Could the “Ka” event be in only one sector (e.g. real-estate)?

[dbarberic]

I was reading the commentary titled “The Great Risk Shift, Private Equity Bubble Update, Volatility Shock, Limits of Philanthropy, and Whither China?” and a question popped into my head; could the “Ka” even as theorized by EJ be within only one sector; specifically real-estate?

In reading this website for awhile, I and it seem like many others, always seem to assume that the “Ka” event would be in the stock market, or in multiple markets at once. In reading Kenneth Heebner’s quote “What you’re going to see is the biggest housing price decline since the Great Depression”, I wondered if this is actually the “Ka” event that we are looking for. According to Shadow Stats, the Fed is pumping the economy with M3 at around 11%. With that much liquidity, is it even possible to have a major stock market crash? Maybe the “Ka” event will be in real-estate with the nominal stock market value holding steady, or even going up, while declining in real value against all other major hard assets.

Has EJ ever covered this point in regards to the "Ka" event? What do you guys think?

[WDCRob]

Re: Could the “Ka” event be in only one sector (e.g. real-estate)?

Look forward to hearing some of the heavy hitters here on this, but I think the argument is that RE is too tied in to people's perceptions of their wealth and other "real economy" industries for a train wreck there not to spillover. Throw in a self-reinforcing cycle and you've got an economy wide problem.

[friendly_jacek]

Re: Could the “Ka” event be in only one sector (e.g. real-estate)?

with the nominal stock market value holding steady, or even going up, while declining in real value against all other major hard assets.

These are exactly my own thoughts, I belive it's dangerous to short US equities these days. Nevertheless, I feel compelled to short small stocks as the valuations aproach 40. Especially between now and summer when the IRA contribiution money slow down to a halt.
The market eventually will go down a la 1990 style but any recession could be short lived as baby boomers will keep spending till at least 2010.

[dbarberic]

Re: Could the “Ka” event be in only one sector (e.g. real-estate)?

I feel like we keep on sitting around waiting for some major stock market "crash" to happen to signal the "Ka" event, but I'm beginning to think that we may actually miss the "Ka" event if we only watch nominal stock market values and sit with our portfolios in cash
I'm theorizing that during the KA event that we may only see nominal dollar disinflation in real-estate and nominal stagnation, or inflation, in the stock market. The Fed/Government will mop up the mortgage market mess with bank bailouts all while continually pumping the economy with stratospheric M3 amounts (as they are right now).

Hardly the environment that I would expect to contribute to a nominal dollar crash in the stock market.

It looks like when priced against hard assets, the stock market is already crashing:
See: http://www.financialsense.com/fsu/editorials/2007/0416.html

I my theory is correct, we should not be sitting in cash right now waiting for a nominal dollar crash in the stock market. We should be fully invested into hard assets right now.

This fundamentally different that a lot of articles/opinions I’m reading right now. Everyone seems to be predicting a huge nominal value crash in the stock market.

I'd like to hear EJ's take on what he thinks the "Ka" event will actually look like.