[quote=CA renter]Pretty much in agreement with your timeline, but disagree with fear and greed causing “artificial” lows and highs. Fear and greed are normal in any market and drive prices up and down based on emotions (and technical analysis, IMHO).
While fear and greed do cause the normal fluctuations seen in any boom/bust market, when I refer to “artificial” forces in the market, I’m specifically referring to intervention or actions that are not related to emotions or fundamentals. Actions and policies that are not normally a part of the market (like when an investor/govt/entity corners the market in a particular good), or when credit is ramped up to such levels that there is no possible way for it to be paid back, etc. Governmental intervention or institutional intervention on a large scale — especially over an extended period of time, and also when they run counter to what “the market” wants to do — would be considered “artificial” forces, IMHO.
Not sure if that’s really clear, but there is a distinct difference between “normal” market forces (which include fear, greed, euphoria, etc.) and “artificial” forces, IMHO.[/quote]
CAR – Fear and greed in normal markets seldom alter inevitable decisions, rather they induce greater due diligence. I was afraid buying my first home, but did it anyways because it made sense from a financial and life circumstance perspective. Fear and greed in an inflating/deflating bubble environment are at a totally different level and leads to irrational decisions. Examples are buying a 500K house on 30K income on the upside, artificially inflating prices. Conversely on the down side, being afraid to buy when prices are below book value (or cost of construction), with the land and landscape thrown in for free, or when rent to PITI parity is exceeded. These are examples of inducing artificially low prices relative to historical norms.
On your second point, I was literally stunned by your assertion that Govt intervention or artificial forces are not imbedded into normal markets. To coin a phrase from one of Allans posts, I almost blew Coke Zero out of my nose. Please don’t take offense, but you cannot possibly believe we live in a laissez-faire free economy? It has never existed, not even for a nanosecond. If you widen your field of vision from the past 5 years to say the past 200 years, you’ll need a calculator to add up the number of times our govt has interfered to promote economic growth via bailouts, monetary stimulus, fiscal stimulus, erosion of civil liberties, etc. Here are a few examples; taking an equity stake in the first banks in late 1700s, railroad system of the 1800s, creation of the federal reserve in early 1900s, FDRs the New Deal, the Marshall plan after WWII, Eisenhowers interstate freeway system, Reagans defense spending bubble, not to mention the thousands of regulatory, deregulatory actions taken to combat the baneful actions of the oligarchs or the suffocating nature of excessive govt. Govt intervention and its residual effects is the normal market.
