Today was Alan Greenspan’s last day as Chairman of the Federal Reserve. The consequences of the massive credit expansion that he engineered will haunt the US and the world for many years to come. The second Great Depression is already beginning as the credit bubble begins to burst in the housing market. The tales of fraudulent and risky lending practices are legion, I won’t repeat them here. But the consequence will be irreparable damage to the credit system, which will lead to depression as, unlike Japan, the US cannot export its way back to health. Ben Bernanke will undoubtedly reduce interest rates to zero at some time in the future. It will not work any better here than it did in Japan.

(In Dante’s inferno, the ninth circle is reserved for traitors who betray their fellows)

Also today the Google speculative fever may be cooled a little, as the company missed analyst’s earnings estimates by a country mile. At one point the stock was down 15% or more after hours. Doubtless the dip-buyers will step in, but the damage is done.

Sales of Pleasure Boats Buoyed by Soaring Home Values

“As his 3-year-old son grabbed the helm of an 18-foot sports cruiser, David Yates checked out the power boat’s plush white leather seats.

Yates didn’t know whether he’d buy this particular boat, which had a list price of $21,000, but he was pretty sure of one thing: He wouldn’t be at the Los Angeles Boat Show if not for the housing market.

“We couldn’t have afforded to come here before, but now that my house has doubled in value, we have an opportunity to take out a second mortgage,” said the 48-year-old Burbank resident, who is a manager for a cabinet manufacturer. “At least we’re in reach of being able to buy a boat.”"

From a (normally) reliable source, but unverified: “The DJIA closed below its December low last week. Such an event normally negates any “January Effect.” Historically, when the DJIA has a January close below the lowest tick of December, a correction of at least 10% is seen later in the year. In terms of trading days, we are currently also witnessing the second longest run in the market without a minimum 10% correction. These two signs of extreme bullishness are telling us a significant decline in stocks is overdue.”

How do you know there’s a bubble?

Oft-maligned Fed Chairman Greenspan was widely maligned once again for observing that you only know that there was a bubble in retrospect – when it bursts.

But he was perfectly correct.

The violent price action of a bursting bubble is the clue. Is the housing bubble really a bubble? We’ll soon see.

Every real estate industry spokesman is busy inventing a new lexicon – “stabilizing”, “tempering”, “levelling-out” and so forth. But the cake was taken by the guy interviewed on Bubblevision this morning who had taken advantage of Centex’s $100,000-off 12-hour sale on new houses. He had, therefore, “instant equity”. What doesn’t he understand about markets? When he hit the offer, that was probably the high tick for a while. It makes as much sense as the signs advertising “Below Market”.

Last week I bought a bunch of Encana Corp., the largest Canadian natural gas producer. Natural gas prices are way down as a result of the mild weather so far this winter, depressing Encana’s share price. Encana peaked near CAD 70/share at the peak in natural gas prices, and is selling now in the CAD 54 range. I had owned it for some time and sold it last summer, largely because it had gained so much it didn’t seem reasonable that the gains could continue. Not smart, but at current prices I get a do-over.

Natural gas isn’t just a winter story anymore. I thought this was a good opportunity to increase my exposure to a fundamentally strong supply/demand situation. The supply of natural gas in North America is declining due to depletion, most new power plants in the US burn natural gas for environmental reasons, and more Canadian gas will be needed to “liberate” the oil from the Athabasca tar sands. We’ll see.