It's a Credit Bubble

I first saw this article by Kevin Duffy mentioned on the most excellent blog The Housing Bubble 2. But it is so good that I thought I'd reference it too; I couldn't resist. The graphs are most telling.

Some choice quotes:

"Can any mere mortal really know the timing of a bubble?"

"Although history rhymes, the great bubbles of at least the past century have followed a remarkably similar script right before they popped. As absurdly high valuations weigh on relentless injections of liquidity, the advance narrows. Former favorites are treated like lepers while the remaining beauty queens become the focus of intense adoration and pursuit. Eventually, even the central bank bubble blowers get cold feet and begin posting speed limit signs by raising rates. Initially the crowd runs right through the signs, taking their speculative vehicles on a reckless, parabolic joyride. As higher rates slow liquidity, speculators sell their losers in one last desperate attempt to get their hands on more fuel. The jig is finally, mercifully, up."

"The bubble du joir is not so much in housing as it is in credit. We are hard-pressed to know who is crazier, the borrower swimming without a bathing suit or his Pollyannish lender. Not all regional housing markets are in bubble territory, but credit availability, rates, and standards are clearly detached from reality."

"Credit-related stocks, as measured by the Bearing Credit Bubble Index, rose ten-fold from 1995 through the end of 2004. Its eight sub-indexes (banks, brokers, subprime lenders, etc.) were all in sync until mid-2003 when the government-sponsored enterprises began to lag. The speculative darlings of the past 2 years have clearly been the homebuilders (+170%) and subprime lenders (+107%). This year the subprime lenders hit the wall, leaving the homebuilders alone to carry the speculative torch. The remaining credit providers and facilitators (especially those weighed by heavy market capitalizations) are now either stalled or joining the GSEs in full retreat."

"With the stocks of the country’s largest credit engines – Citigroup, JPMorgan Chase, and Fannie Mae – shutting down and nearing 2-year lows, this credit rocket is sputtering on fumes."