Monday, March 07, 2005

Nasdaq bubble shifts to real estate

WSJ: In market experiments conducted by George Mason University professor Vernon Smith, who shared in the 2002 Nobel Prize for economics, participants trade a dividend paying "stock" with a very clear fundamental value. A bubble invariably forms, and then bursts. If the experiment is repeated with the same people, a bubble forms again. The second time, though, participants think they will be able to sell their positions before trouble strikes. Participants express surprise that they weren't able to get out before the second collapse.

In the wake of the Nasdaq collapse, this echo-bubble phenomenon doesn't seem to have occurred in quite the same way as in the lab. Unlike Mr. Smith's experiments, where there is only one thing to trade in, the world offers investors myriad choices.

The zaniness that characterized 1999 and the early months of 2000, when shares of untested companies built on blue-sky expectations could skip 30% higher on the slightest scrap of news, for the most part doesn't exist any longer, says Doug Kass of the hedge fund Seabreeze Partners. He believes much of the mania has shifted into real estate.

Along with big price jumps in many housing markets, 23% of U.S. home sales last year stemmed from investment purchases, according to the National Association of Realtors. For his part, Mr. Kass says people he knew from near his Palm Beach, Fla., home who were day trading stocks back in 2000 are now all real-estate brokers.

"We have day trading in homes instead of day trading in stocks," he says. "It will end the same way, and it will be the same guys delivering the product."

Yale University economist Robert Shiller, who like Mr. Kass had a negative view on the U.S. stock market in 2000, also says the real-estate market is where the speculation is. While his survey work shows that investors still have a positive view of stocks, he believes that view reflects more grudging optimism than glee.


CalculatedRisk said...

Get in before it is too late ...

From ABC News Sensible Shopper: Real Estate 'Flipping'
What You Need to Know to Get in on the Trend in the Hot Real-Estate Market

Have fun flipping ... Oh my!

Anonymous said...

Though I anticipated the end of the NASDAQ bubble - I really should have - I still wonder what was the cause of the end. Was it interest rates? Was a final Fed tightening of 50 basis point in May 2000 the end? After all, NASDAQ stocks were not supposed to be tied to the bond market.

What ends this run in real estate prices? Interest rates? Can the end be gentle, since homes are stickier assets?


Anonymous said...

By the way, I never understood the 50 basis point Fed tightening in May 2000.


Anonymous said...

Well then, we are reasonably sure housing prices are inflated. We may even be reasonably sure there is a bubble in housing. What are we to do? The bubble in 1999 was no problem, for there were broad market sectors such as health care and REITs that were well valued. There was also the bond market. The Fed was finishing a tightening sequence early in 2000, and bonds were a perfect alternative to stocks. What now? Real estate is expensive, bonds are expensive. My guess is stock this time as a defense.


Anonymous said...

Hans Bethe has died.


Anonymous said...

Hans Bethe

Anonymous said...

Hans Bethe, Father of Nuclear Astrophysics, Dies at 98

Hans Bethe, who discovered the violent force behind sunlight, helped devise the atom bomb and eventually cried out against the military excesses of the cold war, died late Sunday. He was 98, among the last of the giants who inaugurated the nuclear age.

His death was announced by Cornell University, where he worked and taught for 70 years. A spokesman said he died quietly at home.

Except for the war years at Los Alamos, N.M., Dr. Bethe lived in Ithaca, N.Y., an unpretentious man of uncommon gifts. His students called him Hans and admired his muddy shoes as much as his explaining how certain kinds of stars shine. For number crunching, in lieu of calculators, he relied on a slide rule, its case battered. "For the things I do," he remarked a few years ago, "it's accurate enough."

For nearly eight decades, Dr. Bethe (pronounced BAY-tah) pioneered some of the most esoteric realms of physics and astrophysics, politics and armaments, long advising the federal government and in time emerging as the science community's liberal conscience.

During the war, he led the theoreticians who devised the atom bomb and for decades afterwards fought against many new arms proposals. His wife, Rose, often discussed moral questions with him and, by all accounts, helped him decide what was right and wrong.

Dr. Bethe fled Europe for the United States in the 1930's and quickly became a star of science. As a physicist, he made discoveries in the world of tiny particles described by quantum mechanics and the whorls of time and space envisioned by relativity theory. He did so into his mid-90's, astonishing colleagues with his continuing vigor and insight.

In a 1938 paper, Dr. Bethe explained how stars like the Sun fuse hydrogen into helium, releasing energy and ultimately light. That work helped establish his reputation as the father of nuclear astrophysics, and nearly 30 years later, in 1967, earned him the Nobel Prize in physics. In all, he published more than 300 scientific and technical papers, many of them originally classified secret.

Politically, Dr. Bethe was the liberal counterpoint (and proud of it) to Edward Teller, the physicist and conservative who played a dominant role in developing the hydrogen bomb. That weapon brought to earth a more furious kind of solar fusion, and Dr. Bethe opposed its development as immoral.

For more than half a century, he championed many forms of arms control and nuclear disarmament, becoming a hero of the liberal intelligentsia. His wife called him a dove, Dr. Bethe once told an interviewer, adding his own qualifier: "A tough dove." His gentle manner hid an iron will and mind that had few hesitations about identifying what he saw as error, hypocrisy or danger. "His sense of duty toward society is so deeply ingrained that he isn't even aware of its being a sacrifice," a close colleague, Dr. Victor F. Weisskopf, once remarked....


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