The Chart Of the Day -- A History of Home Value

(Click on the image to enlarge)

When I saw this chart, my eyes popped -- OMG, now I understand how we got here. Geez....the great housing bubble is truly is a Great Bubble. With those vanilla(derivatives) icing putting around the housing values -- no wonder we have such a big mess. It was lucky that we escaped the Great Depression 2.

Let's quote Mr. Thomas Gradgrind.

"Now, what I want is, Facts. Teach these boys and girls nothing but Facts. Facts alone are wanted in life. Plant nothing else, and root out everything else. You can only form the minds of reasoning animals upon Facts: nothing else will ever be of any service to them. This is the principle on which I bring up my own children, and this is the principle on which I bring up these children. Stick to Facts, sir!"

So facts you want. How do you define a horse?

"Bitzer," said Thomas Gradgrind. "Your definition of a horse."

"Quadruped. Graminivorous. Forty teeth, namely twenty-four grinders, four eye-teeth, and twelve incisive. Sheds coat in the spring; in marshy countries, sheds hoofs, too. Hoofs hard, but requiring to be shod with iron. Age known by marks in mouth." Thus (and much more) Bitzer.

Bitzer ability to define a horse is extra-ordinary which in no way I can match. Let me try anyway. The fact is the US housing price gone up by double in value, had declined half-way down and has more to go based on the law of reversion-to-mean.

What I am saying governments will do what ever it takes to contain the banking mess from damaging real economy. I still believe that banking stocks should be avoided as long-term buy until toxic assets are purged. Purging by manipulating accounting rules is not counted.

This rally is liquidity driven, so watch the cash level of institutional players. From psychology point of view, if your fund is down by 50% in the last two years and I can guarantee you if these managers don't start buying and missing 20-30% or even 40-50%, they can expect their clients to pull out money and chase after those performing one. The fear of missing the party and not short covering is driving the rally now, you know it because you can see people was buying on every dipped.