Many Americans seem convinced that their housing market will remain in the doldrums indefinitely. Conversely, the rapid recovery of China’s economy from the global financial crisis has led many to believe that real estate in the Middle Kingdom is a one-way bet. In fact, property is the most cyclical of assets. Housing booms crater, while depressed real estate markets eventually recover. Part One of this paper aims to describe a typical real estate cycle through its various stages. In particular, I try to identify the characteristic features of the cyclical peaks and troughs.

Part Two applies this understanding of the real estate cycle to the world’s two most important property markets, namely those of China and the United States.

Between Errors of Optimism and Pessimism – Observations on the Real Estate Cycle in the United States and China

Stocks are cheap when valued within the context of a financed-based economy once dominated by leverage, cheap financing, and even lower corporate tax rates. That world, however, is in our past not our future. More regulation, lower leverage, higher taxes, and a lack of entrepreneurial testosterone are what we must get used to – that and a government checkbook that allows for healing, but crowds the private sector into an awkward and less productive corner. Dow 5,000? We don’t have to go there if current domestic and global policies are focused on asset price support and eventual recapitalization of lending institutions. But 14,000 is a stretch as well.

naked capitalism: Bill Gross Says Stocks May Not Be So Cheap

BENOIT MANDELBROT: The theory thinks that things move slowly, gradually, and can be corrected as they change, whereas, in fact, they may change extremely brutally.

NASSIM NICHOLAS TALEB: Now you understand why I'm worried. I hope I'm wrong. I wake up every morning -- actually, I don't wake up every morning now. I start to wake up at night the last couple of weeks hoping that I'm wrong, begging to be wrong.

I think that we may be experiencing something that is vastly worse than we think it is.

PAUL SOLMAN: And we think it's pretty bad.

NASSIM NICHOLAS TALEB: It's worse. Of all the books you read on globalization, they talk about efficiency, all that stuff. They don't get the point. The network effect of that globalization, OK, means that a shock in the system can have much larger consequences.

They are "talking their books" rather than providing a specific observation about the present situation but I still find this interesting.

Chaos Theory and the Credit Crisis

One of the constant comments is that stock plunges like this are buying opportunities because markets always come back. Obviously, the people saying this are not including the Japanese stock market in their sample.

Angry Bear: S&P 500 VS NIKKEI 225

Watching the alleged “leaders” act like a bunch of kindergarteners only stokes the fear.

They really don't know what the hell they are doing. They have no idea.

Quote of the day

"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."

The more I learn about this bailout the worse it sounds.

700 Billion

A small antidote as the excesses of recent years come home to roost.

Laugh-Out-Loud Cats #940 on Flickr - Photo Sharing!

"Out of almost 2,100 diversified retail U.S. stock mutual funds that are open to new investors, just 17 have positive returns for both the past 12 months and year-to-date, according to investment researcher Morningstar Inc."

The Big Picture | Incredible Statistic: Mutual Fund Performance

We've now had so many instances of what charitably may be called artful reporting that it's beginning to undermine my faith in government statistics. Unreliable government statistics are a Banana Republic Indicator..... the integrity of that data is becoming compromised on enough fronts so as to render them suspect. And inaccurate data leads to bad business and bad policy decisions. Bad policy decisions are particularly likely since the information is massaged so as to minimize unpleasant news.

naked capitalism: GDP Release Signals Further Decline into Banana Republic Status

Growth is projected to pick up gradually over the next two years as residential construction bottoms out and begins a slow recovery and as credit conditions gradually improve. However, FOMC participants indicated that considerable uncertainty surrounded their outlook for economic growth and viewed the risks to their forecasts as skewed to the downside.

...If financial speculation were pushing oil prices above the levels consistent with the fundamentals of supply and demand, we would expect inventories of crude oil and petroleum products to increase as supply rose and demand fell. But in fact, available data on oil inventories show notable declines over the past year. This is not to say that useful steps could not be taken to improve the transparency and functioning of futures markets, only that such steps are unlikely to substantially affect the prices of oil or other commodities in the longer term.

FRB: Testimony--Bernanke, Semiannual Monetary Policy Report to the Congress--July 15, 2008