I received today the following short email from a friend and former business colleague:
"I'm having all these intense flashbacks to the mid-1990s; you know, when the Dow was 6,600 and we were totally pumped about it...."
Or maybe, as the Beatles said, we are getting "back to where we once belonged." I read the other day that 50% of all stock portfolio holdings are now in money market funds, in other words cash. I also noted here recently that while many homeowners' equity has been savaged in the last three years, many millions are in homes they bought a decade or two ago, before the major run-up in prices that caused the speculative buying and the sub-prime borrowing that led us to this moment in time. They have equity, in many cases a substantial amount.
I am also hearing from real estate agents in a range of markets that 2008
Today, in a conversation with Marian Schaffer, a professional real estate broker who specializes in southern U.S. properties, we agreed that a lot more cash than meets the eye is waiting on the sidelines. Marian, who is the principal of Marian Schaffer Realty, made an additional point about market psychology that I think is extremely relevant to the times we are in.
"After the Enron fiasco," she said, and I am paraphrasing a bit, "many people lost some faith in the credibility of the stock market. Now, all those people who invested in blue chip companies like General Electric may never come back to the stock market. What are they going to do with their money?"
She answered her own question: "They are going to figure, what the heck, I can go buy a nice house in a warm climate, have a nice life and forget about the stock market."
I agree, and I also repeat that when the housing market stabilizes, that giant sucking sound we hear will be millions of baby boomers heading to warmer climates. Those on the early edge of the migratory flight will reap the best bargains.