Punctuated Equilibrium

I did want to write something quick tonight as I had a lot of people asking my opinion on last week's market volatility (aka - the stock market finally corrected a bit) - I can see tonight that the markets have opened much lower in Asia, we'll find out in the morning if we will continue to see a vicious cycle which takes the European and American markets down further.

Either way, I don't really have a useful opinion on last weeks market activity or on the short-term outlook on the markets in general. Unlike the morons on CNBC that will tell you last week was a buying opportunity or that the market will be 10% higher by the summer, I admit that timing the markets in the short-run is next to impossible especially considering the fact that future movements are not set in stone.

There is a good chance that last week was a badly needed correction in global asset markets and that it truly is a good buying opportunity. Given that I am a bear in the medium-to-long term, I would say that there will be a day when the market will turn down for a long period of time - I just don't know if time is right now. Probably not.

However, there is a chance that my personal favorite theory of "punctuated equilibrium" took hold in the market last week and we are seeing the market meltdown that I didn't expect to happen for a few more years. Punctuated equilibrium, in lay terms, is the theory that things work until they don't. Basically, traders didn't feel that any of the bad news in the U.S. economy, global macro-imbalances or the world geo-political situation (mainly, but certainly not exclusively Iran) mattered anymore because nothing could stop the bull market of the past 4 years or so.

Well, things don't matter until they do, and then that is all that matters. Think about the meltdown of the sub-prime (borrowers with poor credit scores) mortgage industry - I have too much to say about this for the time that I have - but I do think that the we are about to see blood in the streets of many American housing markets. Markets rise and fall at the margins - you always have bulls and bears for every trade, but it is the "undecided" that determine whether a stock, index, commodity, etc. moves up or down.

At the margin, the U.S. housing boom started due to the Fed policy to lower rates to 1% (among other factors) which provided steroids to the market until about the middle of 2005 at which point the fraudsters and flippers (who make up most of the sub-prime industry) took over. Nobody cared about this until the gravy train finally ran out in recent months - now we are going to see pay-back for this.

Based on the fact that mortgage companies are imploding on a near-daily basis, the housing market could go bust very quickly. Or somehow, people (who are "people"? - The Real Estate Industrial Complex, the Fed,homedebtors, the U.S. Gov't, the Bank of Japan, the Bank of China, or maybe a combination of all) are going to fight this bust tooth and nail (Japan-style) and let this thing run its course over many years, maybe even a decade.

Hard to know, but it will be interesting to find out.


Anyway, if we are witnessing punctuated equilibrium, here are my guesses at what the headline stories of 2007 will be:

1) Subprime fraud and malfeasance comes to light (see story below - only a few of thousands out there). I have written several commentaries on mortgage fraud - this is going to be a big deal. I wish I had the time to go into this story in-depth.



2) Japanese Yen Carry Trade blows up (if you are not familiar, this is a long story - do some research if you are interested). Basically, Japanese interest rates have been around 0% for the last 10 years. Investors around the world have been borrowing Yen converting to other currencies and investing in various assets. It has been profitable so far due to the fact that Japan manipulated fx rates to keep the Yen weak.

An unwinding of this "trade" will cause weakness in asset prices around the globe.


3) China - the Chinese economy and financial markets are so heavily manipulated. You can't trust any information that comes from a communist gov't yet people are trading on their economic releases.

While I think China will be the story of the century as it becomes the biggest and most powerful economy in the world over the next 25 years, much like the U.S. 100 years ago - there will be periods of gut-wrenching turmoil. Perhaps not this week, but at some point. And now the global
economy and global financial markets will feel the pain.


SUBPRIME FRAUD


Valley fighting mortgage fraud wave - A wave of mortgage fraud is rippling through pockets of the Valley, inflating home values through scams called cash-back deals.

Left unchecked, cash-back deals cost homeowners and lenders millions of dollars and could erode confidence and values in Arizona's real estate market.

The fraud involves obtaining a mortgage for more than a home is worth and pocketing the extra money in cash. Neighbors may then discover home values in the area are exaggerated.

Homeowners stuck with overpriced mortgages may never recover the difference. And lenders end up with bad loans that, in the long run, could hurt the Arizona real estate market, the largest segment of the state economy.

"Arizona was like a housing gold rush for speculators from California, Florida and Texas a few years ago," said Detroit real estate agent and fraud activist Ralph Roberts, author of the book Flipping Houses for Dummies. "But home prices stopped climbing, and speculators got greedy.

Now the cash-back scam is going to make the savings and loan crisis of the 1980s look like a soft landing"

Valley housing-market experts now believe home values are inflated anywhere from 10 to 40 percent.

State targets mortgage fraud

A wave of mortgage fraud in the Valley has prompted state legislation that would define it as a crime punishable by up to 10 years in prison.

A day after The Arizona Republic's special investigation into cash-back mortgage deals, Sen. Jay Tibshraeny of Chandler introduced a bill that would make mortgage fraud a felony.

"Mortgage fraud hurts everyone," said Tibshraeny, who has been working on the legislation for months. "Buyer, beware of a deal that seems too good. The strings your Realtor or mortgage broker pull may be illegal."

Only two states, Colorado and Georgia, have laws specifically regulating mortgage fraud. Most states, including Arizona, must try to prosecute the crime under general fraud laws, which make convictions difficult and less of a deterrent.

Cash-back deals are a newer form of mortgage fraud whose rapid spread in Arizona has alarmed regulators and real estate industry leaders.

The fraud involves obtaining a mortgage for more than a home is worth and pocketing the extra money in cash. The deals inflate home values and can affect values across whole neighborhoods. Homeowners stuck with overpriced mortgages may never recover the difference. Ultimately, lenders end up with bad loans. All this can hurt the Arizona real estate market, the largest segment of the state economy.

Felecia Rotellini, superintendent of the Arizona Department of Financial Institutions, is leading a new mortgage fraud task force made up of state and federal agencies. She said the proposed legislation would help investigators crack down on mortgage fraud.

Rotellini said her agency was deluged with calls Monday from people reporting cash-back deals and other potential mortgage fraud.

Sunday's Republic story also struck a cord with people in the real estate industry and homeowners across the Valley as more than 350 people e-mailed or phoned with concerns or accounts of deals they thought were fishy.


From the real estate industry:

Valley appraiser Dennis McMillen said that mortgage fraud is an issue in the housing market but that it's not always due to inflated appraisals.

In some cases, he said, "real estate agents and mortgage brokers are withholding the cash-back agreements from the contract, thus the appraiser and title company does not know of these agreements."

Valley real estate investor and marketing executive Francine Hardaway said: "Thank God somebody finally blew the whistle on this. As an investor, I see it all over the place."

Valley attorney Michael Manning represents some groups that were sold "bad loans" as part of the cash-back scheme. "Public awareness coupled with a little proactiveness by local prosecutors will help stem the practice and help prevent a meltdown in the market," he said.

Don Matheson of Re/Max Excalibur Realty of Scottsdale said: "This is a very big problem and very damaging to our real estate market. We need to catch these people and put them in jail."

Many homeowners expressed concerns about fraud in their neighborhood. Dozens of people provided details on cash-back deals or sales that suggested cash-back pricing. Most asked to remain anonymous.

Several readers were alerted to the schemes when they saw homes sit unsold for months and their prices reduced. Then, as the housing market was slowing even more, those homes sold for tens of thousands of dollars more than the previous listed price.

That is the No. 1 warning sign for cash-back deals, regulators say.


<http://thehousingbubbleblog.com/?p=2436> "A Housing Shortage Has Become An Overabundance"

The Yuma Sun <http://www.yumasun.com/onset?id=32380&template=article.html> reports from Arizona. "Increasingly, people's dream homes of two or three years ago turn into nightmares because of mortgage payments they no longer can afford. 'We used to get one or two (foreclosures) every couple of months,' said Vicki Bardo, 2007 president of the Yuma Association of Realtors. 'For some years, we didn't have any at all.'"

"She noted that these days it's common to find several trustee sales listed in the public notices section of the newspaper on any given day. For example, on Friday, there were 20 listed. 'We're seeing a preponderance of them,' Bardo said. 'They're in every price range. They're new houses and old houses. They're all over the county from San Luis to Wellton and everywhere in between.'"

"For one thing, people may have used online lenders. Another factor was the number of investors in the market who sometimes bought four or five houses, Bardo said. That resulted in a run-up in prices and an artificial demand for houses. Some of them are now deciding to sell and move on because they can't rent their houses."

“And what had been a housing shortage for several years has now become an overabundance, she said. 'We couldn't keep a house on the market a couple of years ago. Now we can't get it off.'"

“This is all having an impact on new home construction as well, Bardo said. If people can't sell their current house, they can't pay for the new house they were having built. That trend is reflected in the number of housing permits issued by the city. In the first two months of this year, the city issued 38 new single-family housing permits, said Randy Crist, city building
official. During the same period in 2006, there were 187
permits."

"'It's not that money isn't there to buy a house and interest rates are still low. People are simply waiting for the best deal they can get,' Bardo said."

The Arizona Republic
vilsuits.html> . "Big lenders and Wall Street investors are going after Arizona mortgage brokers, appraisers, real estate agents, title firms and home buyers for fraud."

"Dozens of civil lawsuits alleging the gamut of mortgage fraud, from cash-back deals to lying about income on loan documents, have been filed against Valley firms and individuals during the past few months. Fraud experts and regulators say the lawsuits are only the beginning as the fallout from mortgage fraud starts to hit the Valley."

"'Banks are going to force mortgage brokers to buy back bad loans, and mortgage brokers don't have the money so they are going to go under,' said Richard Hagar, a national mortgage and real estate fraud expert. 'This is the beginning of the wave of lawsuits, lost licenses and criminal indictments in Arizona.'"

"Phoenix-based Biltmore Bank is suing Security Title of Arizona and a group of others over a cash-back deal. The suit alleges the group worked together to get Biltmore to fund a $1.3 million loan for a home valued at $800,000 and then pocketed the extra cash. Also named in the suit are Valley
appraiser Kittelmann & Associates and Tucson resident Frank Padilla, who was indicted and pleaded guilty last year to fraud and money laundering as part of a $13 million property-flipping scheme."

"A Lehman Brothers investment trust in New York and Aurora Loan Services in Denver are suing the parent company of First National Bank of Arizona over 38 home loans. They say the bank has misrepresented the values of properties, and the income, debt and employment of some of the
borrowers."

"San Francisco-based Transnational Financial Network is suing Phoenix-based Lending House Financial and a Scottsdale investor who purchased 22 Valley homes within days of each other last spring. Transnational funded loans worth nearly $2 million on seven of the homes but says it wasn't notified the investor was buying multiple properties and his real debt level wasn't
disclosed on mortgage documents."

"The investor never made a payment on the houses, which were foreclosed on last year. Most of the homes sold at foreclosure auctions for tens of thousands of dollars less than the mortgages the
investor took out on them."

"This wave of mortgage fraud, bad loans and foreclosures is deja vu for Michael Manning. He was an Arizona attorney for the Federal Deposit Insurance Corp., which seized failed lenders due to bad
loans in the late 1980s. He was then the Phoenix attorney for the Resolution Trust Corp., which was formed to clean up the savings and loan debacle and dispose of the overvalued properties."

"'This is the tip of the iceberg, but I think regulators got on top of it faster than in the mid-1980s,' Manning said. 'And lenders are now really starting to crack down on their own underwriting.'"

The Greeley Tribune <http://www.greeleytrib.com/article/20070304/NEWS/103040134> from Colorado.
"A year and a half ago, Christina Vazquez and her family were happy when they qualified to own their first home in a new subdivision in southwest Greeley. Even though she only made $25,000 a year, a lender said her family could get her in a new home worth $225,000."

"'I don't know how they approved me, but they did,' Vazquez said. 'When I bought the home they said my payments would go down in a year.'"

"A year after owning the home, the payments never went down and Vazquez was left with no option but to foreclose. Vazquez is among close to 20 other families from the Gateway Lakes development who have either gone into foreclosure or may soon go into foreclosure. All of the families purchased their homes from the same man, Mark Strodtman of JS Real Estate, LLC."

"'I feel they took advantage of me,' Vazquez said. 'Even though I speak English, they still did not explain any of the paperwork to me and just told me where to sign.'"

"As the homeowners began investigating their home sale paperwork and talking with appraisers, the families discovered that many of their homes were sold to them several thousand dollars more than market value.
They claim that JS Real Estate bumped up the prices as much as $70,000 more than the market price in some cases."

"Vazquez purchased her home $55,000 more than what similar homes were selling for. 'What they did was wrong, and all I want is justice to be done,' said Guadalupe Moreno, who is struggling to make
the payments on her home. 'If I have to tell the whole world, I will.'"

"Librado Herrera works various jobs for about $12,000 a year and was approved for a $230,000 home. He said he was told by Strodtman to say he owned a catering company when the bank called to verify
the information on his loan application. Charles Brandt, president of JC Distinguished Finance
who worked with Strodtman in selling the homes, declined to comment."

"'I have never seen a Realtor selling a house $40,000 or $50,000 more than the market price,' said David Kiekhaefer, a Greeley broker and home builder who built five houses in the Gateway Lakes subdivision. 'Another scary thing is that many of them (the families) haven't seen their appraisals from when they purchased their homes.'"

"He said he was not able to sell the homes he built in the subdivision and ultimately turned them into rentals. He was always curious, however, how the other homes that were built were sold so quickly and at a higher cost."

"'There are homes on one side of the street selling at $70,000 more than the same house across the street,' Kiekhaefer said. 'There are a lot of freaky things going on, and it just brings up a lot of red flags.'"

Counterfeiting Money - Crime or Good Economics?

This article was posted by Mike Shedlock (Mish) - who I believe is one of the two best financial commentators out there right now (the other being Kevin Depew from Minyanville) - back in February 2007 based on one of my newsletters. Mish added significant comment to the end which has turned out to be right on the money.

http://globaleconomicanalysis.blogspot.com/2007/02/counterfeiting-money-crime-or-good.html

We are now seeing Bernanke and Co. in full print cycle - just as predicted in this post.


Counterfeiting Money - Crime or Good Economics?

Did you ever think that a counterfeiting money could be good for the economy and that the counterfeiter could be considered an economic genius or even a national hero? I received an Email from Nic Corsetti, a friend of mine, describing exactly how that might happen. Here goes from Nic:

Let’s say that I invent a printing press that allows me to produce counterfeit money (let’s say US dollars) by the trillions – these dollars look EXACTLY like real ones, so no one can tell the difference, not even the government or the bank. So I start off the first year by counterfeiting $3 trillion dollars.

• I use $1 trillion to buy stocks (jump starting the bull market)
• I use $1 Trillion to buy U.S. Treasury bonds (thus driving bond prices higher and interest rates lower)
• I use $1 Trillion to go around to every neighborhood in every major city of the U.S. and start buying houses for 10% higher than the listed price

Obviously, this is a lot of work, so I hire a whole network of employees and consultants to help me achieve those lofty goals in a reasonable time period. The apparent benefits would be huge.

Benefits

• This will create jobs, since lots of employees and consultants will be needed to spend $3 trillion.
• The stock market indices will soar. Everyone's 401(k) and day-trading portfolios will increase in value.
• Home prices will increase by 10% overnight.
• Interest rates will fall which will make it even cheaper for everyone to borrow money to buy new cars, upgrade into a bigger homes, and buy new gas plasma TVs every year hoping against hope of getting to watch the CUBs someday play in the World Series.
• The lifeblood of America, vastly underpaid Real Estate Agents, will get a much needed and well deserved infusion of cash.
• The economy will be humming so fine that no one will care about the loss of jobs to India and China.
• Cheap goods will continue to pour into the US and the CPI will show only a modest 2% rise in the price of goods.

Additional Printing Presses

This is such a good plan, I decide to let some of my best friends in on the action. So I pick twelve of my closest cronies and give them identical printing presses, and instruct each of them to buy stocks, bonds and real estate with their counterfeit money. I tell them to loan the money to anyone who asks. Now we are really getting somewhere.

• The stock market will rise 30%-50% every couple years
• By buying massive amounts of treasuries, interest rates will stay at historic lows
• Everyone's net worth will double every few years if they just buy more real estate
• There will be no reason to save money, because assets will just keep skyrocketing in value.
• Wave after wave of immigration proves adequate enough to supply the homebuilding industry with enough manpower to get the job done.
• So much money is made in the stock market that $50 billion in bonuses can be distributed.
• Home prices start rising so fast that people start buying two or even three of them. It's a "can't lose" venture.
• There is so much money floating around that credit standards drop and everyone who wants a home gets one.
• So many homes are being bought that massive numbers of jobs are created in the mortgage industry, home builders, architects, real estate agents, title insurance, property insurance, home decoration, lumber, copper, cement, truck manufacturers, granite miners, brick layers, roofing, repairmen, industry analysts, home flippers, internet bloggers, internet site maintenance, newspaper ads, Wall Street specialists(to create RMBS, CDO, CDS, Index swaps), hedge fund employees (someone has to trade all these securities, and accountants and lawyers to keep track of all of the above.
• There are additional profits to be made on Wall Street by investing in IPOs, private equity LBOs, M&A, trading, mutual funds, and hedge funds.
• There is job growth in investment advisers, investment analysts, day-traders, media cheerleaders, SEC regulators, state regulators, New York D.A. office, and accountants and lawyers to keep track of everything.
• Government jobs explode. State and local governments get all sorts of funding for projects of all types – big and small. This creates still more jobs.
• Everyone needs a place to spend their money. Shopping malls, strip malls, big box stores, specialty stores, boutiques and nail salons spring up everywhere.
• People are so busy shopping they do not have time to cook. This creates a need for more restaurants or coffee shops on every corner.

Even with all of that there is STILL NO INFLATION! Cheap imports keep prices from rising and the best part is that those foreigners keep taking this counterfeit money as if it was real money. No one can tell the difference anyway.This goes on and on – we have really created a tremendous virtuous cycle where everything just gets better and better.

Everybody Wins

After a few years of counterfeiting I am quite certain that a "new era of goodwill and fortune" would be announced and that I, Nic Corsetti, would rightfully be hailed as the first Economic Grand Wizard to have permanently vanquished recessions.But what’s the catch? Where’s the hole in this story? Is there a hole in this story? If counterfeiting is such a great idea, why isn't it legal? Actually it is legal.

Legal Counterfeiting

• My name is not really Nic Corsetti, it is Alan Greenspan (Ben Bernanke if you prefer).
• My twelve friends are the 12 member banks of the Federal Reserve
• My employees and consultants are the financial services industry (Wall Street broker dealers, hedge funds, mutual funds, retail banks, and commercial banks)
• Those printing presses are currently manned by me and my 12 friends

I (Ben Bernanke) hope these printing presses don't break down and that people keep accepting these counterfeit dollars or this economy might implode. This is my only fear right now.

Mish Note: Nic Corsetti is a real person. The above idea came in from Nic via email and was rewritten and reformatted by me. Still, Nic deserves full credit for the idea. Thanks Nic.

As "proof" of the ingeniousness of legal counterfeiting, Alan Greenspan has been hailed as an economic hero and knighted by the queen of england for "contribution to global economic stability". Printing presses do work (for a time) and Greenspan's timing was perfect as discussed in an Interview with Paul Kasriel.

Kasriel: Greenspan is a fascinating study. Some day I hope to write a book about him. Right now I willing to say he is the luckiest Fed chairman in history.Mish: Greenspan is the luckiest Fed chair in history? How so?Kasriel: He was fortunate in two very big ways. First off, he was fortunate to preside over the economy at a time when productivity was soaring and the global supply of goods was expanding rapidly because China had entered the world trading arena. In that environment the Fed could create large amounts of money and credit without causing inflation other than in asset prices.

Synthetic Money

By the way, so many others have acquired the magic printing presses that the Fed is now basically irrelevant when it comes to credit expansion and contraction. Synthetic money is now being created in massive amounts in numerous places. For example, GSEs are now running their own printing presses. Want a $500,000 mortgage? Boom, you got it. No one cares if you can pay it back either. It is foolproof as long as home prices only go up. Multiply that by the hundreds of thousands and it all adds up, and much of it done with 0% down, and most of it based on the belief that housing prices only go one way: up. The day of reckoning comes when home prices sink. A collapse is now underway, and it has hit the subprime market especially hard. Those credit problems are guaranteed to spread.

Some may object to the term "synthetic money", perhaps preferring something like creating money by "fiduciary media". The important thing is not what we label it, but rather the general idea of what is happening. And without a doubt enormous amounts of money (credit/debt) are being borrowed into existence with increasing leverage and risk.

Broker dealers (via junk bond offerings) have figured out how to create their own synthetic money backed by essentially nothing. As yields collapsed increasing leverage had to be used to generate the same returns. Such offerings have exploded along with mammoth growth in hedge funds all wanting a piece of the pie.

Some 20,000 hedge funds are now doing things with leverage because yields are too low. Various carry traders have created synthetic dollars of sorts by borrowing Yen and investing in US dollar denominated assets such as US treasuries. This has been building and building and building on itself so that no one even knows how many printing presses are actually running. The day of reckoning on carry trades will come when the Bank of Japan is forced by the market to raise rates at a rapid rate and there is a mad scramble to get out of dollars and back into Yen. Rest assured these events will be anything but orderly when they happen.

Initial sponsorship of "legal counterfeiting" came from the Fed and Central Bankers in general, but once Wall Street got a hold of the magic printing presses, things have gotten more than a little out of hand. This is what happens when you have money backed by nothing and borrowed into existence. This is also what gold lovers see when they recommend gold.

An Austrian Perspective

After reading the above some of you no doubt will be comparing this to hyperinflation and the Weimar Republic. Instead let's look at this (as best we can) from an Austrian perspective.

Money itself (however one defines it) is a claim on real savings (a placeholder for saved goods). For example, a baker makes bread, so what he actually saves is bread. The baker only transforms his savings into money (typically a monetary commodity that has a prior demand for other uses, such as gold) because that's far more convenient. The baker can not actually save bread, as it would get old.

Therefore money, as such, is a claim on real goods. Credit by contrast, is a claim on money itself, which in turn is a claim on real goods. In our present system, credit claims on money to be paid back in the future masquerade as actual money and can thus be termed "synthetic money". In addition there is a "multiplier" effect. Someone gets a loan and spends it on goods. That money is deposited and is treated as money regardless of whether or not it is backed by real goods. Via sweeps and still more lending (see Money Supply and Recessions), the same money is lent out time and time again (the multiplier effect). This is the failure of the central bank administered fiat system: monetary claims proliferate beyond actual production of goods to back them up. In a honest system, only actual savings would be transferred from savers to borrowers (with banks acting as middlemen).

This "credit inflation" is thus fundamentally different from the "Weimarian printing press inflation". The Weimar situation brings about hyperinflation as the monetary unit itself is inflated in its physical form, as banknotes. By contrast, a credit inflation that creates claims that masquerade as money is prone to deflation because the money needed to pay back the credit is in a shortage (relatively speaking) compared to the outstanding credit claims.

This does not entirely preclude an inflationary outcome. After all, the Fed could in theory decide to monetize just about anything. It could monetize defaulted bonds and loans, it could even go and buy up foreclosed houses if it is prepared to go the Weimar route in order to avert what it would deem a deflationary calamity. As we have discussed in the past, this is unlikely to happen for a variety of reasons (see An Interview with Paul Kasriel and Q&A on the Psychology of Deflation). In addition to the ideas expressed in those articles there is bureaucratic inertia to the fear of losing wealth and power. One key point in this regard is the fact that the Federal Reserve system is made up of creditors. Those creditors will not like the Weimar solution because it would debase their credit claims.

This I believe is the message Trichet, Poole, and Weber were attempting to convey in Central Bankers Cry Wolf.

Weber: European Central Bank council member Axel Weber said investors shouldn't expect central banks to bail them out in the event of an "abrupt" drop in financial markets. "If you misprice risk, don't come looking to us for liquidity assistance," Weber said in an interview in Davos, Switzerland at the annual meeting of the World Economic Forum. "The longer this goes on and the more risky positions are built up over time, the more luck you need."

Trichet: Current conditions in global financial markets look potentially "unstable", suggesting that investors need to prepare themselves for a significant "repricing" of some assets, Jean-Claude Trichet, president of the European Central Bank. "We are currently seeing elements in global financial markets which are not necessarily stable," he said, pointing to the "low level of rates, spreads and risk premiums" as factors that could trigger a repricing.

Poole: "The Fed can provide liquidity support but not capital".

The most important facet of all of this is that monetary claims very likely exceed the pool of real funding by several orders of magnitude. When push comes to shove, this house of cards will eventually collapse in some way.

It is important to recognize that what is happening right now with stock buybacks, leveraged buyouts, and various carry trades for what it is: one giant Ponzi scheme. This will end the way all Ponzi schemes end: when the willingness or ability of consumers or or businesses to take on more debt stops and/or when the willingness to further speculate stops. When either of those happens there will be a mad rush for the exits and no more buyers for "overpriced tulips" will be found. Be prepared.