on the bubble

In the late 1990s I was making money hand over fist. My investments in the stock market were winners more often than losers and the value of my 401(k) skyrocketed. I felt like the market was getting over priced and, one Friday in March of 2000 I transferred all of my retirement assets into cash. I would have done the same with my personal trading portfolio, except the tax obligation on the gains would have eaten me alive, so I didn’t liquidate those assets. Because my retirement account gains were not subject to taxation at the time of sale, it allowed me to liquidate without penalty. It turns out my timing was almost perfect and I sold the market at an all time high. It also turns out that had I sold off my trading portfolio and taken the tax bite, I would have ended up way ahead.

My problem was that I recognized a bubble in the stock market, but I didn’t realize the height of the bubble and when the market sold off more than ten percent, I was back in and buying. By doing so I was able to erode some of my spectacular gains. I also managed to piddle away a lot of the value of my personal portfolio by holding on while the market continued to fall. Because of that experience, I was able to recognize the height and breadth of the market bubble.

Tonight at chez Jimbo’s girlfriend, we were watching HGTV and a program about how much house one could buy in various cities around the country for varying degrees of financial commitment. While I was impressed how nice some of the $500,000 and $750,000 homes were, I found myself wondering what kind of people could afford these half-million, three-quarter-million and one-million dollar houses? I also asked myself what kinds of jobs allow these people to pay $6000 per month house payments?

The program cited various stories of people who had purchased houses a year or two ago whose value had appreciated by six figures in less than two years’ time. I distinctly remember one homeowner who advised us all to get off the sidelines and take a chance on housing because there are gains to be made.

Somewhere, in my thoughts about how nice it would be to have a house like some of them that were presented, I saw the shadow of that bubble begin to rise in the background. It was like déjà vu, as Yogi Berra used to say, all over again. Once it becomes so easy to shave one hundred large off a quick flip of a real estate deal, it becomes easy to watch those six figures evaporate away into nothingness and bankruptcy. I wonder if the smart money is on the buy side or on the sell side.

Jimbo’s girlfriend went out with her parents today shopping for houses. She came back saying the houses were nice, but the prices were too high. We decided tonight that we are happy where we are and that chez Jimbo’s girlfriend will be our happy home for a while. I hope her parents are able to find themselves an economical home. I’m sure they will find something very affordable because they are sensible people, and I seriously doubt if they will get caught up in the bubble market.

But it is my concern tonight there is a bubble that is growing out of control and when it breaks, we’re all going to get gooey. I hope when it does, we’ll all be safely out of the way.

At least that is our hope here tonight in Jimbo’s world.