-- Posted Wednesday, 5 December 2007 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Wednesday, December 5, 2007
“Phenomenally accurate forecasts”
A guru is not going far out on a limb these days when he declares that the sky is falling. Real estate is in its worst funk since the Great Depression, and even the homebuilders are hard-pressed to say when things might turn around. The scare story of the week concerned a freeze on withdrawals from a Florida investment pool that manages cash accounts for state school districts and local governments. A nasty run on this fund, called the Local Government Investment Pool, drew down capital to $14 billion from a recent high of $27 billion. Similar pools exist in many other states, so it is crucial that Florida gets it right in its efforts to restore confidence. The episode followed on the heels of another tectonic tremor in Ohio, where a judge ruled that Deutsche Bank, with its huge portfolio of mortgage derivatives, could not foreclose on a bunch of homeowners because Deutsche was unable to show clear title to the properties.
With ominous developments like these starting to crop up all the time, and bond markets around the world growing more skittish by the day due to their interconnectedness with the U.S. subprime mortgage market, it’s easy to understand why pundits have been waxing bold to say the End Is Near. Indeed, they have asserted not merely that a recession has begun that is still statistically invisible to most economists, but that it will lead us into a Second Great Depression. Unfortunately, we find little room to disagree.
But suppose we’re wrong and the real estate market in particular is about to come bounding back. Would inveterate permabears like ourselves even be able to recognize the signs of a healthy reversal? A fair question, and it is one I have debated over the years with a pen-pal, Fred Hapgood, whom I first met as a student at Atlantic City High School. Just out of Harvard, he taught there briefly enroute to bigger and better things. A visit to his Web site, where he sells freelance articles that he has written on a stunning variety of topics, quickly persuades that Fred possesses a first-rate mind. Not surprisingly, he has always held me to a high standard of proof. In fact, he was dismissive of my deflation thesis from the get-go, and one of the articles offered for sale at his Web site even deigns to imagine “The Upside of Deflation.”
Hardcore Optimism
But as the threat of economic collapse has become a realistic possibility, if not a likelihood in the eyes of hardcore optimists like Fred, he has recently become somewhat more attentive to our discussion, if not to say less patronizing. I sent him an excerpt yesterday from David Rosenberg’s latest gloomy report. The Merrill Lynch economist asserts that we have already begun the “hard landing” that so many of his over-educated colleagues would insist even now is extremely unlikely. Fred replied as follows: “I'm not interested in what [your] random collections of experts have to say. I am 65 and I have seen [doomsday predictions] go down in flames all my life. I am interested in you and in particular whether you can imagine a falsifiable situation -- a situation that you personally would take seriously -- for the Chicken Little scenario.”
And what would falsify my prediction of a deflationary collapse? Fred and I have settled on a statistic that I believe we can trust: bankruptcy filings. Specifically, if at any time over the next five years personal bankruptcies fall for six months, I will concede to Fred that my understanding of the economy is no better than the next guy’s. Or as Fred puts it, my “access to the inner workings of the economy” will have shown itself to be “no more privileged than anybody else's.” He notes the following: “I am under the impression that we have defined such a test – six straight months of falling personal bankruptcies. If that happens then we are agreed that both us will consider the proposition cited above disproved. If I'm wrong, if upon reflection you don't consider that a fair test, let me know and we will work on it.” A little wiggle room that I doubt I’ll require.
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2007, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Wednesday, 5 December 2007 | Digg This Article | Source: GoldSeek.com
