Why Housing Is Not Coming Back

Charles Hugh Smith reports:

Bubbles do not re-inflate in the asset class which just popped. It is simply a truism that bubbles never reflate, ever. Tulip bulb valuations did not rise to stratospheric heights after the Tulip Craze popped, and the Nasdaq dot-com bubble did not reinflate, either, for the very good reason that bubbles are never based on rational valuations--they are based on the psychological state of mania which cannot be reinstated once lost.

Consider tech stock Cisco Systems (CSCO), a well-managed "real company" which continues to make profits providing real-world goods and services. It currently trades at around $17.50 a share, down from its dot-com bubble valuation of about $81/share.

To "recover" its bubble-era valuation, Cisco would have to rise five-fold. That's not going to happen. Now that the mania has dissipated, Cisco is valued on more rational metrics like earnings, profits, etc.

The speculative mania always moves on to a new asset class. After the dot-com bubble popped, the speculative bubble moved on to housing. Now that the housing bubble has popped, the mania has moved to the bond market. When the bond bubble bursts (it's guaranteed that it will in the next two years, losing 50% or more in the process) then the only asset class which hasn't already been blown into a bubble is precious metals/gold.

You'll want to read the whole article.