I...am not a smart man. Not smart in the sense of the intricacies of things. In finance I know it is good to stay in the stock market for the long run. However I do not understand P/E ratios, derivatives, or any number of things that the professionals deal with everyday. I say this because from where I stand I see the problem with the combined housing, credit, energy crisis,...speculators.
Websters defines a speculator as, " to assume a business risk in hope of gain; especially : to buy or sell in expectation of profiting from market fluctuations". The issue is in the market fluctuations. People play the stock market all the time. Big hedge funds do as well. As do retirement pension funds. Speculators end up driving up the cost of a good or service, beyond the reach of the people who need such goods. I think most speculators are not in it for the long haul. They hope to make a quick buck and then move on.
Why do I think this way. In 2002-2003 my wife and I lived in Virginia Beach, VA. It is one of the greatest cities one could ever live. When we started to look at a house instead of renting, we were in for a shock. Home prices started to spiral out of control. I am not talking about the ones by the beach or in the posh neighborhoods, although they rose as well. The city slogan was becoming "Live the life!...if you can afford a house"
We bought a three bedroom condo in a nice area but paid way more than it was worth. I silently cussed to myself as we sign the papers that I hoped the all the speculators burned in hell. In this instance, those people bought homes with no desire to live in them, only as an investment. This made life for those of us who needed homes hard.
SO what does this have to do with the current markets? Well the run up in home prices put homes out of many peoples reach. So the government in 2003 asked the banks to help more Americans to get into homes. (Aah, I love the smell of adjustable rate mortgages in the morning.) This then lead to more building permits being issued to meet demand. In turn when the money bag started to dry up (over supply, mortgage defaults) speculators pulled up stakes and moved to a safer bet...commodities.
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