How to pop the bubble

"tim....." wrote

Hmmm. The article says that bears didn't have any way to influence the market, but of course they *did* -- they could pull-out of the market, decreasing demand, which....

I've been reading Schiller for about ten years. The guy really does know his onions. He's probably one of the few who were railing about the credit bubble even before I was.

FoFP

What about us bears who weren't in the market in the first place?

FoFP

"M Holmes" wrote

Easy - you just don't buy. That would be one less buyer than there could have been...

I think he explains that.

These people are invisible, they have no effect on what the lender does.

By actively "betting" against the market they can be seen, and thus have an effect (perhaps)

tim

"tim....." wrote

But as I said before, they *would* have an effect anyway, simply by their actions (or inactions) *reducing* demand. They wouldn't be invisible at all!

Of course this all presupposes free markets. What happened when shares in banks and Fannie and Freddie piled down? They banned short selling.

It seems to me that a big part of the problem is that there's an inbuilt systemic bias towards rising markets. During the Dotcom bubble, an analyst was actually forced out of his job for marking Enron a "sell".

Ditto during the main credit bubble. Folks trying to point out it was a credit bubble or even just a housing bubble were denied media type and cast as Cassandras.

Sure, short-selling housing helps. One company made 4 billion short-selling subprime mortgage-backs at the start of this and had "I'm Short Your House!" t-shirts made, but if it were commonplace and got in the way of a bubble, the politicians, backed by the public, would find a way to shut it down.

Back in the South Seas Bubble, they had some folks slung into jail for naysaying it. When folks have Dollars in their eyes, they just won't be stopped. About the only real hope would be controlling access to debt. That's not only tricky, but might well strangle innovation and thus throw the baby out with the bathwater.

FoFP

Hm,

you appear to be saying:

"it might not works, so we shouldn't try!"

tim

I still don't agree.

Companies don't, in the main, react to the opinions of their "non" customers.

If they are doing OK, they ignore them, doesn't matter whether the product is loans or beefburgers.

tim

I'm saying that it's a good enough idea but that it's anyway closing the barn door after the horse has bolted. If the housing bubble were to repeat (and thank Eris that the Magic Token at least changes each time) then the masses would not let anyone or anything stand between them and the riches they know lie at the end of the speculative rainbow.

At best, the short sellers would learn the meaning of the maxim "The markets can stay irrational a lot longer than you can stay solvent".

At worst they'd be strung from lampposts.

FoFP

"tim....." wrote

But *companies* don't make the market in residential houses; owner-occupiers, BTLers & developers do : they are the buyers & sellers, creating supply & demand.

The bears will either sell (if they already own) or not buy (if they don't own), thus increasing supply & reducing demand. That *does* have an effect on the market.

Few of these can enter the market if they don't borrow money

Only by a very small amount. I need somewhere to live. Someone owns the house that I live in. How does my renting it (by choice) tell the market that I don't want to buy at the moment?

By being able to invest in housing, other than by buying, I can have a greater influence.

tim

You obviously missed the bit that said this idea was "for the next time". And there will be a next time!

tim

Schiller has been floating some intelligent arguments for years. I've found his analysis of long term stock market returns fascinating. However, in the UK, Cantor, IG Index and Goldman Sachs have been offering spreadbetting and covered warrents on house prices for years.

There will in a couple of generations, but the Magic Token won't be housing. Personally I think we should give Daffodil bulbs a go...

FoFP

That would be perfect -- something I don't want/need :-)

As his books has fallen in price by 32% it would not be unreasonable to conclude that he is a bit of a w8nker.

Indeed, since the start of the current bubble I believe ;O)