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Vuja De!


With equity indices slinking along the slippery slope, the fevered fervor seems to be focused on housing these days. We have a pretty tight community here in the 'Ville and my mention of unavoidable acne last week seemed to rub some the wrong way. "How can you opine that the homebuilders are gonna break out when you've repeatedly said that we're in a bubble?" That's exactly the reason they can-and did-break out, Mon Frere, and it warrants a bit of discussion on another slow summer day.

While the names have changed, the game remains very much the same. Once upon a time, the "new economy" was all the rage and profitless stocks jumped 10, 20, 50...sometimes 100 handles in a single session. I remember watching the price action incredulously, knowing full well that when the schvitz finally hit the fan, there would be alotta bitter pills and sour pusses. That came full circle, in some instances, but as a function of Elmer's incessant aid, the bubbles morphed and migrated into other appetizing arenas.

There's a bull case for housing, of course-if there wasn't, the collective psyche wouldn't embrace them as they have. There were also alotta smart folks who rationalized stratospheric's, shifting their metrics from page views to eyeballs to eyelashes until they found some sorta rhyme to justify their upside reasoning. The process seems silly with the benefit of hindsight, yet we're seeing the same sexy sirens in the current real estate mania. Until the flippers have no "out," the Ponzi scheme will remain a theme and the belief system will remain in tact.

Where are we on the bubble curve? It's impossible to ascertain and I'm not brave enough to venture a guess. What I will say is that the same cultural characteristics that existed near the top of the tech bubble are firmly in place. There is a confident bravado among real estate professionals and the retail consumer has already embraced the "new housing paradigm." It's akin to the day trading phenomena that engulfed Wall Street back in the day but the vehicles and vernacular have shifted in kind. Instead of upgrades and secondaries, we're seeing open houses and second homes.

At a point, we will saturate and the debt laden, financed-based economy will begin to unwind. The key to our collective success is defining how far along we are in that process. Remember, alotta very smart investment professionals correctly identified the speculative excess in tech but were early on their bet. As the only difference between being right and being early is whether you're there to collect-and most short funds were squeezed out before their ship came in-there is no solace in after-the-fact reporting. I will only ask that you recognize the warning signs and respect the fact that irrational environments often outlast solvency.

For my part, and I've been wrong in my real estate approach, I've opted to rent rather than own. I know that most Minyans aren't afforded the luxury of that choice but I get a ton of mailbags from folks who "see" what's happening and have opted to punt their homes for alternative digs. As with stocks, these decisions are subjective and unique to the person and the place. But for what it's worth, my sense is that these proactive sales will, for the most part, look very smart when we look back in time and review our history lessons.

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