Buying at the Point of Maximum Pessimism: Six Value Investing Trends from China to Oil to Agriculture

Chapter 3. Financial Chaos

As the second half of 2006 progressed, all the reckless financial behavior that had underpinned the constant buying and selling of properties up to that point during the credit boom was starting to collapse under its own weight. In our earlier discussion of gimmicky loans and their explosive penetration into housing finance, we detailed how the majority of those loans were adjustable-rate mortgages (ARMs) whose low interest rates were set to expire after a given period of time. Because this form of financing was most preferred among speculators whose only intention was to play the rising prices, it actually created what amounted to a ticking time bomb of selling activity. In other words, as the ARMs on these waves ...