Yesterday, one of my friends asked me if I thought the US would face a depression. He was pretty certain that a depression would occur, and it would be just like the previous depression where there were no jobs, no money and thus no food.
Some of the commonly stated reasons for the Great Depression are unequal distribution of wealth, lack of savings, high tariffs and war debts, over production in industry and agriculture, and the stock market crash and ensuing panic.
Given these reasons and the fact that we’re currently experiencing all of them, I can understand why one would think that a depression is imminent.
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In a previous post, I mentioned how the sub-prime lending collapse might throw the US into a recession.
The entire sector of mortgage lending stocks have been slammed across the board. Some of them have gone under as their credit lines have dried up and they have been asked to repurchase loan portfolios with high deliquencies.
Some of the companies may have been unfairly punished. TheStreet.com just published an article, Subprimal Fears Signal a Time to Buy where they mention that one such company is American Home Mortgage (ticker symblol: AHM). At current stock prices, it yields a 16%+ yield! (As of writing the article it was 18%+).
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Jim Rogers, successful hedge fund manager, investor and author of incredibly interesting books is so certain that real estate prices are going to drop in certain “bubble” markets that he’s putting his $15 million Manhattan home for sale. Its not that he needs the money, but he’s probably a value investor. And like many value investors, he can’t bear not taking advantage of selling obviously over-inflated assets. Warren Buffett, probably the most famous value investor on earth, also believed that his Laguna Hills house was over-priced and sold it a while ago.
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