Wednesday, February 25, 2009

515 Bubble Bath

515 Bubble Bath

By now we're all familiar with the bubble, but not necessarily with The Bubble.

We know about the huge inflation in house prices.

We knew about the technology bubble.

Some of us gained and lost a lotta dough in each.

Now, we're facing an older, bigger, tougher bubble, The Bubble, which no one has bothered to notice, but which has been inflating for seven or eight years.  The Bubble is the stock market.   It's been inflating faster than even health care and college costs.  And the air has been coming out ever rapidly for some months, now.

The Dow, for example, is several thousand points lower than it was this time last year.

And we are shocked.

The Obama Administration says it doesn't use stocks to gauge the state of the US economy.  Fine for them.  But you might.  

Prices soared way above value as Wall Street played musical chairs with your money.  No problem.  Except if the music stops and someone notices there aren't any chairs.

Well, it's not that there are NO chairs. It's just that there aren't nearly enough, and those that ARE there are pretty rickety.  

Those of us who are year-round bears figure the DJIA is heading for a natural level.  Where is that?  Don't know.  Probably 5500-ish.

Here's where the theorists come in.  They'll tell you what will happen after it happens.  The usual stuff.  and they'll try to tell you why.  And they will cover over their blah blah with some high sounding math.  And the math is supposed to make us believe them, because "numbers don't lie."  Hiding behind arithmetic is an old trick.  Fling sme numbers.  People will run, but believe.

But none of them will tell you this:  The GE you bought at $60 and sell for $10 is worth more than the 10 you'll get.  But it wasn't worth $60 back when you bought it, either.  No knock against GE, here.  It's just an example.

Here's another, just for illustration:  The Exxon you buy today for $70 isn't worth $70.  

But neither of these outfits is going under.  

It's just that we've forgotten how to price anything.

What's a house worth?  A car?  A Picasso?  A loaf of bread?  A package of mortgage-based secondary derivative hedge fund hedge clipper? 

It's just a way of showing the bubble and where the air's going -- for now.

Yes, we're all taking a bath.  A bubble bath.  The Bubble bath.

Shrapnel:

--President Obama's sort-of State of the Union speech was what America needed to hear.  More of a pep talk, really.  Or a pep rally, but still what we needed.

--We needed the "Republican reply" from Gov. Jindal of Louisiana even more.  He's the new face of his party.  And he is learning to sugar coat his discredited views such that we're almost convinced there's a reason to take them seriously.

--Whether it's 'Nam, 9/11, the birth of octuplets or the financial meltdown, you don't get it unless you were there.  And most of us haven't been there for most of these fiascos.  But we're going to be.


I'm Wes Richards.  My opinions are my own, but you're welcome to them.®
©WJR 2009

No comments: