VERY OFF: good places to live?

[M Holmes]

Carl Edlund Anderson writes:

> At 16.25 +0000 22.3.2001, M Holmes wrote:
> >>  Cambridge is indeed bereft of a music scene or any good record shops,
> >>  but it could be worse.  I expect I'll be here a while -- at least to
> >>  ride out the current/coming economic mess.
> >
> >So we'll be coming to your retirement party then? Or does anyone really
> >believe that a record 54 year inflation will be cured by a couple of
> >quarters of low economic growth?
>
> Well, working on the assumption that the current economic hangover is
> largely the result of everyone getting drunk on the internet stuff

The real bubble in the US is not the internet one. It's the real estate
one. In bubbles the secret is, as always, to follow the money, or credit
where a bubble is concerned. The credit has been almost totally created
in the government sponsored mortgage companies "Fannie Mae" and Freddie
Mac" (no, I'm not making this up). Some of it went into internet stocks,
but a lot more went into real estate.

>From my reading of things though, that bubble won't burst until us
foreigners take our cash out of US bonds and the Dollar starts to
collapse through the US trade deficit (an amazing one billion Dollars
per day and counting). After that, it'll be interesting to see whether
those government sponsored companies carry a guarantee that the taxpayer
will bail out their reckless credit spree. As they've sold on the risk
to damn near every bank and finance company on the planet though, it
won't matter much either way.

I remember that at the end of the Tokyo boom in 1989 (yeah, I've been
obsessed by manias and crashes for quite some time) they started
recycling paper profits from the property bubble into the stocks bubble
and paper profits from the stocks bubble into the property bubble. It's
more than a little woryying that as Greenspan drops rates in the US,
folks are remortgaging and taking out equity to put into stocks at the
same time as folks with stock options have been buying expensive
properties. I suspect that the US in the next ten years will be what
Japan has been in the last ten as a result.

> ... the computing industry cycle has historically been a bunch of
> years of growth followed by a few years of downturn and shakeout. I
> remember trying to get a job after university in the early 90s in the
> US, and things haven't gotten anything like that tough yet.  So my
> guess is that things will continue to get worse and stay worse for a
> couple of years and then they'll get better.

> Of course, I could be wrong and we're gonna be plunged into the Son
> of the Great Depression.

In terms of total capitalisation of stocks versus GDP, 2000 produced
overvaluation of 2.5 times as much as 1929.

Storm's comin'...

> Carl

FoFP