Wednesday, October 05, 2005

Sayonara, bubble!

Sayonara, bubble!

Recently, there has been a mini-bubble in articles claiming that the housing bubble is about to pop.

I don't pay that much attention to most articles, since a wise friend told me a long time ago that articles are simply the filler that publications jam into the holes between advertisements.

However, when one of the world's greatest investors, and certainly the world's leading expert on bonds says that the bubble's end is nigh, and backs it up with statistical analysis, I pay attention.

I refer you now to the great Bill Gross.

For those of you who are lazy, here is the rub:

"I think it’s pretty clear that real housing prices have peaked on average four to six quarters after the central bank first raises interest rates and following what appears to be 200 basis points of short-term rate hikes. The tightening then continues (too much exuberance!) another two quarters thereafter for what looks like a total cyclical increase of 300 basis points or so. With the caveat that many countries in this study have housing markets with greater sensitivity to short rates than our own, I find it illuminating that our own Fed has raised policy rates for nearly five quarters now to the tune of 275 basis points, dead on the average point where real housing prices have peaked over the past 35 years."

No comments: