What were the signs?

I have read about a few booms and bust, but this is my first bust in real time (and what a bust it is). Now going back to my notes, I see a few things coming back. what were the signs? Now I am not saying that I could see all these signs, but the next time I see something similar brewing, I'll know what will follow!

Exhibit A: Housing
This has been talked about in depth, everyone and their dog know now what exactly took place here. But looking back 2-3 years, some of the signs could be: anyone with a pulse getting a loan, 20 year old realtors, 2-4 shows on TV dedicated to flipping houses, flipping houses a 'sure' thing for making money to name a few. Going back to Charlie Mungers's power of incentives, if one just analyzed the incentives in the housing securitization chain, the fallout becomes really easy to predict. No one, and I mean no one had an incentive to keep the quality of the mortgages sane, everyone was concerned about volume (and that is obviously not good!).

Exhibit B: Private equity
Endowment and Pension funds are funny creatures. They employ the best of the best, manage insane amount of capital and serially fall prey to 'glamour' investments. In the late 1970's they lobbied to change the regulations so that they could hold more gold; this time it was Private Equity that took them down. Endowment and pension funds couldn't get enough of their cash in PE funds. Now consider the recent dumping of PE stakes by investors led by Harvard University, which manages the largest U.S. endowment at $36.9 billion. Interests in funds managed by KKR, Madison Dearborn LLC and Terra Firma Capital Partners Ltd. all are being offered at discounts of at least 50 percent. Now ain't that smart! In addition, when in any field things get large, the likes of which have never been seen before you know that an access is developing. In PE's case the buyouts became larger and larger. In the late 1980's it was RJR Nabisco deal by KKR that signaled the end in that era, and this time it was BCE - the Canadian telecommunications giant that was to be taken over for $52 billion. Furthermore, they say that when you cant determine who the sucker on the table is, it is usually you. This was the case with the various Private Equity/Hedge Fund IPO's. When Stephen Schwartzman is selling, buying would be a bad idea! This was in my opinion the most obvious sign that the party is coming to an end.

Exhibit C: Risk..What Risk?
Yes, unfortunately that was what the world had come to believe. This was not just true this time, but every time people are feeling joyous. The spread between the treasuries and the junk bonds becomes smaller and smaller, the covenants become looser (pik toggles anyone) and investors just need yield, any yield as long as it higher than the treasuries (and they don't care how much more risk they are taking!).

Exhibit D: Net-Nets
Now method this is proprietary I must say, and is one that roughly works. One just needs to look at the number of net-nets available in the market and its as simple as that. You don't have to buy them, but as a rule when there are a few (or no) net-nets available in the market, you know some excesses have developed and its time to be cautious.

Now I can't (and no one can) tell you exactly when the kindgom will come, or what the catalyst would be, and none of the things mentioned above is precise but I rather be roughly right and be cautious than be precisely wrong and do nothing (or short it all).