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01/29/07 | Comments (2)

When the twin towers fell, they sent shock waves throughout the financial markets. If you listen closely, you may still hear the repercussions today.

One has to wonder how badly the psyche of the American public was also altered and damaged in that infamous blast.

It’s almost as if the attitude became Tomorrow I may die, so I am going to live it up and forget about the consequences.

The US government injected massive liquidity into the monetary system, creating a housing bubble in the process. Let’s stop keeping score was the implied notion when the Fed decided to discontinue publishing M3, its broadest measure of the money supply.

Oh, how those printing presses have been humming.

The consumer, being awash in cash, has continued to do what they do best: consume.

Although currently financially fashionable, borrowing against the equity in your home has placed numerous homeowners at risk, especially if their purchase or refi was done with a teaser rate ARM.

Russian roulettes anyone?

Some pundits have used the term ATM machine as synonymous with your home, probably rightfully so if that acronym stands for ALL THE MONEY is gone.

Compounding the dilemma of course is the American public’s aversion to saving. With negative savings rates in this country, it seems that many people are going to be on the treadmill a while longer.

The bills are now due and payable.

And, in case you have forgotten, the government preempted foreseeable results of their actions by recently rewriting the bankruptcy laws.

Excedrin, anyone?

Category:
Personal Finance Blog
Related Post:
Housing Matters
Comments
  • Posted by: aparmelee | February 1st, 2007

    this is an interesting commentary on the current state of the market. so what timeframe are you forecasting until we have to take two and call you in the morning?

  • Posted by: Dennis Parmelee | February 3rd, 2007

    No one has a crystal ball with regard to timing. Housing and housing related services account for a substantial portion of our economy, so the government tries to keep the “game” going for as long as possible.

    Two thoughts come to mind: “Markets can remain irrational longer than we can remain solvent” is the first. This is the “first mouse gets caught in the trap, but the second mouse gets the cheese” syndrome. Secondly, Real estate has been compared to a huge barge. It takes a lot more time to turn it around in either direction. If July of 2005 was the “top” of the recent up trend, as suggested by many real estate practitioners, it is possible that this “correction” needs more time as well as price adjustment.

    Currently, a joke going around in California is “What do you call a Realtor?” Answer: “Waiter”.

    While this hardly qualifies as “The cover of Time Magazine Indicator, it suggests that crowd psychology has already changed from bullish to bearish.

    “Buy when there is blood in the streets” is an oft quoted wall street axiom that has made some savvy investors wealthy. A look at the previously unappealing Chineese stock market, that went up over 130% last year, is a recent reminder.

    Stay vigilant for your opportunity.

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