One can speculate about what’s going on in markets by putting interpretation on the various technical measures of the market, like sentiment - put-call ratios and so forth. And I have. But I’m not a technician, I’m really a fundamentalist because that is my edge, in my view. I believe I have a better understanding of the “big picture” of what is going on in the economy than most people. I’m not a contrarian - I don’t get bullish because others are bearish, for example. I see myself as a seeker after truth and understanding. Unfortunately this means I have a great deal of difficulty dealing with bubbles, which by definition are built on irrationality. They are manias, when people rush into investments - trades - falling over one another in their rush to own whatever is the current hot idea. I know they are going to burst, and so I’m afraid of them. One of the markers of bubbles is the unanimity of sentiment. Everyone had to own tech stocks, everyone had to own real estate.

Even after the publicity and the harsh reality of foreclosures and lost 401(k)s, real estate and tech stocks are still bubbles. Don Coxe talks about the “Triple Waterfall“, where the bursting of a bubble goes through three phases - Sudden Shock, Last Chance and Long-Term Collapse. I don’t think the anatomy is anywhere near as neat and consistent as he makes out, but the basic principle is right. It takes a long time to wring the bubble psychology out of people. The folks riding around in tour buses inspecting foreclosures for speculative purposes. The eager bottom-callers in the stock market. These are bubble dwellers. Only when they are all gone is there a true bottom in these asset classes and, as Don observes, it takes a long time to squeeze all hope out.

Perhaps the biggest bubble of all is the belief in borrowing as a means to wealth, that leverage makes everything better. This may be the one that dies the hardest of all. But that belief died in the Great Depression, and it will die again in this one. And, of course, eventually be resurrected.

And this is where I have such trouble. I see that my economic forecasts are pretty much accurate so far. The real estate bubble went much further that I thought it would, but that just makes the fall harder. I’m really in no doubt about where the economy is headed, and the evidence is clear for anyone to see. Even ECRI finally figured it out, for heaven’s sake. Yet denial is Pervasive, Pronounced and Persistent. To coin a phrase (not). Amazing.