This person will regret this statement in about 12 months.

Veteran traders know that capitulation is close when you have people making such outlandish statements. While I understand what he is trying to say (with respect to asset bubbles) but he is comparing apples to oranges. Taken from the TheStreet.com:

Learning From Japan's Experience 1/4/2008 2:41 PM EST
Does anyone remember how the Japanese stock market opened 1990 on a similar note to the U.S. market this year? That was caused by the collapse of Japan's real estate bubble.

The cause and effect relationship doesn't appear to so different here. So I believe that the Japanese experience (a decade-long bear market) has considerable relevance.

Position: None

Wow...talk about a "bold statement." Here is the truth from my perch: the Japanese asset bubble is nothing like we are experiencing at the moment. The Japanese bubble was just downright aweful...Some highlights from the their bubble economy:

US bailout of Fannie and Freddie

With confidence waning at Fannie Mae and Freddie Mac, the US government has decided to step in and bail out the two beleaguered firms. The companies, known as government-sponsored enterprises, or GSEs, affect nearly half of the nation's mortgages by either owning or guaranteeing them. More precisely, by issuing securities they provide liquidity to the mortgage markets. They make their money by charging a guarantee fee on loans this is has securitized into mortgage-backed securities.

Treasury Secretary Henry Paulson asked Congress for authority to buy unlimited stakes in and lend to the companies. This would also include increasing the credit lines for both firms.

Interestingly, this purchase in equity would be the first time ever that the US government has taken an equity position in either firm.

Asset bubbles and valuation. (Part II)

Part II will look at recessionary periods that occurred this decade and in the 1990s.

Learning to be good traders means that we should learn from current events and take notes. We should also look at the past as a guide - history, as they say, tends to repeat itself.

Make no mistake...we are in the middle of an asset devaluation period and maybe even a recession. This afternoon comes news that the White House has put together a rescue plan for Fannie Mae and Freddie Mac that will include the funding of stock purchases and the infusion of cash all in the neighborhood of $15 billion.

With that said, there are basically three questions that concern investors at the moment:

1) How long will this last?
2) How bad will it be?
3) What was the cause?

I believe the best way to answer these questions is to explore our economic past for a bit of insight. Specifically, let's revisit our previous recessionary periods and the consequences of them:

Asset bubbles and valuation. (Part I)

Part I discusses the current US asset bubble and its effects

The selloff in the equity market should be expected. None of us should be surprised...and why you ask? Here are few reasons why:

1. Interest rates (and the fed funds rate in particular) were so low, for so long that it made money "cheap" and induced a borrowing frenzy of epic proportions. The effective fed funds rate dipped below 2% for the first time in almost 40 years. (For those unfamiliar with the fed funds rate, it is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions, usually overnight.)

From a "macro" standpoint, promoting low interest rates will give corporations the incentive to borrow which in turn creates an expansionary environment thus higher economic growth. And, as you will see later, higher cash flows and earnings growth will lead to higher asset prices.

2. Inflation rates never forced the Fed to "moderate" growth as they have in the past. Under the premise of higher economic growth, it was usually expected that higher inflation would follow. However, due to better Fed policy management, inflationary pressures never really set in this decade. As a result, the Feds kept rates for longer than it should've.

3. Revenue growth and unsustainable profit margins also played an important role. With the advent of global demand and the US consumer, firms prospered from unprecedented economic growth. Demand kept profit margins at a healthy clip this decade.

With all of that said, let examine how these factors quantitatively transformed into higher asset valuations and, in some case, bubbles: