Some press people are looking at the speculative increase in oil (up 260% in 6 months) and are asking "When will this BUBBLE BURST?"
They seem to be treating an increase in oil prices in the same way as the tech boom and the RE run up.
Over the past few years, we've seen ups and downs w/tech stocks, dot coms, general RE, subprime loans, and quite a few other things.
So, when the press now talks about "the _______ boom", they inevitably follow a few days/months later by talk of "the _____ bubble" and then "the upcoming ______ bust".
I found it hilarious when the press started talking about "the RE bubble" when RE started trending upwards (RE goes in cycles, something that's happened for decades, up-down-flat-up-flat-down-up- etc).
Because they'd been caught napping as the dot coms crashed (and took all their 401Ks with it), I think the press was determined to document the cyclic increase in RE as a similar "bubble" event to the dot com boom-bust.
Over the past few years, I read articles where "RE experts predicted" a RE bust for 2002, 2003, 2004, 2005, 2006 . . . all during this time, RE prices were going NUTS in some parts of the country. As you know, we rode this and made some great money (sold all of our residential RE in 2005, just as the market was starting to turn).
So while the press predicted gloom and doom, we made millions.
The press finally did got their "bubble burst". But it took YEARS for the predictions to come true.
Instead of just Chicken Little-ing and saying "Oh no! It's gonna fall soon!", we tried to learn what was going on w'/the RE markets.
Because we learned about the markets (instead of just worrying about when they would fall), we made lots and lots (and lots) of money.
In my opinion, the biggest reason we saw a run up in RE prices between 2000 and 2005 was
1. the massive lowering of interest rates, and
2. the subsequent FLOOD of cash into the markets, combined with
3. a HUGE number of people who wanted to cash in on their home's newfound equity, either by selling their home (and buying another), or by getting a HELOC (home equity line of credit) and using it like a credit card.
This prompted lenders (who were selling off the loans as mortgage backed securities) into a cash giveaway the likes of which I haven't seen in my lifetime.
So now we're in a RE downturn, just like many downturns we learned about when we studied the RE markets. Sure, this one had different reasons for the run up and down (each one does). But it had NOTHING to do w/what caused the dot com boom and bust.
For the press to draw parallels between RE's rise and fall to the dot com and tech speculative bubbles was just plain goofy. It showed a fundamental lack of understanding of how RE cycles work, or what was fueling the run up in RE prices.
I guess that's the point of this post/rant.
Just b/c something goes up does not mean it's in a "bubble". And when it's going up, the question to ask is NOT "when will it burst?", but "why is it going up", and "how long will it continue?".
The press's POV ("when will it burst?") focuses on the negative, money-losing part of the cycle.
Our 2 questions ("why is it going up?", "how long will it last?") look at markets and cycles, and try to understand them.
********
Before someone brings it up, yes, I know, you can "short" something, banking on its demise, and make money on a "burst".
But if you understand the market, why not do both-- make money on the rise, and the fall?
Make money-- like crazy-- while the prices go up.
And-- if you understand how the market works-- get out and "short" as its turning.
*****************
Back to where I started on this post: Oil going up has very little to do with the mechanism that caused the RE cycle to go up/down.
Even if oil increasing is due to speculation by investors (much like the dot com "boom"), the implications are quite different, as we currently rely on oil to run our lives. Unlike dot coms, we won't see a brand new website ("alternative fuel") that overnight draws 90% of the "traffic" away from buying from current oil suppliers.
Over time, yes. I agree w/Bilge-- having a run up in oil prices is *great* for alternative sources of energy, and developing new ways to get power. I see this as the biggest advantage of the rapid increase in oil prices: We will eventually become less dependent on oil.
But in the meantime, instead of looking at the potential "burst bubble", I wanted to focus on the fact that some folks out there are making a LOT -- a LOT of money on oil right now.
And the next time you read about a "bubble", ask yourself not "when will it burst?", but "why is it going up?" and "how long will it last?".
Asking these 2 questions gets you away from FEAR and LOSS, and focuses instead on HOW TO MAXIMIZE YOUR POTENTIAL PROFIT in all cycles of a growing market.
-Russ H.
They seem to be treating an increase in oil prices in the same way as the tech boom and the RE run up.
Over the past few years, we've seen ups and downs w/tech stocks, dot coms, general RE, subprime loans, and quite a few other things.
So, when the press now talks about "the _______ boom", they inevitably follow a few days/months later by talk of "the _____ bubble" and then "the upcoming ______ bust".
I found it hilarious when the press started talking about "the RE bubble" when RE started trending upwards (RE goes in cycles, something that's happened for decades, up-down-flat-up-flat-down-up- etc).
Because they'd been caught napping as the dot coms crashed (and took all their 401Ks with it), I think the press was determined to document the cyclic increase in RE as a similar "bubble" event to the dot com boom-bust.
Over the past few years, I read articles where "RE experts predicted" a RE bust for 2002, 2003, 2004, 2005, 2006 . . . all during this time, RE prices were going NUTS in some parts of the country. As you know, we rode this and made some great money (sold all of our residential RE in 2005, just as the market was starting to turn).
So while the press predicted gloom and doom, we made millions.
The press finally did got their "bubble burst". But it took YEARS for the predictions to come true.
Instead of just Chicken Little-ing and saying "Oh no! It's gonna fall soon!", we tried to learn what was going on w'/the RE markets.
Because we learned about the markets (instead of just worrying about when they would fall), we made lots and lots (and lots) of money.
In my opinion, the biggest reason we saw a run up in RE prices between 2000 and 2005 was
1. the massive lowering of interest rates, and
2. the subsequent FLOOD of cash into the markets, combined with
3. a HUGE number of people who wanted to cash in on their home's newfound equity, either by selling their home (and buying another), or by getting a HELOC (home equity line of credit) and using it like a credit card.
This prompted lenders (who were selling off the loans as mortgage backed securities) into a cash giveaway the likes of which I haven't seen in my lifetime.
So now we're in a RE downturn, just like many downturns we learned about when we studied the RE markets. Sure, this one had different reasons for the run up and down (each one does). But it had NOTHING to do w/what caused the dot com boom and bust.
For the press to draw parallels between RE's rise and fall to the dot com and tech speculative bubbles was just plain goofy. It showed a fundamental lack of understanding of how RE cycles work, or what was fueling the run up in RE prices.
I guess that's the point of this post/rant.
Just b/c something goes up does not mean it's in a "bubble". And when it's going up, the question to ask is NOT "when will it burst?", but "why is it going up", and "how long will it continue?".
The press's POV ("when will it burst?") focuses on the negative, money-losing part of the cycle.
Our 2 questions ("why is it going up?", "how long will it last?") look at markets and cycles, and try to understand them.
********
Before someone brings it up, yes, I know, you can "short" something, banking on its demise, and make money on a "burst".
But if you understand the market, why not do both-- make money on the rise, and the fall?
Make money-- like crazy-- while the prices go up.
And-- if you understand how the market works-- get out and "short" as its turning.
*****************
Back to where I started on this post: Oil going up has very little to do with the mechanism that caused the RE cycle to go up/down.
Even if oil increasing is due to speculation by investors (much like the dot com "boom"), the implications are quite different, as we currently rely on oil to run our lives. Unlike dot coms, we won't see a brand new website ("alternative fuel") that overnight draws 90% of the "traffic" away from buying from current oil suppliers.
Over time, yes. I agree w/Bilge-- having a run up in oil prices is *great* for alternative sources of energy, and developing new ways to get power. I see this as the biggest advantage of the rapid increase in oil prices: We will eventually become less dependent on oil.
But in the meantime, instead of looking at the potential "burst bubble", I wanted to focus on the fact that some folks out there are making a LOT -- a LOT of money on oil right now.
And the next time you read about a "bubble", ask yourself not "when will it burst?", but "why is it going up?" and "how long will it last?".
Asking these 2 questions gets you away from FEAR and LOSS, and focuses instead on HOW TO MAXIMIZE YOUR POTENTIAL PROFIT in all cycles of a growing market.
-Russ H.
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