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As Peter Schiff noted, those values can be illusory. As my
Posted on: February 21, 2020 at 22:54:23 CT
JeffB MU
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Dad used to say, something is worth what someone else is willing to pay for it.
In bubble situations value can fall off of a cliff. In Holland's tulip bubble people had run up the prices on tulips to ridiculous levels, but prices kept on climbing. When that bubble popped it ruined their economy. Banks lost fortunes when their collateral became nearly worthless.
One of my clients had everything going for him but then he got a divorce and the housing bubble popped... and as The Great Recession ensued he also lost his job. He had to cash in his 401K which had suddenly dropped to something like 10% to 20% of what it had been a few months earlier.
It was very sad. Yes, those prices came back but it didn't help him. He had had to sell his home at the bottom of the market and cashed in his 401K at the bottom of the market as well.
One of my neighbors and his wife bought a new home and got a bridge loan as they moved to tide them over until they sold the home they had been living in. Sadly for them, they bought the new home at the height of the market, which then crashed before they could sell their other home and they got hammered on the transaction.
Another guy around that time lamented that it was impossible to sell a home in the current market. I mentioned to him that it was really a matter of the prices dropping pretty drastically. I vehemently disagreed. He said there was just no market currently. I offered him $100 to buy it on the spot, which he of course refused, but I think it demonstrates a point. We envision something as having a fixed value, but in fact values fluctuate based on current supply and demand... sometimes drastically so.
When bubbles pop values can change EXTREMELY drastically.
In bubble situations value can fall off of a cliff. In Holland's tulip bubble people had run up the prices on tulips to ridiculous levels, but prices kept on climbing. When that bubble popped it ruined their economy. Banks lost fortunes when their collateral became nearly worthless.
One of my clients had everything going for him but then he got a divorce and the housing bubble popped... and as The Great Recession ensued he also lost his job. He had to cash in his 401K which had suddenly dropped to something like 10% to 20% of what it had been a few months earlier.
It was very sad. Yes, those prices came back but it didn't help him. He had had to sell his home at the bottom of the market and cashed in his 401K at the bottom of the market as well.
One of my neighbors and his wife bought a new home and got a bridge loan as they moved to tide them over until they sold the home they had been living in. Sadly for them, they bought the new home at the height of the market, which then crashed before they could sell their other home and they got hammered on the transaction.
Another guy around that time lamented that it was impossible to sell a home in the current market. I mentioned to him that it was really a matter of the prices dropping pretty drastically. I vehemently disagreed. He said there was just no market currently. I offered him $100 to buy it on the spot, which he of course refused, but I think it demonstrates a point. We envision something as having a fixed value, but in fact values fluctuate based on current supply and demand... sometimes drastically so.
When bubbles pop values can change EXTREMELY drastically.
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As Peter Schiff noted, those values can be illusory. As my - JeffB MU - 2/21 22:54:23