01/22/2008

Bubble Trouble

Hello:

Today, the Federal Reserve cut interest rates by 3/4% without waiting for their January meeting scheduled for next week. Most of Wall Street was expecting only a 1/2% cut and not until next week.

The last time the Fed acted this way was September 17th, 2001, during the deflation of the technology stock bubble and approximately 13 months before the bottom of the tech stock rout. If we were to equate the tech stock bubble timeline to the real estate bubble timeline (did I say bubble?), then we could start looking for a bottoming in early 2009.

Could it be the Fed learned from the technology bubble, and has acted sooner this time around?

Usually, price patterns of manias mimic the classic A-B-C wave pattern of an "A" wave down, a "B" wave partial rebound, and a "C" wave down. For the technology stocks, the peak was in March 2000 and the nadir was in October 2002 -- a duration of approximately 31 months. If one uses the same pattern for analysis of the Real Estate Market, which apparently peaked in January 2007, then the base could be expected in or around the summer of 2009.

So, our best estimate for the base of the domestic real estate market, at this time, is the 2nd to 3rd quarter of 2009.

How's that for depressing?

Are the market gyrations keeping you up at night? Call us to set a telephone appointment for a review of your portfolio and your investment philosophy!

Terri G. Millson, CIMA, CIMC President

Ray Dicius, CSA, GEPC LPL Branch Manager