There is a strong inverse correlation between the movement in housing stocks in one quarter, and the subsequent quarter's move in stock prices. I also find that there has been an enormous increase in real estate wealth in the past ten years, which is now a very efficient buffer to any sector set-backs. After all, a ten percent decline after a 300 percent increase is much better than a significantly slower yearly increase, in stocks or in real estate.

As a second point, the sub prime market seems to be working well as a market. Prices are going up, and this is rationing demand. Those who made a higher than market return by lending at higher prices, are seeing some of that return dissipated. There are two sides to the market, and for those who are losing, there are always an inverse of people who are making money.

Finally, there is always so much consternation about hedge fund losses, but they are usually zero sum to the extent that hedge funds don't buy and hold stocks. There is nothing of long term significance to the markets from Revco, Amaranth, and now Bear Stearns', demise. Do these problems compare to the loss of wealth from a flood or an earthquake? — of course not.


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