people did they fired after the tech mania collapsed. It is all about CREDIT CREATION/CONTRACTION, and employment "stupid". For total RE (and other bubbles) collapse we need very high unemployment levels. Unemployed can't service their debts and the whole debt fueled scheme collapses. Simple as that.

To: russwinter who wrote (56812)	3/25/2006 2:25:56 PM
From: booyaka	Read Replies (1) \| Respond to of 110194

psychology behind the housing market-economy linkage One element of housing market psychology is that once the typical homeowner gets it into his head that his home is worth $X, he is loath to sell it for any less than $X. This psychology makes housing prices more downwardly sticky than other asset prices. Housing market corrections consequently tend to unfold slowly because it takes time for homeowners to accept that their home is not worth as much as before. Maybe this time it will be different, though, given how many homes were purchased by speculators and buyers who stretched beyond the bounds of financial prudence to afford a house.