Roubini makes a nice summary of out path to the present issues in our economy....

Noriel Roubini outlines a very straight forward description of the events leading up to our present situation. He notes that the regulators have solved the excesses of one bubble by creating yet another. "Serial bubble makers".

According to Roubini, if the economy is a party, the fed is the controller of the punch bowl.....and when the fed saw the partiers getting a little to drunk and going into an unsustainable bubble position, they should have taken away the punch bowl....but they instead added volka and whisky...causing us to "fix" that bubble with yet another and larger one somewhere else.

He thinks we might be out of places to build bubbles, and it might be time to address the problem.

Do we have a "new" bubble?

I might be a looking at things a big sideways.....but back when we were talking about "hard landing" vs "soft landing" for our economy....I always felt that talk was "code" meaning not whether or NOT we would crash....but whether we would do so with a thud.

Well, as I look back I feel we probably should have seen a "landing" of sorts perhaps in the 80's for this is when the us started down our slow slide of personal savings decline....and when our government debt began to climb. I think we were essentially cashing in our "wealth" for short term "bling".

We went from just not saving to creating a debt bubble around our homes now known as the housing bubble. Once again, we traded away long term value in our homes for quick cash....taking out home equity loans and mortgaging new homes to the max.

Now I see our economy stalled....and how do we try to "prop it up"? Well, our government is cranking up the printing press and handing out dollars to failing companies "too big to fail".

Well....I wonder if that isn't some form of "bubble" mentality working again where we basically bubble up the amount of money in circulation until someone notices and decides the dollar is valueless.

I think we will see the crash of the Dollar should the world move away from supporting the US debt and begins using some other currency we the standard for value.

Woe is the USA when that happens.....hello hyperinflation!

It would be funny if it were not true!

Here is a chart (above) from the Onion....it is spoofing the fact that we seem to be repairing one bubble by going into another!

No kidding....the .COM bubble was "papered over" by acceleration of the Housing Bubble....which is currently being papered over by the Commidities Bubble.

Why not create another one!

Here is a finance blogger who has a theory about the NEXT bubble....

According to Money and Such, the next bubble after say the current housing bubble is already forming in the commodities market. (here is an old article that says the same)

I guess I'm not sure what the definition of a bubble is, but it might be the case since the cost of commodities has been rising quickly.

What to do.....riding a bubble isn't too bad....getting out at the right time is the key.

Hmmm......I guess this is the answer to a question I had a long time ago.....

The question was whether our decaying economic situation would result in a fast and abrupt collaps of markets or whether it would be a slow decay.

Looking at my portfolio results above for the last year.....it has been up and down on a daily basis....but pretty much a slow and constant decay as seen by the graph above.

This is what the Federal Reserve people call a "Soft Landing"......it sounds so nice.....like something you want to experience.....it would be quite a different feeling if they called it a "Slow Death"....or "death of a million cuts".

How to invest in times like these.....I believe these are times when people running the world economies are working hard to "rebalance" values and money in order to better represent the actual shifts of wealth.

Yes, it isn't like a grand puppet-master orchestrating it all...I'm not a conspiracy kind of guy....the world it too big for that....but at this point, everyone is working together to try and deflate the "balloon" of instability that our seemingly drunken credit binge seems to have left us with.

Where to invest.....how to invest in times like these is the question......

How is our economy doing?

Warren Brussee wrote a book called The Next Great Depression 2007, and I reviewed it a while back in this BLOG.

I thought it was an interesting analysis of what was going on, and I wasn't sure whether it was correctly viewing the future.

You see, I think the world and US economies are very complex things. They are hardly the simple supply and demand curves we all learned about in our Macro-Economics classes. They have all sorts of active influences that are not always logical....but often emotional and irrational too.

But the two things that have struck me personally in the last few years are the lack of savings (we have become a credit culture) and the various bubbles that seem to have grown and at times burst.

The savings rate is documented in the graph in this post. It has now been negative for a couple of years.....and I don't think this can be sustained forever.

The latest bubble that is slowly deflating is the housing bubble. Over prices houses....but this is a huge problem......people rely on those increasing values to fund all kinds of things. They take out second mortgages to spend the money. The other problem is that when people get "upside-down" on a house, they can't sell it for they have no savings anywhere else to pay the loss they have.

ARM loans adjustments have been going up with the interest rates these days, and people often find their monthly payments going way past what they planned.....making them cut back in other areas.

A full 70-785 of our economic activity is based on spending.....with depressed spending levels comes dramastic decreases in economic health. So we are encouraged to spend.....new financing techniques are invented when the old one's become impossible to use.

But we are only delaying the inevidable slide....would it not be better to slide than to "fall"?

Oh well....I suggest people save. Save for a rainy day, and do so with great diversification, because if things begin to slide...or God help us FALL, we will want to make sure at least a part of our money is in a place that is not affected. (lest we lose everything...as some did in the '29 Depression)

Does the National Association of Home Builders Buyers Confidence index measure future Stock Market Pricing?

I just read this article in Yahoo Finance that references the graph here. This graph was created by Liz Ann Sonders, chief investment strategist at Charles Schwab & Co. It is a comparison graph of the National Association of Home Builders' Housing Market index (a monthly measure of builder confidence) against the S & P 500 stock market index, with a one-year delay.

It is an amazing fit, at least since about 1994. (I wonder why the start of the line before '94 was not a good fit at all?) Anyways, as you can see, the start of 2006 shows a severe slide of confidence, and according to this article, the worst slide in housing ever.

According to Warren Brussey's (who wrote the book "The Second Great Depression") November Amazon BLOG entry:

"To keep selling homes, builders have reduced prices nearly 10% in the last year, the largest drop in 35 years. Existing home prices have dropped 2.5%, the largest drop in history; but they still are not selling."

The one year delay may make some sense, not only because (as the Yahoo Article notes):

"Housing downturns happen in a fairly slow-motion way, and I really think we're just at the beginning of the impact on the market and the economy."

Another interesting comment I came across in this Merriman Capital Podcast dated November 3rd was that there was a lot of money fleeing the housing market right now, and going into stocks. They wondered if this might might be what is currently driving the market up right now and if this rise might continue just a little longer until either the money is all in play, or housing gets better. (this might be the reason for the typical 1 year "delay")

In searching for others who might have beat me to this story, I found two people who already BLOGGED about this very thing. Larry Nusbaum's BLOG describes a 79% correlation between the two plots since 1994.....but even Larry references WCW's BLOG that shows that before 1994, there was very little correlation. (so who knows what kind of connection there really is.....or what other factors are also involved)

Just as a somwhat related aside, here is another page guy (Nouriel Roubini is a professor of economics at the Stern School of Business at NYU and chairman of Roubini Global Economics, an economic consultant group.) who believes the rise in prices since about 1997 have had no economic reason behind them....except perhaps a speculative run-up. He notes that this bubble is now popping.