How Foolish We Were …and Will be Once Again!


Ultimately all markets go in cycles. The concept that property, to name but one sector, would forever go up, was a delusion of the Florida land grab of the 1920s and umpteen other times in history, not just the very recent past… Sadly in the modern age, the analysis remains that even with new-fangled tools to lose money by, the old fashioned methods of over-leverage and foolishly bullish beliefs are working just fine too.


Modern investment means we have new tools all the time. Just as guns kill people, it is always a surprise to the uninitiated (or the media) to find out that using tools which make money faster on the way up turn into very unpleasant money loss engines on the way down too!

Right now the US, the UK and various other nations have a big hangover in the wake of an amazing party.

At the end of the day we can blame CDOs and so forth and they are indeed a key part of the whole fiasco. However, the simple fact remains that nations have over-geared their orientation to property and are now paying a very very severe price as the property cycle turns. On a macro scale some nations have overgeared themselves and that will turn into a bloody witchhunt amongst those who are culpable in due course.

There are of course pockets of property gain – and I certainly hope my positions in various facets of Eastern Europe will ride out the storm better than many western markets but then again who knows…

On the other hand we cannot expect such emerging markets to hold up the US economy as purchasing power is so different. However, there are possibilities of markets which will grow – perhaps in fits and starts – amongst the emerging world, just as there are those with budget deficits who are going to have an ugly summer once economic reality hits.

Central banks are once again acting as lender of last resort in a big fashion and confidence is required across the board. No doubt about it, as this “Motley Fool” article suggests, here are some amazing companies out there to invest in. The problem remains, just when is going to be the right time?

Given the crisis we have seen so far, the actual major indices are not _that_ far away from their highs and that is either a wonderful sign of robustness or a very worrying harbinger that maybe, just maybe we are edging closer to a situation akin to 1929 once again.

I am not saying we are, but just as being long property has turned for many into a one way street of misery when the market turned, I am not confident enough to say that there is no chance of a recurrence of savage past equity market falls in the latter part of this year.

The concept of “A Nation of Enrons” is a major concern,. Not just because it suggests a lot of hiddne debt that is junk but also because it suggests a lot of digging must take place and a great deal of soul-searching before confidence will return. That is a big big worry in this marketplace.


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