Wondering who called the downturn along with a small circle of economists and finance managers?
In an aside in an email to my brother, who is general counsel to a hedge fund, from October 2007:
Btw, I’m calling a market top two weeks ago. It’s going to be a blue Christmas and next year is going to be worse. It’s time for ______ to start shorting everything except gold.
Later, in April 2008:
Don’t know if you’re in today, but don’t believe this rally. It’s a crock. The triumph of desperation over reality. I see a deep, deep darkness on the horizon.
Of course, those of you reading this blog regularly know this, but I figure if I don’t toot my own horn who else will?
And, btw, it didn’t take a genius to see this was coming. It just took an unbiased interest in the matter. This one chart, which I first encountered in 2005, says it all:
As we are now witnessing, home prices are reverting to mean (as they must). With that, an explosion of mortgage equity withdrawals have dried up (you can’t borrow against negative equity). And, unfortunately, there is no where else for the American consumer to turn. Consumption is the engine of our economy but everyone (consumers, businesses, banks, local, state, and federal governments) is up to their eyeballs in debt.
Want further elaboration? Here’s a post from May called America: We Can’t Afford It.
The only thing I will confess to not understanding was the depth and magnitude of the trading up of these mortgages by Wall Street. The housing crash is, by itself, a serious recession. The Wall Street profit engine built upon mortgages (that has now seized) is what will cause the depression.
So, I’m calling it now, officially. It may not be as severe as the Great Depression, but then again, it may. We are certainly heading for many consecutive quarters of negative growth (with possible timeouts for stimulus packages) and double digit unemployment. At worst, we are facing an American default. Mark my words and pray that I’m wrong.
Without exaggeration, this is one of America’s darkest hours.