August 27, 2006

Alan Greenspan's wisest words: "History has not dealt kindly with the aftermath of protracted periods of low risk premiums"

Read every carefully chosen word of this quote, which Greenspan made after he created the bubble (of course). Read every word, slowly, then go back and read every word again, and again, and again.

And you'll see what has happened, and what is to come.

Get ready.

Thus, this vast increase in the market value of asset claims is in part the indirect result of investors accepting lower compensation for risk.

Such an increase in market value is too often viewed by market participants as structural and permanent.

To some extent, those higher values may be reflecting the increased flexibility and resilience of our economy.

But what they perceive as newly abundant liquidity can readily disappear.

Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher prices.

This is the reason that history has not
dealt kindly with the aftermath of protracted periods of low risk
premiums

22 comments:

Anonymous said...

Some economists already believe that, with the supply of unsold homes standing at its highest in nearly 10 years, the chances of a recession are growing. Inventories of existing homes stand at 3.725 million units, according to the National Association of Realtors, representing more than six months' supply of homes at current sales trends.

The figure is 39 percent higher than this time last year.

The number of new homes being sold is also falling. June's figure of 1.166 million was 3 percent down on May, which was itself revised lower by the Commerce Department.

"You're going to see the oversupply get worse until we see a very sharp reduction in prices," said Dean Baker of the Center for Economic Policy.

"That's my basis for saying we're looking at a very bad situation which will almost certainly mean a recession."

http://www.hk-imail.singtao.com/
news_detail.asp?
we_cat=16&art_id=25760&sid=
9366538&con_type=1&d_str=20
060825

Anonymous said...

I think greenspan had a guilty conscious, and when history calls unkindly, he can say "I told you so"

panicearly said...

"Thus, this vast increase in the market value of asset claims is in part the indirect result of investors accepting lower compensation for risk."
indirect?

Lower compensation for risk?

negative cash is not lower compensation, its no compensation.

Anonymous said...

I believe the primary investors he's referring to that are taking lower compensation for risk are those buying up the securitized debt instruments on these exotic mortgage products. When the hedge funds realize that they shouldn't have bought up a bunch of crap debt just because it was "diversified", they'll demand a higher spread over traditional 30 year mortgages and over treasuries and Bernake won't be able to keep mortgage ratesd low.

David said...

Right on the MONEY!

Anonymous said...

every word makes sense now doesn't it?

get ready for a crash of epic proportions of all asset classes: real estate, stocks, commodities, cash. there will be no safe haven

borkafatty said...

Here is a little more history to start the week off.

http://english.bna.bh/?ID=49464

borkafatty said...

Noread it this way:

increase in the market value of asset claims,result of investors accepting lower compensation for risk.

increase in market value viewed by market participants as structural and permanent.

those higher values increased flexibility and resilience of our economy.

liquidity can readily disappear. onset of increased investor caution lowers asset values promotes the liquidation of the debt.

Anonymous said...

Who can put it in real simple and plain language so that our dumb and dumber real estate investor(s) will understand how screwed up they are, for being GREEDY and MISINFORMED.

FrankGiovinazzi said...

How many realtors and sales agents do you think will become "professional" poker players?

Anonymous said...

They ain't that smart! Cunning maybe!

Anonymous said...

how many realtors will go back to stripping, bartending and fleecing old people out of money?

Anonymous said...

I don't want to see my local realtors stripping, believe me!

Picture Marge Schott spinning on a pole in a G-string!!!!!!!!

Sorry

Anonymous said...

....or Betty Friedan!

Anonymous said...

....or Janet Reno!

Anonymous said...

....or Hillary!

Anonymous said...

.....i gonna kill myself!

Al_Greenscam said...

It was my banker benefactors and I who created the false perception of low risk premium for financial assets, including leveraged unreal estate.

Anonymous said...

Elvis and Inflation have left the building. We're screwed.

http://www.nytimes.com/2006/08/26/business/worldbusiness/26inflate.html?ex=1156737600&en=7339b2e1dc98a98c&ei=5087%0A

Rising Production Costs Join the List of What China Exports

By CARTER DOUGHERTY, International Herald Tribune
Published: August 26, 2006

During 20 years in the toy business, Anthony Temple has reveled in the bounty of cheap stuffed animals, coffee mugs and figurines on sale from China. But this year, his buying trip for his London-based company, Rainbow Designs, resulted in a rude awakening.

Mark Chilvers for The International Herald Tribune

Anthony Temple buys Chinese products for Rainbow Designs.

Traveling through the Pearl River delta north of Hong Kong, Mr. Temple found that cost increases — for raw materials, but above all for labor — dominated every discussion he had with suppliers.

Far from being keen to underbid each other, Chinese companies talked so consistently about marking up their prices 5 percent to 10 percent that Mr. Temple, whose company owns the British distribution rights to such cuddly creatures as Paddington Bear and Jemima Puddle-Duck, became convinced that these were not simply negotiating tactics.

“When I went over there, I was under the belief that China is a bottomless pit of cheap product,” Mr. Temple said. “When I left, I was not.”

the_economist said...

China's costs are rising b/c of the falling US$, rising commodity prices, and -2% real interest rates for ST money al_greenscam and his pals maintained wa-a-a-a-a-y too long.

Now, to prevent runaway inflation erasing real GDP growth around the globe, the Fedsters have to slam on the brakes and engineer a global recession to force Americans to reduce their drunken sailor-like spending, save more, and then crater the Chinese economy to show the Chinese that they don't have a self-sustaining economy, i.e., they need us and thus need to bow to our geopolitical/geoeconomic demands vis-a-vis Radical Islam.

Get ready for a global hard landing and escalation of war as a justification for more war spending in response to the global housing and consumer spending bust, as well as hard landing for China's production/export economy.

Anonymous said...

How would you like your real estate agent who talked you into buying a McMansion secured with an ARM or IO, perform a LAP DANCE on you? Will you forgive her?

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