Let's see, the last two rising asset classes didn't really transform into bubbles until the Fed started raising interest rates - I'm warming up to the idea of a higher Fed funds rate.

Fed Fund - stocks - housing

Apparently this isn't as obvious to others as it is to me...

After this post appeared at the blog, a reader asked:

"I'm sure we're supposed to just "get" the point from the chart, but would you care to expound on why? The RE bubble was caused by artificially LOW rates. Didn't the bubbles start before rates were raised, and the rates were raised in response to the bubbles?

My reply:

Markets often become "emboldened" and prices continue to rise for years after rates are first raised. This has much to do with the delayed-effect of interest rate increases and investor psychology, as in, "This can't be a bubble because prices continue to go up even though the Fed is tightening".

By Tim Iacono
Email : mailto:tim@iaconoresearch.com
http://www.iaconoresearch.com
http://themessthatgreenspanmade.blogspot.com/

Tim Iacano is an engineer by profession, with a keen understanding of human nature, his study of economics and financial markets began in earnest in the late 1990s - this is where it has led. he is self taught and self sufficient - analyst, writer, webmaster, marketer, bill-collector, and bill-payer. This is intended to be a long-term operation where the only items that will ever be offered for sale to the public are subscriptions to his service and books that he plans to write in the years ahead.

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