Wednesday, October 04, 2006

Critical Milestone Reached

As everyone has probably heard by now, the DOW closed at 11,727.34, beating the record set way back in the dot com days. Maybe its me, but things sure don't feel as prosperous as they did back then. Still, breaking this record is psychologically important, if for no other reason than to finally put the bust behind us.

I read "The Next Great Bubble Boom" a while back, and even though the timing on some of those predictions was off, it looks like a lot of the calls made in the book by Dent are starting to happen. Oil is down, the Dow just peaked... and housing is flat at the moment. What does all that mean?

Well, if the book is to be believed, there won't be an overall crash just yet. But, there will be significant gnashing of teeth in certain segments of the housing market. Fundamentally, I believe that a crash of some sort is unavoidable. However, the timing of the crash is the hard thing to predict.

If you look back at the great depression, there were a lot of economists who predicted a great depression. The thing was, they were too early by several years. By the time the depression actually hit, they had all but been laughed out of a job by the people making money in stocks.

Still, it was little vindication for them to say, "I told you so" when the market finally did collapse. By then, everyone could see it for themselves, and it didn't matter.

Jump to the present.

There are a lot of people that look at the present situation and just think, "This can't last." Negative spending rates, current account deficit, you name it. But, something to keep in mind is that bubbles often last much longer than anyone thinks they can. Long enough to lure people into one last false sense of security.

The overall housing picture is not going to improve any time soon. But luckily for us, if the stock market keeps performing, we won't have to worry about it. We'll be able to turn our attention away, once again, and push the eventual settlement date down the road a bit further.

That might be good, or it might be bad. Me personally, I like to settle my debts up a soon as possible. It hurts more, but costs you less in the long term. Unfortunately, we have a nation that thinks the opposite. Play Now, Pay Later. Well, looks like the stock market might let us play for a little while longer.

And the smart people out there will take advantage of the respite and use it to get their homes in order.