History Unlearned....

.... Repeats Itself

From Forbes:

"What we seem to have is a showdown between a stable, if not bullish, technical climate and a risky housing bubble. The bull market appears intact when one looks at the major indices, which have all continued to trend upward. Only the interest-rate-sensitive Dow Jones Utility Average is looking a little "toppy."

"If this bellwether composite of homebuilding, mortgage and real estate stocks breaks sharply to new lows in the next several months, it means the housing bubble unwinding is about to turn ugly."

"Historically, all bubbles are dangerous if they can affect a large portion of the public. And nothing has potentially more impact on consumer confidence than the falling value of one’s home."

"Bubbles usually require an external event to create the first pinhole. For stock market bubbles (1999, 1929 and Japan in 1989), it was central bank tightening. For the housing bubble, it may be a combination of rate hikes (14 so far), plus the U.S. Federal Reserve pulling the rug out from under the speculators."

"Another larger pinhole could develop if the dollar starts slipping and long-term bond yields begin rising. That, too, is an ominous warning flag for the stock market."




Bubble Bellwether Index Graphs

"The path so far exactly replicates that of a popped bubble, whether you look at the Internet Index of the late 1990s or oil service sector of the early 1980s."

"After the initial popping, there is a reflex rally that reignites the hopes and expectations of participants. Then (only after the break through key support levels) investors start to realize the boom is over. Fundamentals start to change, too. The media headlines start to recognize surprises, downside surprises."

"(Bloomberg) -- A U.S. housing-market slump is ``the single largest downside risk to the 2007 economic outlook,'' says David Rosenberg, the chief economist for North America at Merrill Lynch & Co. in New York. Paul Ashworth at Capital Economics Ltd. in London calls it ``arguably the biggest risk to the U.S. economic outlook over the next couple of years.''

"Figures this week showed the supply of unsold U.S. homes at its highest level since 1998."

"Should supply continue to grow faster than demand, it's likely that housing prices will continue to drop. As for the stockpile of existing homes, it's up, too. The Realtors association reported a 5.3 months' supply of existing homes currently on the market. That's nearly double from January 2005.

"National Association of Realtors reports that last year an "eye-popping 43% of first-time home buyers purchased their homes with no-money-down loans." Meanwhile, foreclosure monitor RealtyTrac has announced that nationwide foreclosures jumped 24.5% between the first and fourth quarters last year."

"So yes, Virginia, everything is fine. Santa is on his way."