OK, pardon the sarcasm here, but what exactly do you think the word "probably" means? Because to me it means "the author is stating an opinion and is in no way saying that opinion is authoritative"

In other words I don't "know", I never claimed to "know" so you shouldn't accuse me of it.

If you're going to go so far as to quote the line at least read it first and try to look at what the author's actual meaning was.

For the record I based my opinion on the simple fact that things around me shouldn't cost as much as they do. The house two doors down from me is 2 bedroom, needs a new roof and was still valued at $750,000. In my opinion a two bedroom house simply isn't worth that so I don't expect it to bounce back to that value.

A house (or anything else) is only worth what someone will pay for it. If houses are selling for $750k, by definition they are worth $750k. You can hate it and refuse to think that anyone should ever pay more than $100k for such a house, but as long as people are willing to pay the price, that's the value.

But that's the point, no one was paying that much for it. It was inflated by a speculator's market. That's what a correction is. It's the market re-evaluating assets and reassessing their price based on what people are actually willing to pay and not what some real estate speculator or junk bond salesman said it was worth.

This is a very naive (or doctrinaire) view. Please read one of the canonical value investing books, or Cunningham's book of excerpts from Berkshire Hathaway's annual letters by the chairman. For a more scientifically minded angle to this topic, please see Didier Sornette's "Why stock markets crash" (PUP 2003). Price and value are two different things, at least in my representation of the world...

I can't comprehend why this was modded down. The book is fascinating and provides us with an insight into valuation. It really is a topic that is difficult to sum up in any reasonable time. I wish I could find a free source for it, but I found the google preview.

http://books.google.ca/books?id=F3WpzcinFc4C&dq=Didier+S...

Please go easier on the thumbs down stuff.

Thanks. You guys might want to check this here: http://arxiv.org/abs/cond-mat/0301543

The irony is that that 2-bedroom house will be worth $750,000 someday but only because $750,000 will be worth a lot less by then.

Quick point: Having money, a depreciating asset, forces everyone into being a speculator. You have to make prophecies, because the alternative is an assured -2.0 percent return (roughly).

Here's why the long term outlook is bad: An aging population will necessarily convert assets of all classes into money in order to finance their retirement. Simple as that.

Short term, who the hell knows? Buy Citi on margin short term, if you feel like it.

As the aging population uses the money to finance their retirement, where do you think it goes?

It chases goods and services.

And much of that money will get poured back into assets...young professionals who work at firms that cater to retired customers will buy homes, retirement communities will expand and build more buildings, older people will sell their assets and rent instead, which means that someone will buy homes and turn them into rentals. I agree that many older people will be liquidating assets, but it just seems they'll shift to other parts of the population.

> And much of that money will get poured back into assets...

I disagree with using the word "much," that money is going through the filter of consumables and living expenses. The parent poster's point is that retirement destroys wealth faster than it is created. (Which is why that wealth was saved in the first place. To believe otherwise is to subscribe to the Broken Window fallacy.)

Except right now nobody is entirely sure that money is a depreciating asset. Interest rates are close to zero, there may be inflation in a lot of places, but not if you're thinking of buying a house. The aging population is looking at postponing retirement, maybe even coming back out of retirement. Short term, most people are staying in cash.

"Having money, a depreciating asset, forces everyone into being a speculator. You have to make prophecies"

You're exactl yright. Perhaps this is why people are almost asking to be creamed on their finances. The classic condition for stress is having to do sth and not being able to do it. People who have spent tens of years doing "economics" are none the wiser for it, their forecasts are about as correct as those of a bunch of taxidrivers: Zero, no statistical significance. And still everybody must do it or, even worse, judge the ability of others to do it. No wonder the snakes thrive. In my experience, people who are blunt and truthful to clients have a really hard time to get heard.