The Credit Bubble:

It is a state of the economy where the rampant borrowing of money causes consumers, businesses and the government to be over indebted.

A credit bubble ends in widespread bankruptcy and financial crisis as debtors are unable to pay their debts.

This is now happening globally and in particular throughout the UK in 2009 and is projected to continue into 2014.



The Housing Bubble:

We are currently in the midst of a bursting housing bubble. Most UK homeowners are now feeling the effects.

How did this happen? Here is the evidence that we are in a massive housing bubble:

Housing and house sales performed spectacularly in the 1980's and 90's the average home was up by 185 percent. In recent years, despite the recession, housing prices have risen by over 43 percent. To put that into perspective, in last 5 years, the average house-hold net worth inflated by appx(£)50,000. In London during 2002, the average house-hold soared by (£)1500 per month!

Those rapidly rising housing prices were the main sign of a massive housing bubble. Housing bubbles occur when house prices rise and overheat, only to come crashing down for at least a decade to come.

Can Crashes Be Predicted:

One of the greatest myths of all time is that market crashes are random, unpredictable events. The lead up to a market crash is often years in the making. Certain warning signs exist, which characterize the end of a bull market and the start of a bear market. By understanding these common warning signs, you can liquidate your investments and prosper by taking the correct positions the market.

The stock market is a study in human psychology as it is human emotion that drives all market action. A healthy human mindset is cautious and skeptical, but also realistically optimistic. Throughout the early stages of a bull market, investors tend to be cautious and skeptical. This caution always signifies the health of a bull market.

Nearing the end of a bull market, the market psychology becomes manic, or excessively euphoric. Being manic is a form of mental illness in humans, as well. This is characterized by euphoria that isn’t rational. For example, a manic person may feel so wonderful that they may not sleep for days or give away their life savings. Later on, the mentally ill person is no longer manic, they are depressed. The stock market follows same exact manic-depressive patterns. This realization of the market being manic-depressive was by the brilliant Benjamin Graham. Benjamin Graham was the mentor of the greatest investor of all time and second richest man in the world, Warren Buffett and even Mr Buffet got it wrong in 2009.

At the top of a bull market, words can’t describe how euphoric investors are. It is very common for investors of very modest means to now have portfolios valued in the hundreds of thousands of dollars. In the Dot Com Bubble, many secretaries had multimillion dollar stock option portfolios! This type of instant wealth isn’t reality. It is one of the prime characteristics of an impending stock market crash. In every stock market bubble, people of average means can become fantastically wealthy.

Another major sign of an impending stock market crash is overly euphoric news media. The news media has an extremely poor track record at forecasting markets. Their record is so horrible, that doing the direct opposite is highly profitable! If financial newspapers have headlines that are exalting the recent stock market performance, SELL- as fast as you can!

The most deadly phrase in the market is “this time is different”! Another costly adage is “we are in a New Economy”! Both these phrases and their variations have been around since the dawn of markets. The markets never change, because human psychology never changes. When phrases like these are used, it’s because the user is in denial of reality. In these cases, it is the “dumb money” investors who want to keep riding the bull market in the same lazy fashion. The professional “smart money” realize that bull markets are always temporary. The smart money will profit in both a bull market and a stock market crash.

In the midst of a financial disaster, inflation becomes rampant. Inflation is the rising cost of living, which decreases the buying power of the pound. The rising cost of living can be observed by much higher fuel prices, housing prices and food prices. Ironically, it is the strong economy that causes inflation. In simple terms, the strong economy causes more demand for goods and transportation. When salaries go up, people take more vacations, which require gasoline, etc. Small inflation is a good sign, but when it really heats up, look out below!

Once high inflation sets in, governments try to cool down the economy. They try to engineer a “soft landing” or currently "quantative easing" in essence printing more money then slowly raising interest rates. If inflation and stock speculation is out of hand, rates will have to climb fairly high to have an effect. Pretty soon, the stock market becomes cyclic in its ups and downs as speculators head for the exits or try to pick a starting point. The overvalued stocks quickly become a fraction of their previous values. The market will often crash over a period of several years to come.

Stock market crashes are not difficult to forecast, as they all have the same tell-tale signs. What WestCorp aim to do for our clients is to protect their core equity and assets no matter the outcome of financial crashes and bubbles.

If you are astute enough to recognize these signs and protect your equity and assets with our Homeowner Equity Protection Plans then prospering from a crash and the bursting financial bubbles is a realistic proposition.