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"Agree or disagree?" - Ans: Nobody knows. ... Probably because bubbles are not easily defined or identified and can persist for very long periods - decades in some cases. Housing took off in the 60s & 70s when the boomers came of age and never looked back - until 2007-2008. Gold's at 5X what it sold for in '98. Is this a bubble? Damned if I know.
It's a bit ironic that the article cites Alan Greenspan (known to some as "Dr. Bubble") as saying he doesn't see one now. Greenspan's record is mixed. He called the bubble in stocks in the 90s long before it burst (labeling it "irrational exuberance"). But missed the big one in housing - and has acknowledged as much. To some, he actually contributed to this bubble by overly accommodative policies while at the Fed. I don't think investors should worry about this question too much. One approach used by myself and others is to lighten up as markets rise, never getting completely out. If they drop someday, buy back in at cheaper prices. If they never drop in your lifetime (what are he odds of that?), you've still got some "irons in the fire" so to speak. Than again ... if you're only 25-30 years of age, throw caution to the wind and stay fully invested.
The market seems to be a forward indicator, until it is overbought or oversold. Then it recoils.
I suspect the continued reluctance to embrace this bull bodes well for moderate advancement, so long as US economic news keeps improving, like housing market, corporate profits, employment...and interest rates stay low. And, some catastrophic event does not occur, like North Korean recklessness, default of a European country, etc.
Professor Fama does not believe the housing bubble was the culprit in 2008, since all asset classes were hammered. He thinks a better explanation is simply the great recession.
Thanks to Flack (and Mebane Faber and Cliff Asness), I've become very interested in dynamic allocation. Even Professor Fama concedes that momentum methods are challenging at least a small part of the efficient market theory.
If the current market does happen to be yet another bubble, though I suspect it is not (Daves, for the record, Disagree is my answer), I will off-load risk until the next cycle begins.
Reply to @Charles: Interesting stuff Charles. Greenspan argued (before Congress etc.) in the pre-2007 period that bubbles cannot be identified while occurring - but only in retrospect after the collapse. I'm not buying that argument hook line & sinker, but I do understand why he would say that. Obviously, some did see the housing bubble and acted on that insight in advance - to their benefit.
On your other point, I'm surprised there haven't been some linked stories & discussion by now on the N Korean thing. Compared to the threat from Cyprus - Yikes, no comparison to what even 1 atomic bomb going off anywhere in the world would do to global political and financial stability. .... No intent here to be a fear-monger. Probably won't happen. But ... the potential downside would be enormous.
And ...umm ... How long does "sequester" last if we get into a shooting war in Asia?
I've happened to talk to (or overhear in a case or two) a handful of real estate agents this week (including one I know.) All of them have generally said that inventory is low - you have hit a point where it would seem that many who were going to sell have sold. When inventory is now coming on the market, it is getting offers more quickly; suddenly, tables have turned a bit from a buyer's to a seller's market.
What I think will be the case is that it's sort of like a stock that's tanked and is now in the process of turning around. You will have people at levels on the way up (including, most likely, an s-load of bank-owned) looking to sell. All of those who I talked to said there are still a lot of people in negative equity on their house and that prices are not really moving noticeably higher but inventory has gotten low. If you get this continued level of activity, sellers over time will eventually come off the sidelines.
The other sense that I got is that investors large and small are swarming over anything that looks rent-worthy. A lot of the activity that is being seen in lower priced places is not first time buyers, but investors calling constantly. A main point: I got the sense that if a condo is reasonably priced and still available in many cases it's because the place probably is not renter-friendly. Things still aren't great and many people can't buy for a number of reasons, but investors are calling something serious. No one I talked to or overheard acted like things were going to go to the moon tomorrow by any means, but the idea is best described a sort of bottoming process that is seeming more substantial.
I think at some point the turnaround has to be about more than investors (Blackstone hoovering up houses) and more about more participation by the broader population - it remains to be seen if that will happen. I don't think you're going to see the housing market recover to what it was a few years ago at the top at all, but you're going to see a bottoming process that might take some time (but is in the process of happening) and then a more gradual/realistic move higher (a move that goes up with real rates of inflation per year, perhaps? I dunno.)
Overall, different places are going to move at different speeds, but I get the sense after what I heard that housing is, to use a stock market equivalent, December 2008/January 2009. I don't think the real estate market is going to repeat the housing bubble again, but the current status would seem to be bottoming process and how large the window of time is before it starts to trickle up is going to be different everywhere. You're probably seeing foreign money come in in major markets, as well.
The one thing that no one seems to talk about in all of the real estate articles is replacement cost. Obviously not an expert opinion by any means, but I don't feel as if materials costs fell nearly as much as house prices did. In terms of a lot of places, I think the question becomes how much would it cost to build it you were going to built it today? Additionally, there's always the "they're not making any more land" speech.
I think if house prices do creep higher, the banks and some other plays (I like Fiserv as a broader financial play) may benefit. I'm not sure about some of these single family REITS (SBY) and Blackstone (BX) doesn't seem entirely shareholder friendly.
A few other odds/ends thoughts:
1. If real estate continues to see what looks like a bottoming process, you may see some more money shift in that direction - the sense that I got is that real estate is Dec 2008/Jan 2009, but that it's not going to move higher as quickly as stocks started to in March 2009. Still, larger investors may start shifting a little in the re direction. I actually think there are some positives if this happens - you're going to eventually oversaturate the rental market a bit and maybe sky-high rents in many areas may come down a bit. I like apartment REITs in Canada where the real estate market is incredibly expensive, I think apartment REITs in the US are not going to see no demand certainly, but I think they're probably close to being at the top of their "cycle".
2. "Gold's at 5X what it sold for in '98" How much has global money supply increased? That said, what precious metals do from here is anyone's guess. You have all of this liquidity flowing in one direction and then another and another.
3. The N Korean situation is tense, but I think at the end of the day I hope it's what I think it is: continued noise in an attempt to get more aid from other nations. They will send the country what it wants, and the problem goes away for a few more years.
4. Europe is genuinely worrying because none of the core problems are being fixed.
5. There's a lot of core problems that are not being addressed in the US, but you are going to have ZIRP as far as the eye can see and QE probably for some time to come. If there's a recession, it will be met with more easy monetary policy. If Yellen takes over for Bernanke, more of the same. The market could very well continue to run as long as the situation persists and I definitely see the possibility that ZIRP and whatnot could persist until 2016, and then it becomes another administration's issue.
It becomes a matter of monetary policy isn't going to create a sustainable recovery where the training wheels can come off, eventually you have to have a government that's not broken and can work together on addressing lingering issues. What's so unfortunate about the last 2-3 years is that monetary policy has given government in some regards some breathing room to address issues, and yet we have two sides that can't seem to agree on a thing.
Someone said on here the other day that we should be investing in infrastructure while interest rates are this low. Are we doing that? No. Instead, it would appear that the country is going towards the PPP (Public Private Partnership) route that other countries have done (http://www.cbsnews.com/8301-250_162-57577055/obama-unveils-plan-for-attracting-private-investments-for-public-works/) If this is the case, companies like Brookfield Infrastructure (BIP, which I own) and Cheung Kong (CKISF.pk, I believe) may be able to participate, and I'm sure there will be a lot of pension funds and other institutional money. Materials companies will then participate, as well. Some other countries have funds that are entirely Public Private Partnerships, and Brookfield Infrastructure owns a few PPPs.
Lastly, I think yield (REITs, for example) remains in demand until probably at least 2016.
One other minor thought. I continue to like the pipelines, because I think there are going to be more and more regulations and it's going to be more and more difficult to build them. We need energy pipelines in this country (and carrying by other modes of transit aren't without risk, either), but.... Even Cramer discussed this the other night and while not across the board, I kind of agree in some regards ("Don't Build It and the Profits Will Come" - http://www.thestreet.com/story/11880242/1/cramer-dont-build-it-and-the-profits-will-come.html)
Reply to @scott: Thanks. The macro-environment is dynamic & complex as your analysis shows. Good reason IMHO to "hire" good fund managers & maintain a long term horizon.
Reply to @scott: Nice Scott. California High Speed Train seems to be moving forward as an infrastructure improvement. LAX also getting a new international terminal and other upgrades. I do see more private construction picking up locally, wineries, shopping centers, even town-homes getting completed that were stopped in 2008. A welcomed sight, as it had all but disappeared for a while. Lots of highway construction/expansion here, but also in Ohio, elsewhere. Some nicer homes moving onto the market, though I think sellers' are a little premature in their optimism given the asking prices I am seeing. Hey, I thought when President Obama reached out to legislators recently and Senator McCain used the c word, maybe a positive sign that we were finally starting to work together. And, we passed continuing resolution. Senate even approved a budget, can you believe? BTW, about half way through Dark Pools. You're right, it's not as entertaining as The Quants, but very insightful nonetheless. Hope all is well.
Comments
It's a bit ironic that the article cites Alan Greenspan (known to some as "Dr. Bubble") as saying he doesn't see one now. Greenspan's record is mixed. He called the bubble in stocks in the 90s long before it burst (labeling it "irrational exuberance"). But missed the big one in housing - and has acknowledged as much. To some, he actually contributed to this bubble by overly accommodative policies while at the Fed. I don't think investors should worry about this question too much. One approach used by myself and others is to lighten up as markets rise, never getting completely out. If they drop someday, buy back in at cheaper prices. If they never drop in your lifetime (what are he odds of that?), you've still got some "irons in the fire" so to speak. Than again ... if you're only 25-30 years of age, throw caution to the wind and stay fully invested.
I suspect the continued reluctance to embrace this bull bodes well for moderate advancement, so long as US economic news keeps improving, like housing market, corporate profits, employment...and interest rates stay low. And, some catastrophic event does not occur, like North Korean recklessness, default of a European country, etc.
Professor Fama does not believe the housing bubble was the culprit in 2008, since all asset classes were hammered. He thinks a better explanation is simply the great recession.
Thanks to Flack (and Mebane Faber and Cliff Asness), I've become very interested in dynamic allocation. Even Professor Fama concedes that momentum methods are challenging at least a small part of the efficient market theory.
If the current market does happen to be yet another bubble, though I suspect it is not (Daves, for the record, Disagree is my answer), I will off-load risk until the next cycle begins.
On your other point, I'm surprised there haven't been some linked stories & discussion by now on the N Korean thing. Compared to the threat from Cyprus - Yikes, no comparison to what even 1 atomic bomb going off anywhere in the world would do to global political and financial stability. .... No intent here to be a fear-monger. Probably won't happen. But ... the potential downside would be enormous.
And ...umm ... How long does "sequester" last if we get into a shooting war in Asia?
Take care.
What I think will be the case is that it's sort of like a stock that's tanked and is now in the process of turning around. You will have people at levels on the way up (including, most likely, an s-load of bank-owned) looking to sell. All of those who I talked to said there are still a lot of people in negative equity on their house and that prices are not really moving noticeably higher but inventory has gotten low. If you get this continued level of activity, sellers over time will eventually come off the sidelines.
The other sense that I got is that investors large and small are swarming over anything that looks rent-worthy. A lot of the activity that is being seen in lower priced places is not first time buyers, but investors calling constantly. A main point: I got the sense that if a condo is reasonably priced and still available in many cases it's because the place probably is not renter-friendly. Things still aren't great and many people can't buy for a number of reasons, but investors are calling something serious. No one I talked to or overheard acted like things were going to go to the moon tomorrow by any means, but the idea is best described a sort of bottoming process that is seeming more substantial.
I think at some point the turnaround has to be about more than investors (Blackstone hoovering up houses) and more about more participation by the broader population - it remains to be seen if that will happen. I don't think you're going to see the housing market recover to what it was a few years ago at the top at all, but you're going to see a bottoming process that might take some time (but is in the process of happening) and then a more gradual/realistic move higher (a move that goes up with real rates of inflation per year, perhaps? I dunno.)
Overall, different places are going to move at different speeds, but I get the sense after what I heard that housing is, to use a stock market equivalent, December 2008/January 2009. I don't think the real estate market is going to repeat the housing bubble again, but the current status would seem to be bottoming process and how large the window of time is before it starts to trickle up is going to be different everywhere. You're probably seeing foreign money come in in major markets, as well.
The one thing that no one seems to talk about in all of the real estate articles is replacement cost. Obviously not an expert opinion by any means, but I don't feel as if materials costs fell nearly as much as house prices did. In terms of a lot of places, I think the question becomes how much would it cost to build it you were going to built it today? Additionally, there's always the "they're not making any more land" speech.
I think if house prices do creep higher, the banks and some other plays (I like Fiserv as a broader financial play) may benefit. I'm not sure about some of these single family REITS (SBY) and Blackstone (BX) doesn't seem entirely shareholder friendly.
A few other odds/ends thoughts:
1. If real estate continues to see what looks like a bottoming process, you may see some more money shift in that direction - the sense that I got is that real estate is Dec 2008/Jan 2009, but that it's not going to move higher as quickly as stocks started to in March 2009. Still, larger investors may start shifting a little in the re direction. I actually think there are some positives if this happens - you're going to eventually oversaturate the rental market a bit and maybe sky-high rents in many areas may come down a bit. I like apartment REITs in Canada where the real estate market is incredibly expensive, I think apartment REITs in the US are not going to see no demand certainly, but I think they're probably close to being at the top of their "cycle".
2. "Gold's at 5X what it sold for in '98" How much has global money supply increased? That said, what precious metals do from here is anyone's guess. You have all of this liquidity flowing in one direction and then another and another.
3. The N Korean situation is tense, but I think at the end of the day I hope it's what I think it is: continued noise in an attempt to get more aid from other nations. They will send the country what it wants, and the problem goes away for a few more years.
4. Europe is genuinely worrying because none of the core problems are being fixed.
5. There's a lot of core problems that are not being addressed in the US, but you are going to have ZIRP as far as the eye can see and QE probably for some time to come. If there's a recession, it will be met with more easy monetary policy. If Yellen takes over for Bernanke, more of the same. The market could very well continue to run as long as the situation persists and I definitely see the possibility that ZIRP and whatnot could persist until 2016, and then it becomes another administration's issue.
It becomes a matter of monetary policy isn't going to create a sustainable recovery where the training wheels can come off, eventually you have to have a government that's not broken and can work together on addressing lingering issues. What's so unfortunate about the last 2-3 years is that monetary policy has given government in some regards some breathing room to address issues, and yet we have two sides that can't seem to agree on a thing.
Someone said on here the other day that we should be investing in infrastructure while interest rates are this low. Are we doing that? No. Instead, it would appear that the country is going towards the PPP (Public Private Partnership) route that other countries have done (http://www.cbsnews.com/8301-250_162-57577055/obama-unveils-plan-for-attracting-private-investments-for-public-works/) If this is the case, companies like Brookfield Infrastructure (BIP, which I own) and Cheung Kong (CKISF.pk, I believe) may be able to participate, and I'm sure there will be a lot of pension funds and other institutional money. Materials companies will then participate, as well. Some other countries have funds that are entirely Public Private Partnerships, and Brookfield Infrastructure owns a few PPPs.
Lastly, I think yield (REITs, for example) remains in demand until probably at least 2016.
One other minor thought. I continue to like the pipelines, because I think there are going to be more and more regulations and it's going to be more and more difficult to build them. We need energy pipelines in this country (and carrying by other modes of transit aren't without risk, either), but.... Even Cramer discussed this the other night and while not across the board, I kind of agree in some regards ("Don't Build It and the Profits Will Come" - http://www.thestreet.com/story/11880242/1/cramer-dont-build-it-and-the-profits-will-come.html)