..the bulge was not precipitated by general stock-market excesses nor by an economy-wide bubble-crash. The excesses were focused in the housing and related financial markets -- banks, mortgage, and insurance companies -- starting in 1998 and accelerating to 2006. This created the mother of all housing bubbles...
- A "liquidity crisis." In every market, there is ultimately only one source of liquidity: buyers. And this is what central bankers hope to see return when they speak euphemistically of "restoring confidence."..
- During a bubble buyers are everywhere. Then, suddenly, they disappear, waiting, watching, delaying, reluctant to buy assets that others might not. That buyers will disappear in a bubble is predictable, what is never predictable is the timing. In his 1933 inaugural address, President Franklin Roosevelt said "the only thing we have to fear is fear itself." Yes, but the return of fearful buyers is just as unpredictable as the timing of their disappearance. And only the most arrogant will pretend to know what public policies will restore buyer "confidence."
- Cash is not scarce. Cash is just justifiably hard to loosen, and this makes it king. There are only three kinds of buyers in a downside housing/mortgage or equities market: those who buy too soon; the few who roll an 11 at the bottom; and those who are too spooked to buy until well after the crisis is over, if ever. Warren Buffet may be either too soon or about right. If he is too soon, it won't be his first time. The point is that no one can know.
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