Here's the advice Fisher Investments gave regarding the housing bubble in its Q3 2005 Stock Market Outlook. (Unfortunately, I can't link to it because I have it in hard copy. I saved it because of the ridiculous housing bubble prediction.) Summer of 2005, let me remind you, was the peak of housing bubble activity."Bubble" Paranoia is Good NewsKen Fisher's reasoning here is flawed. I remember the late-1990s' stock market bubble quite well. There were lots of people warning about a bubble then, including—oops!—The Economist. Perhaps Forbes Magazine (which Ken Fisher writes for) wasn't warning about it, but many people in the press were. Did he forget Alan Greenspan's "Irrational Exuberance" speech? Bubbles occur, not due to a lack of warnings, but due to people disregarding the warnings in the quest for the quick buck.
The Economist's June 18 cover story "House Prices—After the Fall" sums up the international mood—a global real estate bubble is on the verge of bursting. This fear is bullish. Real bubbles are seldom referred to as bubbles in the press until after they've burst, so there's little need to worry now. If there isn't a bubble, that's good news for stocks, the health of the global consumer, and in turn, the global economy.
The technology stock bubble burst just a handful of years ago but investors have already forgotten its origins. Remember that it wasn't much called a bubble until after it burst. Bubbles tend to occur when fear is replaced by phrases like "new economy" and "it's different this time." A healthy dose of fear reduces risk for investors. It's the wall of worry bull markets like to climb. We don't have a specific forecast for home prices from here and don't claim to be real estate experts, but we're confident there's no bubble to worry about.
Other advice from Ken Fisher in his Q3 2005 Stock Market Outlook: "The dollar rally should continue."
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