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How I Learned to Stop Worrying and Love the Bubble

In June 2005 you read how a national bubble is “ridiculous” from one camp. They base this on “no national declines” since the Great Depression, forgetting that we also never saw this kind of crazy run up in prices that exponentially outpaced inflation.

In November 2006 the 3.5% decline in national housing prices I’m sure makes the people who said such a scenario was “ridiculous” wish the Internet didn’t exist – it’s so easy to go back and add their name to your list of “people who are not so good at predicting economic cycles.” However, generally a good rule of thumb in listening to experts is to first figure out if they have a vested interest in saying one thing or another. Eventually reality will force them to concede, but in an unclear environment, they will hope against all hope that they aren’t screwed.

With the biggest drop on record now there for all eyes to see, the new mantra is, “Oh it’s just adjusting and stabilizing. This is really the bottom.” Maybe. Maybe not. But I would not bet your life savings on the advice of people who called the possibility of a decline “ridiculous” just a year ago.

Since I poached and played with the title, I must link to one of my favorite movies of all time…

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