Some Say Bubble, Some Say Trouble

On the back of this morning’s Straits Times; “Mass-Market home prices ‘at 2007 peak’

So many patterns from the 1929 U.S. Stock Market Crash that led into the Great Depression are repeating themselves in today’s market (again) and the one most common pattern that seems to go unnoticed is the behavior of the man in the street. They were nonchalant back then and so are we right now. They didn’t listen to warnings and they still aren’t listening now. The market back then was “influenced” into making people believe that all was well and today it would seem that all is well. The same economic justifications were used back then as they are today and we still believe that things are better than expected. Financial institutions and their experts rallied their cause at the expense of the citizens back then and today they continue to feed off the ignorance of the borrowing public. The banks made over-leveraging easy back then with generous margins and easy credit and today, none of that has changed. They U.S. government did not regulate the market back then and today, deregulation has seen to it that the pattern continues reliably. If JP Morgan was the pivotal institution for the Crash of ’29, then maybe it will be some “gold” financial “man“ager that “sacks” the market this time.

The list of continuations go on and on just like Jesse Livermore said;

Wall Street never changes. The pockets change, the stocks change but Wall Street never changes because human nature never changes.

Then there are patterns that go way out on a limb to the point of incredulous, impossible and implausible …

Now there’s a scary thought. A peak is always followed by a trough. And the trough is rough even on the tough.

Then of course there’s this bit from February earlier this year that seems to get ever more accurate in its estimation of the housing market versus the economy as the year wears on, in spite of the seemingly “improving” housing numbers lately …

Let’s not even get into the Healthcare issues and the massively growing Trillions of dollars that seem to come out of nowhere and are not accountable even by the Fed Inspector General …

Now if those aren’t fine examples of bubbles, then consider our own backyard, literally.

I (amazingly) could not find an updated chart of the one I posted in May this year about the property market;

Property Chart from 4 May 2009

Property Chart from 4 May 2009

The best I could find was this one from salary.com;

My point of bringing this up again is that if today’s Tail-liner claims that the property market is back up to 2007’s high, then isn’t that a Double Top? Another reason to get jittery about the local property scene is that it is undoubtedly greedy if people are queuing up for $1,000 psf for 99 year properties in Ang Mo Kio days before the actual launch. I know I posted Buffet’s thingy about being fearful several times in this blog …

One of the disturbing trends I get when I talk to potential buyers is that they honestly believe that buying anything now is a good bet. They believe that by the time the property TOPs in about four to five years, property prices would have increased in value. To them I only have this to offer … take a very close look at the local property prices between 2000 and 2006 after the 1997 peak.

Now consider this, buyers who purchased projects launched between end-2006 and mid-2007 are going to have their properties TOP’d between October 2009 and May 2010. If nothing happens during those months, we’ll have a happy ending. But all it will take is another wake-up call from the market and those properties will be in dire-straits.

Just like what happened in 1987 in the U.S., patterns are repeating themselves right here on our home soil; easy credit and speculative buying married to an already weak or weakening economy. Even if the economy doesn’t get any weaker (which is very unlikely) there are no guarantees that the property market will swell again. It didn’t swell to the 1997 highs during the best four years of this country’s economic history between 2003 and 2006. Those who bought properties during ’96 and ’97 are still losing money on their investments today. So why are people still buying the top?

Because the market never changes.

The only other time in modern history that matches up to today’s market and economy was back in 1974, after the Oil Crisis which sent the U.S. economy into stagflation for the first time since WWII. Now, after the Sub-Prime Mortgage Meltdown, the U.S. is stagflated again.

Crash & Recover of '74

Crash & Recover of

If it took slightly more than a year for the market to rediscover its highs only to go sideways for seven years thereafter, let’s be realistic and assume that this recession is way worse than 1974 and should take as long, if not longer, to recover our highs. Only after that can we even contemplate any upside from there if we don’t go sideways for seven or more years.

I am keeping my October 2009 to May 2010 target. I am going to be stubborn and hold out for my 40% discount from the 2007 highs. I may regret it but at least I know I didn’t buy a top.

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Comments

Honestly, seeing that video on the Fed inspector general is like watching a really bad comedy…..not funny at all…..

Scary times…

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