Are there any similarities with the last financial crisis?

[john7722]

Hi, when we had the last financial crisis I didn't pay much attention to the stocks or the economy.
Even I bought an overpriced house.
After the crash I was asking myself: How come I didn't see it coming ? Houses were selling in 1-2 days on the market, often for 10-20% above the asking price. Everybody was saying how insanely expensive the houses are but everybody was buying and flipping houses. Anybody could get a mortgage.
So I said to myself , when this situation happens again I should be able to spot it and possibly buy some puts on banks and homebuilders .

Does anyone who has been following the economy for many years see any similarities with 2008?

Shouldn't there be some kind of correction in real estate with mortgage rates rising?

Thank you

 

[The_Krakenite]

Does anyone who has been following the economy for many years see any similarities with 2008?

To me, it's always been common sense. Ridiculous high PE does not end well. But for some reason, common sense never applies to the markets. Once people feel they are missing out, euphoria kicks and everyone wants to think "This time it's different!".

When I was in university I watched the 2000 bubble form, and as a computer science major, I looked at Yahoo, etc, and though, 'ohh my god. wtf are people doing?' Well, the crash did not disappoint.

Since then, I've watched the same pattern repeat over and over again. Housing bubble I was glad to see burst. Got sick and tired of everyone thinking that everyone buying a house would retire a multi-millionaire many times over (for reasons). Even my mom got all caught up in that shit-show when I warned her. Weed-stocks bust in Canada was also stupidly funny, the insane prices for stocks that could only turn a profit if it was the only company around to supply the whole world's supply. Are you kidding me or what? Looks like US investors who were late to the party are about to make the same mistake now....

Over time, I've realized more and more about the herd mentality is a real thing... another reason why there is no such thing as efficient markets.

 

[john7722]

So the question is: " is the real estate market going to slow down or crash ?"
And if there is a crash in real estate how will it effect the rest of the sectors?
Are we gonna have massive foreclosures and how will it effect banks?

From the little time that I follow the stock market and the economy I noticed that steep exponential rise in prices if not sustainable and eventually there will not be enough money in the economy to continue driving prices in that steep curve but when is it gonna invert?

The_Krakenite are you buying any puts with part of your portfolio ? IF so , do you do it in sectors or specific companies?

 

[nitrene]

Weed-stocks bust in Canada was also stupidly funny, the insane prices for stocks that could only turn a profit if it was the only company around to supply the whole world's supply.

Yeah these traders who have driven up the price of Tilray, etc. will be sorely disappointed when the Senate says no to the legalization bill for like the 100th time. These people never learn. The Octogenarians running this country will never legalize Marijuana.

Bubbles happen so frequently in the west especially America because there is no economy anymore here. It was all shipped to China, Southeast Asia & LatAm thanks every President since Clinton. What is left is the financialization of holding company ownership.

 

[The_Krakenite]

The_Krakenite are you buying any puts with part of your portfolio ?

Only on a fat-finger order. I short PUTs, and never buy them. Usually when I feel like making the purchase on PUTs, the slippage is too much and the premiums already rose too far for my tastes.

Now, if I had Pelosi's crystal ball, I'd be purchasing PUTs like Ray Dalio and making them print billions.

 

[nitrene]

I think the current real estate boom can partially be reasoned out as people who made a lot of money in the large urban areas and are moving from San Francisco, NYC, Boston, Chicago, Seattle, etc. to Florida, Texas, Tennessee, etc. especially with the work from home background. They are moving because those areas are in crazy bubbles and there is no more building of housing going on.

I live in the SF bay area and the governments here do not want to build any more housing because the NIMBYs are concerned their view of the Bay will be spoiled by the plebeians buying real estate. The home building ETFs are all down like 20-30% in 2022 so it doesn't look good.

If it is a real bubble the Banks will collapse just like in 2007-2008. The Financial sector ETF (XLF) has done poorly since the start of 2022. I sold my position in January when it went below the 50-day SMA. Insurance companies have done well but not the large global banks which is strange since in theory they should benefit with a higher interest rate. Something is wrong with the large banks, JPM has gotten crushed this year.

I remember when the banks started to collapse in Q1 2008 I started buying puts on Lehman & JPM. I also bought the SKF ETF -- -2X Banking Sector. Now you can buy the FAZ which is -3X the banking sextor. I would say below the 200-day SMA on the XLF would be a serious sell signal.

 

[TheDawn]

Hi, when we had the last financial crisis I didn't pay much attention to the stocks or the economy.
Even I bought an overpriced house.
After the crash I was asking myself: How come I didn't see it coming ? Houses were selling in 1-2 days on the market, often for 10-20% above the asking price. Everybody was saying how insanely expensive the houses are but everybody was buying and flipping houses. Anybody could get a mortgage.
So I said to myself , when this situation happens again I should be able to spot it and possibly buy some puts on banks and homebuilders .

Does anyone who has been following the economy for many years see any similarities with 2008?

Shouldn't there be some kind of correction in real estate with mortgage rates rising?

Thank you

The last financial crisis wasn't brought upon by the real estate bubble alone. It was brought upon by mortgage fraud and derivatization of mortgage fraud and derivatization of derivatization of mortgage fraud. The real estate might be overpriced this time yes but not everybody can get a mortgage nowadays. And derivatives trading are a lot more strictly regulated this time. So no, there are some similarities but not everything is the same as last time. I wouldn't buy puts on the banks or the market if I were you, puts on homebuilders, maybe but not on banks or the market, not this time.

 

[newwurldmn]

The last financial crisis wasn't brought upon by the real estate bubble alone. It was brought upon by mortgage fraud and derivatization of mortgage fraud and derivatization of derivatization of mortgage fraud. The real estate might be overpriced this time yes but not everybody can get a mortgage nowadays. And derivatives trading are a lot more strictly regulated this time. So no, there are some similarities but not everything is the same as last time. I wouldn't buy puts on the banks or the market if I were you, puts on homebuilders, maybe but not on banks or the market, not this time.

Exactly. people were not looking at credit quality but rather at the interest that could be received. And then people juicing their equity returns off that interest by borrrowing from other people who weren’t looking at credit quality but rather at the interest that could be received.

there are many signs of that now as well.

 

[ET180]

Only on a fat-finger order. I short PUTs, and never buy them. Usually when I feel like making the purchase on PUTs, the slippage is too much and the premiums already rose too far for my tastes.

Now, if I had Pelosi's crystal ball, I'd be purchasing PUTs like Ray Dalio and making them print billions.

Put spreads help with the premium. I usually sell calls instead and put the elevated premium in my favor. Most of the time things won't just crap out but instead just stay stuck in a range.

 

[ET180]

I think the current real estate boom can partially be reasoned out as people who made a lot of money in the large urban areas and are moving from San Francisco, NYC, Boston, Chicago, Seattle, etc. to Florida, Texas, Tennessee, etc. especially with the work from home background. They are moving because those areas are in crazy bubbles and there is no more building of housing going on.

I live in the SF bay area and the governments here do not want to build any more housing because the NIMBYs are concerned their view of the Bay will be spoiled by the plebeians buying real estate. The home building ETFs are all down like 20-30% in 2022 so it doesn't look good.

If it is a real bubble the Banks will collapse just like in 2007-2008. The Financial sector ETF (XLF) has done poorly since the start of 2022. I sold my position in January when it went below the 50-day SMA. Insurance companies have done well but not the large global banks which is strange since in theory they should benefit with a higher interest rate. Something is wrong with the large banks, JPM has gotten crushed this year.

I remember when the banks started to collapse in Q1 2008 I started buying puts on Lehman & JPM. I also bought the SKF ETF -- -2X Banking Sector. Now you can buy the FAZ which is -3X the banking sextor. I would say below the 200-day SMA on the XLF would be a serious sell signal.

Home builders are down because of higher interest rates, higher labor and material costs. Lumber especially, but everything is more expensive.

Big difference I see between now and 2008 is the willingness of the Fed and govt to destroy the currency in order to keep asset prices as nominally high as possible even with headline unemployment (although not real unemployment considering labor participation rate) near record lows. Interest rates should be far higher given the conditions, but everyone knows there's just too much debt for interest rates to be where they should be. Of course if interest rates are higher, asset prices would correct and there goes your wealth effect.