I happened across this in my morning read over at ReportonBusiness, and thought I would return to my roots as a summarizer for iBC readership.

This morning’s article Credit Crisis: Smells like Norway in 1990 lays it out thusly:

The average rate on a 30-year mortgage in the U.S. was about 6.2 per cent last week. Inflation is 4.2 per cent. Subtract the latter from the former, and you get a real interest rate of 2 per cent.

Through the first quarter, U.S. home prices had deflated by about 14 per cent in a year, going by the S&P/Case-Shiller index. That, too, must be counted as a cost of home ownership. Two per cent plus 14 per cent equals 16 per cent

But it’s hardly an echo of the Great Depression. Shoot, it’s not even a replay of the Great Norwegian Contraction. In the late 1980s and early ’90s, that country went through a credit-fuelled property bubble and bust, too. The real estate market turned as foul-smelling as lutefisk, and housing prices dropped 42 per cent, adjusted for inflation. Its neighbours also caught the disease. Finnish property values dropped 49 per cent in a few years, and Sweden’s plunged as well.

You think your stock portfolio’s in bad shape? A leading index of Helsinki-listed stocks peaked in ‘89 and proceeded to fall 73 per cent until it finally bottomed out, 3 1/2 years later. That is a bear market.

More recently, look at Iceland, where the popping of a credit bubble has led to 15-per-cent interest rates, a housing market in crisis, distressed banks and a market crash – the OMX Iceland 15 index is down 55 per cent since last summer.

“You know what the troubling thing about this is?” says Martin Barnes, managing editor of the Bank Credit Analyst. “This has all occurred when the economy isn’t doing that badly.” If unemployment takes a sharp upward turn – watch what happens to home prices then.

But if you’re of the opinion that banks should be properly punished for reckless lending by being allowed to fail, as IndyMac Bank was – well, get ready, because you’re going to get your wish in the next 12 months. What’s happening on Wall Street is not the end of the world. But it’s nowhere near the end of the turmoil, either.

The Takeaway

If you like shorting bank stocks, get ready for some more pain due to the longish list of protected securities due to the proposed SEC rules. If however, you are a more optimistic type commodities still look good in the mid to long term.

Day to day trading? Look at Fly or Shed, they seem to have opposite but functional methodologies.

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