The housing bubble was obvious 3 years ago

I clearly remember reading this article from The Economist 3 years ago, which pronounced that the housing boom was "the biggest bubble in history". I wonder if I could have done more to take advantage of it- like short american banking stocks.

I suppose there'll be other opportunities.

Morality has no place in economics

There is an ongoing trend, among financial experts and lay people alike, to explain away the financial crisis by saying that the hardship is "deserved", e.g. the american public was too spendthrift and now they're paying for their sins.

This sort of moralising can sway the mind towards certain ideas relating to economic policy e.g. since the recession is deserved we might as well egg it on by increasing interest rates or reducing government spending.

At the end of the day, moralising has no place in economics. So says this writer in espousing Keynesian economic intervention:

"Keynes’s genius – a very English one – was to insist we should approach an economic system not as a morality play but as a technical challenge."

As with much of life, macroeconomics doesn't always work the way it should. And so I'm a qualified supporter of measured government intervention to face this crisis.

Stock List

Its time to walk the talk. Or at least talk in more detail.

Below are two tables: one contains stocks that I believe are cheap. The other shows the expensive ones. No prizes for guessing which's which.

Good Times

With all the gloom and doom going on, one can lose sight of the fact that these are good times: for long term investors, that is.

I am quite excited about the discounted prices of stocks right now. Wait, let me qualify that- I dont feel that stocks in general are particularly cheap. They're cheap if you compare them with the prices of the last 10-15 years, but they're actually priced just about average if you compare with the 70s and 80s.

What really gets my heart racing are the prices of small cap stocks, particularly those with strong businesses. Some are very cheap. At some point I'll point out my picks and we'll see how well they'll do over the next couple of years.

United States House Price to Rent Ratio

Above is a chart of the US' house price to rent ratio for the last 23 years. Taken in isolation, this chart shows that a very obvious bubble grew from about 1999 onwards.

On a more personal level, I'm wondering whether a similar bubble exists in the KL high end property market. For example, the house price to rent ratio for landed Bangsar properties is in the region of 2.5 to 3 times, which is far more expensive than the US bubble.

I feel that Malaysians in general should strongly consider renting instead of buying a house.