Monday, April 19, 2010
It’s different this time? Just like dot.com was different.
There's nothing more dangerous and damaging to an economy than a great asset bubble that breaks. 32 out of 34 historical bubbles have moved back the trend prior to the bubble forming. There are no exceptions and the two that are outstanding are the UK and the Australian housing bubbles sustained by floating rate mortgages where the rates came down so fast they protected the bubble. Now we have to see what happens when interest rates rise. If they do not go back to the long term trendline which is a multiple of family income it will be the first time in history that such a bubble has not broken. That is not something I would want to bet on if I was thinking of buying a house.