Pompous Prognosticators 2004-2009

In 2001, Colin Seymour published an article entitled 1927-1933 Chart of Pompous Prognosticators. In it, he documented the many Depression-era assurances given by politicians, economists, financial experts and the media to the public, protesting that everything was fine and there was nothing to worry about. Meanwhile, the stock market would decline by 92%, the US dollar would be devalued by 40%, real estate would drop 30% and unemployment would soar to 25%.

Today, we have a similar situation. Politicians, economists and the media are assuring the public that everything is fine. But governments around the world are frantically borrowing trillions of dollars to fund bailout and stimulus plans, the stock markets have lost over 40% of their value, real estate over 50%, and unemployment is approaching 10% in most major countries.

2004
1. “The ability of lending institutions to manage the risks associated with mortgages that have high loan-to-value ratios seems to have improved markedly over the past decade.”

– Alan Greenspan [February 2004]

2005
2. “Home sales are coming down from the mountain peak, but they will level out at a high plateau, a plateau that is higher than previous peaks in the housing cycle.”

– David Lereah, Chief Economist, National Association of Realtors [December 2005]

2006
3. “I don’t know, but I think the worst of this may well be over.”

– Alan Greenspan, [October 2006]

2007
4. “The fallout in subprime mortgages is "going to be painful to some lenders, but it is largely contained."

– Treasury Secretary Henry Paulson [March, 2007]

5. “The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained.”

– Ben Bernanke [March 28, 2007]

6. "This is far and away the strongest global economy I've seen in my business lifetime."

– Treasury Secretary Henry Paulson [July 12th, 2007]

7. “In today's environment, it is virtually impossible to violate rules.”

– Bernie Madoff [November 2007]

2008
8. “Over the next few months, existing-home sales are expected to hold fairly steady as indicated by pending sales activity, then rise later in the year and continue to improve in 2009.”

– National Association of Realtors [January 2008]

9. “Although recent data suggest that the probability of a recession in 2008 has increased, CBO does not expect the slowdown in economic growth to be large enough to register as a recession.”

– US Congressional Budget Office [January 2008]

10. “I don't think we're headed to a recession.”

– President George W. Bush [February 2008]

11. “I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system.”

– Ben Bernanke [February 28, 2008]

12. “No! No! No! Bear Stearns is not in trouble.”

–Jim Cramer, CNBC commentator [March 2008]

13. “The worst is likely to be behind us.”

– Henry Paulson[May 2008]

14. “Despite a recent spike in the nation's unemployment rate, the danger that the economy has fallen into a "substantial downturn" appears to have waned,”

– Ben Bernanke [June 9, 2008]

15. “Fannie Mae and Freddie Mac are fundamentally sound. They're not in danger of going under.... I think they are in good shape going forward.”

– Barney Frank, chairman of the House Financial Services Committee [July 2008]

16. “We have no plans to insert money into either of those two institutions.” (Fannie Mae and Freddie Mac)

– Henry Paulson, [August 10, 2008]

17. “My own belief is if we were going to have some sort of big crash or recession, we probably would have had it by now.”

– Canadian Prime Minister Stephen Harper [September 2008]

18. “We're probably somewhere pretty close to a bottom.”

– Fund manager Barton Biggs [September 2008]

19. “The fundamentals of our economy are strong.”

– US Senator John McCain [Sept 15, 2008]

20. “We remain committed to examining all strategic alternatives to maximize shareholder value.”

– Lehman Bros. CEO Dick Fuld, shortly before Lehman went bankrupt [Sept 2008]

2009
21. “It’s a huge bull market rally.”

– Jim Cramer, CNBC [June 2009]

Just as Seymour’s Pompous Prognostications proved devastating for those investors who remained complacent due to those false assurances, today’s investors would be wise to educate themselves on the real risks and vulnerabilities they face today. In order to preserve their wealth over the coming years, investors need to make wise, informed decisions, stop being complacent, and avoid following the false assurances of politicians and financial experts. With countless risks and vulnerabilities facing the world, the next 20 years will not be the same as the last 20 years.

Sources: FederalReserve.gov, BusinessWeek, CNBC.com, Realtor.org, Marketwatch.com, USA Today, Washington Post, Reuters, Associated Press, Bloomberg, BBC.com, TimesOnline.

Comments

[Monexo:]

sigh...

Jul 11 02:38 AM

[TinyTim:]

They ain't all dumb as stumps.
Check this guy out:
www.spiegel.de/interna...

Jul 11 03:44 AM

[shagbarker:]

In the future predictions sometimes turn out to be correct. It is much harder to predict the past.

Jul 11 08:50 AM

[Mike McCurdy:]

"Today, we have a similar situation. Politicians, economists and the media are assuring the public that everything is fine. " I don't agree at all with that statement but I look mostly on the web for my info and now avoid all talking heads - when did people learn to act so obnoxiously? To me, it's a relentless sea of negativity, much of it simplistic and discounting of ANY of the positives that have popped up. But then, it's all about advertising revenue and page hits and what sells is negativity and sensationalism.

And good luck in trying to correlate the 'apparent' future fundamentals with stock market moves on anything but a day trading basis.

Jul 11 09:10 AM

[zug:]

Great post. Pompous Prognosticators. Jim Cramer certainly fits the bill. The Daily Show had a great show on similar themes:
www.thedailyshow.com/w...

But more seriously, one asks how does an investor proceed? Questioning the theory of asset allocation cum diversification itself. It's not clear that there is a reliable model for investing ... the old paradigms seem to be broken.

Jul 11 10:43 AM

[curious cat:]

"what does it profit a man, should he gain the whole world and lose his soul?"

the joneses are going backwards, now. you don't have to keep up with them anymore. they have stopped borrowing, they have stopped spending. they are russia and we are the u.s.a. they collapsed, we go on. by standing still, we can get ahead, as long as we don't make the same mistakes they made.

houses, cars, vacations, and other goods and services cost less, now. burger king is coming out with a dollar double cheeseburger. everything is relative, so you don't need to make more on your money. you just have to keep the money you have, while everything around you gets less expensive, while everyone around you has less money they can spend. if they fail to compete, when you bid, you win! that's deflation.

how long before deflation turns into inflation? how long before the housing market makes a comeback? how long before you think your bank starts giving you one percent on your money market funds? businesses start hiring? how anti-business is the current administration? could be a while, don't hold your breath. in the mean time, do works of charity. it'll make you feel better and it'll help people when they really need it.

Jul 11 01:08 PM

[buoy:]

Good ones!

Jul 11 01:10 PM

[roywil:]

OK, I get it. But we are all brilliant in retrospect. As I, a long-time blackjack player, like to say, "I always know what I should have done *after* the cards are dealt. It's beforehand that's a little trick."

Jul 11 01:20 PM

[Trend Surfer:]

Thanks for your quote listings. It has never been wise listening to politicians and vested prognosticators. Personal critical thought has never been a strong point for lemmings. That's the reason for the greater fool theory.

I can't for the life of me rationalize a reason for growth to come back to the economy without either the return of the consumer or a significant increase in US exports. Either of which may be unrealistic.

Some analysts points to green shoots, but factors out the extent of gov't funds in the market.

Jul 11 01:33 PM

[Mad Hedge F...:]

Here's another prognostication for you. Every once in a while I stumble across a chart which is so clear, so vivid, so unequivocal in its implications, that it lifts the investment fog. This is that chart. Drawn up by stockchart.com’s Arthur Hill (see www.madhedgefundtrader... ), it shows that we are going to spend the rest of our summer probing for the bottom right hand shoulder in a screamingly obvious “head and shoulders” pattern. It gives a range of possible bottoms from 850 all the way down to 666 by the end of August. The chart fits my own fundamental scenario like a hand in Michael Jackson’s glove (see “The Worm Has Finally Turned” at www.madhedgefundtrader... ). Soaring unemployment, terrible earnings reports, collapsing commodity prices, a catatonic consumer, real estate of every flavor in free fall, and tidal waves of government spending are not what bull markets are made of. Did I mention the weather is terrible? Every feeble, half hearted, low volume rally we saw this week pushed us closer to the edge of the cliff. The charts of every stock and commodity market in the world, rolling over in lockstep like a thirties Busby Berkeley musical, gives you all the smoking gun confirmation you need. Hold on to those shorts as if your life depended on it.

Jul 11 03:04 PM

[Paul H. M.:]

Why would we want to grow so much? Seems like as long as people have jobs, homes and food, then we can all live happy lives.

Obama is working to achieve just that: a environment where people can live happy lives.

With health care soon to be available to all, that alone should create man millions of new jobs. Those jobs will create more tax revenue, and more opportunities for other businesses.

Growth, without good reason, is a quality of cancer. We should focus on creating a sustainable society in which nobody feels the need to rob each other, because people generally have what they need.

Jul 11 03:23 PM

[whidbey:]

Is he selling gold, more or less?

Jul 11 03:27 PM

[TheFounder:]

I must agree fully with the mad HFT.

It is so clear we are about to fall of a cliff. What can possibly take us higher? where can the market possibly go after a 40% rally and only bad news arround us?

The only relevant question now is where is the next bottom: 850 or high 600's.

Jul 11 03:41 PM

[snagglesnarf:]

I remember a guy, just before the dot-com meltdown, predicted the Dow would streak to 30,000. He just never said when it would happen. It might be soon if the US gov't keeps destroying the dollar.

Jul 11 07:02 PM

[Ryan Barnes:]

We're not supposed to listen to the "financial experts"? That's quite the blanket statement.

Ok, now that you've eliminated everyone who's been tasked to do the job of allocating capital, who then should we listen to? Oh, wait, the author is a gold bug. But is he not also a "financial expert"? hmmm...

I enjoyed reading the quotes, they're always fun to read, but it's also blatant quote mining going on here. Author could have just as easily thrown up a slew of quotes from "financial experts" who were dead-on in their warnings of things to come, going back to 2001. Now, more than ever, we need objective analysis, not fear-mongering.

Jul 11 11:53 PM

[Ted Kavadas:]

Thanks for posting this article; I found it interesting.

I have documented similar forecasts and quotes; they can be found under "Predictions," the second article listed here:

www.economicgreenfield.../

Jul 12 03:07 PM

[Fred Voetsch:]

My favorites were the fools of "Fast Money" who I relied on for over a year as a counter-indicator. I remember all of them being astonished in the fall of 2007 that the subprime problem had been taken care of in only a few weeks.

As each market panic would hit I would buy into it once I could see them holding back the urge to jump out the nearest 10th-story window.

Jul 13 12:55 PM

[Fred Voetsch:]

On Jul 11 03:23 PM Paul H. M. wrote:

> Why would we want to grow so much? Seems like as long as people have
> jobs, homes and food, then we can all live happy lives.
>
> Obama is working to achieve just that: a environment where people
> can live happy lives.
>
> With health care soon to be available to all, that alone should create
> man millions of new jobs. Those jobs will create more tax revenue,
> and more opportunities for other businesses.
>
> Growth, without good reason, is a quality of cancer. We should focus
> on creating a sustainable society in which nobody feels the need
> to rob each other, because people generally have what they need.


You won't be too popular here with these comments but you are correct; as long as we continue to try to grow in artificial ways we not only will continue to see overly large booms and busts but we will need to continue to create useless, mindless products that treat our children like consumers rather than people.

I remember as a young person hearing about consumerism and thinking that this could never come to be; I was wrong, unfortunately.

Jul 13 12:59 PM