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Post in July 2019   Stock market keeps going up. Nasdaq stays above 8,000 and S&P 500 Index reached new highs to 3,000 range. One contribution to highs in stock market is the low return of treasury bonds (and possibly low interest rate). The S&P 500 Index chart above shows two bubbles (泡沫), and two clear V-shape bounces. The near term looks bullish and the longer term might look scary. The third bubble could be called Debt bubble or QE bubble.

Post in December 2012   In 10 years of US history from 1999 to 2009, many people were hurt by the two financial bubbles (泡沫). One was in the stock market around 2000 and the other was in the housing market around 2007. When their charts are placed on the same page, the trends are nearly identical in spite of different time horizons. Six years later, the housing market followed the trend of the stock market.

Nasdaq stock index from January 1995 to December 2003

Source: finance.yahoo.com

House price in Phoenix city from Januay 2000 to December 2012

Source: www.trulia.com

The above housing price chart is only for one city. Housing market is a local market, and location is the most important factor in purchasing a home. So, the trend pattern or timing in other cities will be different.

No one knows when and what will be next bubble. These charts can serve as a reminder that when a similar, large-scale financial event occurs and something is too good to be true, there could be a bubble. Instead of jumping onto the top of bubble, be patient and get cash ready for incoming opportunities. There could be easy gains, if purchases were made after the bubble.


After bubbles: Good opportunities come after crises. As shown in the chart below, the Nasdaq index peaked at 5,048 in March 2000, and then fell with panic to its lowest point at 1,139 in September 2002. After reaching the low, it had a five years' uptrend until late 2007. Those five years were one of the great periods for ordinary investors.

Nasdaq stock index from January 2000 to December 2007 (8 years)

Source: finance.yahoo.com

Unlike the stock market, the housing market did not bounce up quickly after house values sharply dropped and prices declined to the bottom. As indicated in below chart, house prices in Phoenix remained at low, with some fluctuations from year 2009 to year 2011; that gave home buyers plenty of time to shop for properties at incredible low prices. Suddenly there were no enough houses on the market for sale. By the middle of 2012, housing prices made a turn-around with a 50% increase from the lowest.

House price from December 2007 to December 2012 (5 years)

Source: www.trulia.com

If the housing market follows the same trend of the stock market again, real estate investment shall have a few more good years if real estate is not fueled into another trouble by the artificially low interest rates.

Better than stock investment, real estate can generate regular income through renting property out if the property is acquired in a good location. After the housing bubble, the new owners and investors were not speculators and became the solid base of property holders. They paid high down payment for mortgages or paid with cash to purchase properties. They would not sell their holdings until some profit is made. When homeowners do not sell their homes at low prices and buyers' demands gradually come back, housing prices have to inch up.

The S&P/Case Shiller Home Price Index, released on December 26, 2012 by S&P Dow Jones Indices (www.standardandpoors.com), shows that home prices rose 4.3% on average nationally in past 12 months ending in October. Phoenix values led all US cities with an average increase of 21.7% for the year. Chicago was the weakest among 20 big cities with prices dropping 1.3%.

S&P/Case-Shiller Home Price Indices published on 12/26/2012

Phoenix was one of the three worst cities that suffered heavy value losses from the housing crisis, and it became the nation's leader in house price recovery in 2012.

美国东部 罗德岛海边。RI,2018
© This page was originated in December 2012
"If you have trouble imagining a 20% loss in
the stock market, you shouldn't be in stocks.
"
 - John Bogle
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