A Bubble By Any Other Name
"If you feared for the value of this piece of paper called the dollar and you put it into a hard asset, does that de facto constitute a bubble? Of course not. That constitutes a bull market. To be a bubble, in my opinion, behavior in and around the asset class under discussion has to spin so out of control as to distort the underlying economy."
Even though Fleck sez the above in his latest missive, he thinks real estate is in a bubble, but he doesn't think commodities are in a bubble.
The recent pullback of 10-12% in real estate, gold, oil, other commodities, some equities and bonds is just that, a pullback. Some consider this a buying opportunity.
Barrons has some great strategies on buying energy stocks during the pullback, even factoring in another 5 or 10% drop, you would do well in the long run, baring a major downside event. MSN real estate is trumpeting that maybe this is the time to buy foreclosures.
The real estate and bond pullback appears to be a flattening of a parabolic market that may signal pricing is no longer sustainable. This could mark the beginning of the end for those long term bull markets, but remains to be seen or TBD. More on the commodities pullback later.
We disagree with Flecks myopic view on bubbles. Distortion of the economy has occured in all asset classes at all levels - real estate, commodities (gold, oil) and bonds due to hyperinflation resulting from lax central bank monetary policies.
This trend will continue as long there is enough "loose" money floating about. When the "loose" money dries up, thats when things will go south and might do so in ultra rapid fashion.
The big question is, when will the "multiplier effect" truly start to operate in reverse? As Fleck aptly puts it "restricting the availability of money is far different than raising the cost of money."
Barry Ritholtz Big Picture quotes Paul Kasriel of Northern Trust from his latest critique of what henceforth in these pages we will call "Bennie and the Feds".
"Monetary policy affects the economy with a lag of as much as 18 months... the real money supply, M2, adjusted for inflation... is hardly growing much faster than prices, leaving little to fund real activity."
We may already be seeing the beginning of this reverse vortex in the multiplier effect. As Kasriel states, statistical evidence suggests that although actual M3 and M2 is still at record levels, it has slowed drastically since the tidal wave in 2002.
With less actual dollars available to place for "real" economic activity, the investment community has kept the "inertia" party going by creating leverage through financial instruments such as derivatives, CDO's, MBS and swaps.
Bernanke argues that the current yield curve inversion would be different from historical experience, and not presage an economic slowdown. Why? because the level of interest rates are currently still quite low and thus not contractionary.
We disagree, Why? "low" is a relative term and 18 months is a long latency period. The degree of today's leveraging was not present in the 1987 and 2000 markets that crashed. Because of the unprecedented level of leverage involved this time around, it wont take as much of a bump up to destabilize and "de-leverage" the system.
To get a taste of how fast the reverse "multiplier effect" vortex can drop an asset market, just witness the recent commodities pullback.
This was a leveraged unwind of hedge fund positions in Asian markets caused by the BOJ jawboning about raising their interest rates coupled with a lessening of fears regarding the Iran nuclear situation.
No actual raise involved, no shot fired, just the "hint" caused a substantial pullback. The key word is "pullback", not a crash, not a panic, not yet.
Is the recent pullback, just another pullback, or is it symptomatic of a market top? Consensus on the street sez this is a distinct possibility. We may more than likely be heading for the 4 year cycle correction that is slightly overdue.
Are we headed for a panic or crash? Events that transpire on or about March 10-16th and April 17th - 24th will tell.
Even though Fleck sez the above in his latest missive, he thinks real estate is in a bubble, but he doesn't think commodities are in a bubble.
The recent pullback of 10-12% in real estate, gold, oil, other commodities, some equities and bonds is just that, a pullback. Some consider this a buying opportunity.
Barrons has some great strategies on buying energy stocks during the pullback, even factoring in another 5 or 10% drop, you would do well in the long run, baring a major downside event. MSN real estate is trumpeting that maybe this is the time to buy foreclosures.
The real estate and bond pullback appears to be a flattening of a parabolic market that may signal pricing is no longer sustainable. This could mark the beginning of the end for those long term bull markets, but remains to be seen or TBD. More on the commodities pullback later.
We disagree with Flecks myopic view on bubbles. Distortion of the economy has occured in all asset classes at all levels - real estate, commodities (gold, oil) and bonds due to hyperinflation resulting from lax central bank monetary policies.
This trend will continue as long there is enough "loose" money floating about. When the "loose" money dries up, thats when things will go south and might do so in ultra rapid fashion.
The big question is, when will the "multiplier effect" truly start to operate in reverse? As Fleck aptly puts it "restricting the availability of money is far different than raising the cost of money."
Barry Ritholtz Big Picture quotes Paul Kasriel of Northern Trust from his latest critique of what henceforth in these pages we will call "Bennie and the Feds".
"Monetary policy affects the economy with a lag of as much as 18 months... the real money supply, M2, adjusted for inflation... is hardly growing much faster than prices, leaving little to fund real activity."
We may already be seeing the beginning of this reverse vortex in the multiplier effect. As Kasriel states, statistical evidence suggests that although actual M3 and M2 is still at record levels, it has slowed drastically since the tidal wave in 2002.
With less actual dollars available to place for "real" economic activity, the investment community has kept the "inertia" party going by creating leverage through financial instruments such as derivatives, CDO's, MBS and swaps.
Bernanke argues that the current yield curve inversion would be different from historical experience, and not presage an economic slowdown. Why? because the level of interest rates are currently still quite low and thus not contractionary.
We disagree, Why? "low" is a relative term and 18 months is a long latency period. The degree of today's leveraging was not present in the 1987 and 2000 markets that crashed. Because of the unprecedented level of leverage involved this time around, it wont take as much of a bump up to destabilize and "de-leverage" the system.
To get a taste of how fast the reverse "multiplier effect" vortex can drop an asset market, just witness the recent commodities pullback.
This was a leveraged unwind of hedge fund positions in Asian markets caused by the BOJ jawboning about raising their interest rates coupled with a lessening of fears regarding the Iran nuclear situation.
No actual raise involved, no shot fired, just the "hint" caused a substantial pullback. The key word is "pullback", not a crash, not a panic, not yet.
Is the recent pullback, just another pullback, or is it symptomatic of a market top? Consensus on the street sez this is a distinct possibility. We may more than likely be heading for the 4 year cycle correction that is slightly overdue.
Are we headed for a panic or crash? Events that transpire on or about March 10-16th and April 17th - 24th will tell.
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