Showing posts with label bubbles consumer debt housingprices mortgage debt private equity. Show all posts
Showing posts with label bubbles consumer debt housingprices mortgage debt private equity. Show all posts

Quite a Laundry List - Bubbles

Look at U.S. household debt as a percentage of GDP – a huge rise in just the last ten years.
Look at the incredible decline in the U.S. personal savings rate over the last 20 years.
Look at the acceleration of U.S. housing prices starting in 2000 (existing houses doubled 2000 – 2006).
Globally, from 2002 to 2006 there grew a euphoric feeling that low interest rates, easy credit, vast liquidity and rising house prices would last forever.
It was a classic example of herd mentality, “when everyone is thinking alike, no one is thinking”.
Commodity prices took off, and the private equity and hedge fund industry exploded on cheap money. Borrowing and spending were in vogue and saving was out.
It was obvious the trends on these charts were unsustainable, but where was the tipping point.
A credit bubble is like blowing up a balloon – it gets bigger and bigger and bigger and you never know when it’s going to burst. This bubble could have broken three years ago, or it could have broken two years from now.
But now we know, this bubble broke in the Spring of 07.
(One thing investors should learn about investment bubbles and manias – “it’s much better to leave the party an hour early than two minutes late”.) Every bubble is different, but in many respects every bubble is the same. The difference this time is that we have an all encompassing credit bubble and it’s global. This was a bubble;
1. In housing prices and mortgage debt
2. In consumer debt
3. In new and untested financial products
4. In commodities and
5. A bubble in bank lending, private equity deals and hedge funds

Quite a laundry list.