The "Greenspan Channel"

The chart below is a follow-up to yesterday's critique of the NY Times "Chicken Little" article that dismissed the impact of recent mortgage woes on the broader economy.

After looking at a 20-year chart of real estate assets plotted alongside stocks and mutual funds, the future value of residential housing is clearly a potential problem given the almost universal characterization of the U.S. housing market as a bubble in the process of either deflating or bursting.

Real estate clearly "picked up the slack" after the stock market crash in 2000, but the important question is whether it will suffer a similar fate - this is the "giant thing hiding in the closet" (see yesterday's post).

Something interesting developed as the chart above came to life - observe the pair of dashed lines heading skyward.

For lack of a better term, let's call it the "Greenspan Channel".

After taking over in 1987, it took the new Fed Chairman a few years to get the ball rolling, but once he did, assets started inflating rapidly - first stocks, then housing.

What's next?