jahowle

Why the Stock Market Should Crash

Don: I live in the DFW area and although there are pockets of double digit declines due to over leveraged builders most home prices are down only 3%-5%. If this is the case then for home values to decline 24%-42% means that things are getting ready to turn real ugly around here or it means that many parts of the US are going to turn into ghost towns.


On Nov 16 12:58 PM Donald Ingram wrote:

> Charles - excellent article. Agree. House values will recede a further
> 24% - 42% before they find a bottom. With the Feds artificially propping
> up the real estate market and banks holding foreclosed properties
> off the market, or refusing to foreclose so as to not have to recognize
> a failed loan, the housing recovery will endure much more pain before
> a long, slow recovery can take place.
>
> Unfortunately, the tragic part of this, as with most inflated prices
> that fall back to a long term trend line, the price tends to over
> shoot and bottom below the long term trend line, taking that much
> longer to return to normal. This is but one nail in the markets coffin.
> It will crash.

Stocks vs. Bonds: A Surprising Result

The chart is correct because he started with a chart of t-bills which have very little price volatility and then he added a flat 200 basis point credit spread. The average returns of either asset class are simply a benchmark but almost no one actually ever realizes any where near those average returns. Investors usually fall into one of two camps, those that outperform on a long term basis and those that under perform on a long term basis. It is not a function of which asset class you chose but what you do with it. An able minded debt investor can hang with just about any equity, currency, commodity investor over the long term. These charts simply do not reflect real world after tax, after inflatoin returns. Consider the fact that in the early 80's investors could buy long term munis yielding 12% at a time when the tax rate was 50%. These investors were earning a tax equvialent yield of 24%. I know of course they were losing a fair amount of purchasing power for a period of time but not for the life of the bond, inflation was back down to 2.50% in 1983. Equity investors were experiencing the same inflation. So much for my ramblings. Have a good weekend.