Alex Sebastian

The Shallowest Generation

Excellent article. Sums up very nicely what I (a member of the generation following the Baby Boomers) have been telling people for ages. My generation is worse than the Baby Boomers are though. We are growing up with easy credit, and a lot of people are being given credit before they are responsible enough to handle it.

A few points I would like to add:
1) The war in Iraq is going to cost in excess of $2 trillion, not the $700B quoted in the article
2) As far as banks making bad loans and granting mortgages they should not have, it was not as simple as poor decision making. What occurred was the original lender was able to securitize the loans and sell them to a third party, earning a commission on the loans, so the incentive structure of the industry changed dramatically.

Before the era of securitization, a mortgage lender would have to do due diligence to ensure that people would be able to repay their loan. Once securitization began, they simply earned a commission on each mortgage, which they subsequently unloaded to Investment Bankers, who subsequently did a million optimization equations and got AAA ratings and sold them off. The bad banks were the banks which were caught with billions of these loans. Look at Goldman Sachs, they securitized billions of these loans and were a market maker fro CDOs MBSs etc, but foresaw the problems and got net short, evading the problems, while still making a killing during the securitization binge. A similar process occurred with consumer loans.

A great video that is in the same vein as this article is "In Debt We Trust". Google it.

Expect the Real Rally by Mid-2009

Just curious where your three year prediction of economic growth was derived from? Other than your conclusion on housing based on very simplistic analysis of housing data, I see nothing here that justifies economic predictions. I am open to being convinced on which way the economy is going to go, but I am not going to buy some numbers you clearly just picked out of thin air. Rationalize your conclusions and you might see more people listening to them. Complete an analysis like that and you will get laughed at when you draw a conclusion.

Oh and I don't think forward earnings expectations are in any way reliable...

Equities: In the Eye of the Storm

I do think that the economic weakness which has emerged in the rest of the world may be beneficial for US equities simply because there are no "safe havens" left, so the US doesn't seem "as bad" in comparison

P/E Ratios and Inflation

What happens when the inflation rate exceeds 20%?