Monday, March 09, 2009

Hindsight Hilarity

I came across a clip from FoxNews toward the end of 2006 where one man, Peter Schiff is a lone voice predicting a housing market collapse. The rest of the panel mocks him and puffs up the housing bubble. It is hilarious in a way, but also saddening to see how blind most of us all were to reality.


Psyclist said...


I think that many with a "clear head" saw this problem looming on the horizon. Recall your challenge with selling your home? You even commented on the danger of ARMs in your September 2006 post regarding home ownership. That point was after the tremors of the late 05 first part of 06 when the housing market was starting to veer off of the irrational highs and begin to plateau/decline.

Another problem with a "clear head" is the emotional attachment many had with "value" of their home. As noted in this clip, American's Net Worth is at an all time high...based on what, their home? So to realize that net worth, you have to sell your home, or borrow money against it. It is not "real" money until the home is sold, otherwise it is just a loan from your personal bank, that you still have to pay back by loading down your monthly cash outlay...or by selling your home.

I take pity on those that get their information from arguing talking heads such as those in that "news" clip. Just because someone talks louder, it does not make them more informed. Nor does speaking with more condecension than another make that person more informed.

Clips such as these should be a cautionary example that critical thinking should be employed by evaluating several sources of information to arrive at an informed thought/decision.

John said...


You make some good points. Those with a "clear head" did see this coming, though I doubt how many of had truly "clear heads."

Yes, I warned against ARMs and interest-only mortgages, but I never imagined a complete collapse of the housing market as we have witnessed.

Yes, there are men like Nouriel Roubini, Nassim Talib, and Peter Schiff saw this coming, but they were roundly mocked and dismissed by just about everyone.

You're right that emotion had a lot to do with irrational trust most placed in the bull market.

And you are right that this clip should act as a lesson to all that would uncritically accept conventional wisdom.

Would you say you were one of those with a "clear head?" If so, what was the basis of your skepticism? I admit I didn't see this coming and I was in no way prepared for what has happened. Of course, now I doubt I will ever be so hoodwinked again, but that doesn't help matters right now.

Psyclist said...

John, the upsetting point of all this is that I have been arguing fundamental weakness of our economy since about 2003.

My "clear head" could be vouched for by advise I gave to my friend Jason. In 2005 he was looking at buying a home. He questioned whether or not he should get a 3/1 interest only or a 3/1 ARM. My response was this:

"The housing market has been on such a tear for so long, it is pretty sure that there will be a plateau of drop in housing prices, and you should not even consider a 3/1 IO."

I also told him that rates are at historic lows, which means there is only one direction for rates to go--up. And, once rates increase the affordability of homes decreases, which will put the downward pressure on housing prices. I told him that he should get a normally amortized loan for as long a period as he thought he would stay in the home.

I also remember yelling at the TV when GWB gave the state of union address applauding the rate of home ownership as an example of how well the economy was doing. That was the direct result of relaxed lending standards, and reductions of the federal interest rate to "stimulate" the economy in the wake of 9/11. Three years ago, I argued that if housing weren't the false prop to the economy that it was, our economic growth would have been nill to negative.

I, too, did not see the collapse of the housing market. I really thought that 2005 prices would be the floor and that has already been pushed on. Increased default rates are to be expected because lending was given to anyone with or without a paycheck, but the domino effect of mortgage defaults was not anywhere on my radar.

John said...


It sounds like you were more advanced in your understanding of what was going on several years ago than I was. Kudos for that, whatever that is worth to you!

My eyes have really been opened in the last couple of weeks to all that has been happening for a decade now.

Psyclist said...

John, thanks for the kudos, but the reality is this: use your understanding of economics to drive your personnal investment strategy. What I have learned in presenting my economic arguments is that there are few people that want to listen to non-mainstream viewpoints. History is the only judge of who/what is right or wrong, in the present it is only conjecture. If you think the economy is going to continue to tank, move toward precious metals. If you think the floor of the drop is near, start buying Citi, Alcoa, and GE stock. Depending on your viewpoint, you may be right or wrong, but your money is where your mouth is.