Interest rates declined and home prices rose so what happened?. Four things happened.
People speculated in housing instead of the stock market and became home investors and flippers - then the music stopped. Second, Congress encouraged lending institutions to make loans to those politicians wanted to own homes but who could not afford to do so because their income stream was marginal. Third,lending practices became speculative so banks could keep up their income growth and meet competition from other lending sources. These loans were packaged and resold to buyers who never knew what they were buying.
The Dutch did it a long time ago with tulip bulbs. More things "change" the more they stay the same and what goes round comes round. Still see the stock market going lower as financial unwinding courses through the economy. Fed can cushion but not stop the pain of unwinding by reducing short rates but mortgage rates are rising in the face of Fed action so that should tell you something. Furthermore, reduced rates are driving the dollar lower, increasing the price of oil and other commodities so inflation is becoming rampant. Not sustainable over the longer term but going higher in the near term. I call it in-flump, ie inflation and economic slump.
Just as Obama has become the political Messiah the market awaits Warren Buffet's annual letter to stockholders. When people lose money and become desperate they often turn to prophets! History has shown these inflection points can result in ominous and irrational actions.
Daughter getting married so doubt will be publishing. Have a nice weekend.
Dick
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