March 22, 2007
It is the dull
man who is always sure, and the sure man who is always dull.
H. L. Mencken
1880-1956, American Editor, Author, Critic, Humorist
above quite clearly illustrates how household debt has
soared to a point where it accounts for huge portion of the
GDP; this monstrous debt is now equivalent to 90% of the
United States GDP. This also clearly illustrates how this
economy has been financed by a mountain of debt; at the end
of the day nothing new has been created other then a huge
pile of debt. This sort of scenario cannot last
indefinitely, eventually the assets that were over inflated
must deflate and this is currently whatís happening in the
This is a
rather extremely important eye opening chart; for once we
can truly see how monstrous this real estate bubble is. This
chart represents prices of homes in the United States going
back to the 1880ís. When one takes a look at the big
picture one can quite clearly see that the current trend is
simply unsustainable. Another important fact is that we
have over 3 trend lines on this very long term chart (only 3
have been drawn in) and thus a correction is imminent and
in this case it has already begun but one must remember it
has only just begun.
provides a closer look at the housing market for the last 21
years and even when prices are adjusted for inflation the
price move has been rather huge in the last 4 years. Note
to that in this case we have over 5 up trend lines in place;
the trend line rule dictates that the more trend lines you
have in place the more violent the eventual correction is
going to be.
correction/bust has only just begun; there are a still a
huge number of mortgages that are going to be reset in the
upcoming months. Right now only the sub prime sector has
been affected but in the months to come individuals with
very good credit scores are going to take the beating of
their lives; they let stupidity and greed dictate their
actions. These individuals made the fatal mistake of taking
on debt that they cannot service with their present income.
They are only surviving now because their mortgages have not
reset, once these mortgages reset watch the next phase of
the blood letting process begin.
When the real
blood letting process begins fear will be rampant as the
market will most likely start to pull back/crash in
conjunction with the housing sector. Investors will start
looking for a safe haven and precious metals and energy
sector will provide this..
stays far far away from the real estate market.