Michael Lewis' "The Big Short" and the next bubble

Michael Lewis has done it again.

About 15 years prior to The Big Short, I read Lewis' Liar's Poker. That too was a great book, and definitely worth a read if for nothing other than sheer entertainment. Lewis has a fantastic sense of humor.

Perhaps more than anyone else, Lewis with these two books has shined a spotlight into a previously unseen place (by the general public at least) -- the personalities and inner workings of Wall St. Thank you, Mr. Lewis. 

While reading the book I asked myself "what can I learn from the book's characters"?
Kathryn Shulz has an interesting piece on this topic over at the Huffington Post titled Five Lessons on Rightness From Michael Lewis's The Big Short. How many people out there feel they practice or employ traits like "meta-cognition"? I found her full book review to also be worthwhile.

At marketfolly.com you can see the Lewis and Michael Burry 60 Minutes TV interview.

I worked inside a bulge bracket investment bank in the late 1990s and was at ground zero in San Francisco for the dot com zenith and bust. After spending almost two years overseas I returned to California in 2003 to what appeared to me to be the same bubble/greed psychology in the housing market as I'd just witnessed (and participated in) during the Internet bubble. I was flabbergasted by this and wondered "how have people forgotten so quickly how badly herd driven bubbles can turn out?" The housing bubble, of course, was a much broader phenomenon than the internet bubble. But still, plenty of people were at least aware, if not directly impacted by, the Internet bubble.

Although I was aware that an unprecedented housing bubble was underway, the only things I can take some credit for was #1 being "foolish" enough to keep throwing money down the drain every month on rent, #2 not parking money in the stock market, and #3 occasionally I'd share my dim view of the housing bubble by forwarding an email, usually with an article with some data or info attached, off to some friends. Some of these friends were homeowners and unsurprisingly not always a receptive audience. But I'm on record at least with them as having "called" the bubble.

Unfortunately, I cannot say that my current view of housing is optimistic. Home prices are still inflated. These inflated housing prices are due in part to the Federal Reserve's massive mortgage purchase program. That along with the stimulus and the housing tax credit have served to help prop up the housing market.

I believe these measures are temporary stopgaps. Whether prices fall again or just muddle along for an extended period is uncertain. It will partly depend on how much longer the government can continue to support the housing market without triggering a side effect problem, such as inflation and/or higher interest rates. At present it looks like inflation is relatively tame so there may be an interest in further extending government support, such as the home buyer tax credit. Or with the anti-incumbent Congressional primary showings last night perhaps not.

Going back to the question I asked in 2003, I wonder if people have learned something from this housing bubble? Or are folks simply gearing up for the next bubble, perhaps thinking that this time they can get out in front of it and get out in time? And if this is true, what is the next bubble?

Given all the money printing and massive instability and uncertainty facing the global financial system, gold would certainly seem like a plausible bubble candidate.