Apogee of exuberance, paroxysm of irrationality. Sign of a top?

The action on the stock market today seems to me like the apogee of exuberance and the paroxysm of irrationality: Freddie Mac and Fannie Mae are up between 40 to 50%.

While the fact that the Federal Reserve bought $5.6 billion of Fannie, Freddie and Federal Home Loan Bank debt is obviously bullish for these companies shares (free money given to any company increases its value), this reaction shows that people are now fully believe that the real estate bubble will reflate.

Too bad, because it won't.

The bad news ignored by the markets are numerous, but again, nothing in this rebound has to do with fundamentals. It is lead by mass hysteria.

I think we might have touched a top...

As Hussman wrote: As John Mauldin recently pointed out, a June survey of 1500 real-estate agents by Mortgage Finance found that only 36% of all existing home sales involved “non-distressed” properties, and of those, only 31% were described as unforced or optional, the remainder being sales prompted by personal financial difficulty such as unemployment or changes in family circumstances, but without a delinquent or foreclosed mortgage. As John wrote, “Think about that for a minute. Two-thirds of home sales are either foreclosures or banks taking a loss on the mortgage. And only a third of the remaining one-third – roughly 10% of overall sales – comes from something we could call a normal selling process.”

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