Monday, September 27, 2010

A Second Global Wave of Housing Bubble Pain

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A Second Global Wave of Housing Bubble Pain: "Australia and Canada: Waiting to Pop

Two countries that have done relatively well -- perhaps even exceptionally well -- over the course of the global financial crisis are Australia and Canada.

Unfortunately for the fine citizens of these resource-rich nations, both have housing bubbles that threaten to burst.

Investing legend Jeremy Grantham, whose firm manages roughly $100 billion in assets, has done an extensive quantitative study of bubbles throughout history. Without exception, all markets that met Grantham's strict mathematical 'bubble' criteria wound up reverting back to trend.

In June, Grantham called the Aussie housing market a 'time bomb,' adding that 'you can't possibly miss it,' and observing that prices would have to fall 42% to return to trend.

In every bubble that accumulates true believers on the way up, there are those who will make a case as to why the current one is 'different' and immune to the general rule. As Grantham's studies have shown, so far these bubble-deniers have ultimately turned out wrong. Every time."

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