Monday, April 29, 2013

Bubble Symmetry and Housing

If bubbles eventually revert to their starting level, Phase 3--capitulation and a return to pre-bubble prices--still lies ahead for the housing market.


Way back in 2006 at the height of the housing bubble, I prepared this chart proposing the housing bubble might exhibit symmetry, i.e. the decline would mirror the rise. I also proposed that the decline would be characterized by phase shifts that corresponded to the decay of whatever reason was being given for the "recovery" in housing, for example, "this must be the bottom."


Let's compare this idealized bubble symmetry with a chart from reality: housing in the bubblicious Los Angeles market.


Here's another look at the L.A. market as measured by Standard & Poors:


Hmm, what would have happened if the Federal Reserve hadn't dumped trillions of dollars into the mortgage market, and the Federal housing agencies hadn't subsidized mortgages and housing with 3% down payments and tax credits?

Perhaps all the trillions of dollars of intervention has accomplished is extend Phase 2. Central bank and state manipulation distorted the symmetry of housing's decline, but did they stave off Phase 3 permanently?

If bubbles eventually revert to their starting level, Phase 3--capitulation and a return to pre-bubble prices--still lies ahead. 



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Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

go to print edition1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

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Thank you, G. Wayne A. ($25), for yet another wondrously generous contribution to this site -- I am greatly honored by your steadfast support and readership.Thank you, Stuart T. ($5), for your most generous contribution to this site -- I am greatly honored by your support and readership.

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