Skip to comments.They Just Don't Get it
Posted on 03/08/2008 5:31:18 AM PST by Travis McGee
Prior to my last appearance on CNBC in October 2007, I had made more than 50 appearances on the network over the prior two years. In those segments, I repeatedly exposed the superficiality of our prosperity, described the American economy as a house of cards, pointed out that borrowing and spending were a ticking time bomb rather than a viable plan for long term economic health, and explained how investors could prepare for the tough times ahead. At the time, those forecasts were met with ridicule and led to my being nicknamed Dr. Doom. Now that these predictions have come to pass, most on CNBC now claim that no one saw it coming!
In my 2006 and 2007 on-air appearances, to a chorus of sneers and laughter, I predicted the bursting of the housing bubble, the collapse of the subprime mortgage market, the credit crisis, tightening lending standards, waves of defaults, bankruptcies and foreclosures, weakness in financials, retailers and homebuilders, stagflation, surging gold, oil and other commodity prices, soaring federal budget deficits and a collapse in the value of the U.S. dollar. You would have thought that some of the reasons I gave for making those predictions would now be given some credence. They have not.
The current line at CNBC is that, prior to the unexpected contagion emanating from the subprime mess the U.S. economy was experiencing a Goldilocks era of optimal health. They now believe that if the Fed and the Government can divine the right combination of fiscal and monetary policy, Goldilocks will once again be blissfully picking daisies or more precisely, buying SUVs. Unfortunately, as I said then, Goldilocks was, and still is, a fairy tale. In fact, the unfolding economic disaster is a direct consequence of the misguided faith placed in that absurdly optimistic parable. And since they were incapable of diagnosing the disease, is it any wonder that their cures are completely ineffective?
This lack of understanding is further confirmed by the skepticism with which the mainstream financial community still regards my diagnosis. For example, in a Feb 22, 2008 article in TheStreet.com, entitled Dr. Doom Zeros in on Inflation, Mike Holland, a CNBC regular leveled two common criticisms often used to discredit me. Holland says investors who listened to Schiff throughout the recent bull market missed out on some attractive returns in the stock market and A broken clock is right twice a day. If you say things are going to be bad long enough, eventually you're going to be right."
What attractive returns does Holland think my clients missed out on? Those who followed my advice invested in foreign stocks, bonds and currencies, as well as precious metals, oil and other commodities. Investors who listened to me instead enjoyed much greater returns by participating in the real bull markets. Its amazing how few people have managed to figure this out!
The stopped clock analogy is one I have been dealing with for years. Those using it maintain that my early warnings invalidate my forecasts. It is precisely because my warnings were so early that they were so valuable to investors. In addition, such charges assume that the current downturn is unrelated to those warnings and that my critique of the U.S. economy was inaccurate until now. My critics, the real stopped clocks, still do not understand that the phony prosperity they were defending and that I was challenging lies at the root of the current crises. When the bubble was still inflating it is understandable that those trapped inside viewed me as a stopped clock. However, now that it has burst, it is amazing how many still cannot get the soap out of their eyes.
If a picture, or in this case a video, is worth 1,000 words, this CNBC match up from August 2006 between me and Arthur Laffer, a CNBC favorite, is priceless. Some of Laffers best one-liners include the U.S. economy has never been in better shape, and monetary policy is spectacular. I kid you not -- Click Here and enjoy the show.
“Embrace the recession”
I’ll say that I didn’t realize so many people were using home equity to buy stuff they couldn’t afford. Because the value of their homes went up they thought they were in money... I don’t understand why they didn’t realize that every cent was borrowed money that had to be paid back regardless of the current value of their home. I really, really don’t understand.
All of America seems to have the head-in-sand condition. Corporate America is just as bad. Most execs and managers never seem to see the doom coming yet every employee is screaming about it. It is pure laziness. As long as they are getting a paycheck and can go home at 5:00 they believe things will be just fine.
Schiff is an Austiran, and he is right. Laffer is a Keynsian, and he is dead wrong.
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."~~Ludwig von Mises
"Credit expansion can bring about a temporary boom. But such a fictitious prosperity must end in a general depression of trade, a slump."~~Ludwig von Mises
"True, governments can reduce the rate of interest in the short run. They can issue additional paper money. They can open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression."~~Ludwig von Mises
"Credit expansion is not a nostrum to make people happy. The boom it engenders must inevitably lead to a debacle and unhappiness."~~Ludwig von Mises
"What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media. The credit boom is built on the sands of banknotes and deposits. It must collapse."~~Ludwig von Mises
"If the credit expansion is not stopped in time, the boom turns into the crack-up boom; the flight into real values begins, and the whole monetary system founders."~~Ludwig von Mises
Oh, boy. I can't wait for the super-capitalists here on FR to come to this thread and tell us how important it really is for China to take our dollars.
Or, to tell us that debt is better than tangible assets.
Or, that equity really IS wealth.
Or, that GDP is more important than a middle class.
” I really, really dont understand. “
Neither, apparently, did the vast multitudes that bought into the “Equity Farming” myth....
And, on the ol’ Equity Farm, the chickens are coming home to roost.....
What does this guy know? It is common knowledge in Amerika that you can borrow your way to wealth. The bigger the loan they “give” you, the luckier you are!
I just got approved for a 900,000 dollar loan, I’m going to be RICH! /s
My wife was like that. She couldn't grasp that equity didn't exist unless you took out a loan and had to pay it back.
Luckily I was able to get through to her.
Then I guess it’s time againg for “Spanish Lessons.”
William R. Hawkins, Wednesday, April 07, 2004
“Yet, Spanish leaders were deluded by a sense of false prosperity. This is testified by the statement of a prominent official, Alfonso Nunez de Castro in 1675: ‘Let London manufacture those fine fabrics of hers to her heart’s content; let Holland her chambrays; Florence her cloth; the Indies their beaver and vicuna; Milan her brocade, Italy and Flanders their linens...so long as our capital can enjoy them; the only thing it proves is that all nations train their journeymen for Madrid, and that Madrid is the queen of Parliaments, for all the world serves her and she serves nobody.’ A few years later, the Madrid government was bankrupt. The Spanish nobleman had foolishly elevated consumption, a use for wealth, above production, the creation of wealth.”
Art Laffer sounds just like Alfonso Nunez de Castro in the video.
Perpetual Bears are like broken clocks, they are eventually correct. I don’t listen to them.
The time to listen is when a Bullish person makes Bearish predictions.
I remember a guy that was predicting a burst of the tech bubble from 1990 all the way to when it burst ten years later. Then he wanted to be treated like a profit. All high growth sectors eventually burst. It happens every single time.
I wonder which FR super-capitalist is really Laffer?
Laffer staked a penny and his sacred honor on the current.
Laffer - "seignorage gain" is what he calls it when we run a $60B per month trade deficit. He also claims that families have 2 incomes because the "love their work."
I think Laffer lost the bet.
Believe it or not, there ARE times when it is prudent to be Bearish.
Thought admittedly it is not en vogue here on FR with a R in the WH.
These are some of the 'Boys' that Ben Bernanke is trying to save by raping the dollar. Read the report for yourselves. I say 'Line 'em up and shoot 'em down.'
Get out your popcorn. These investigations are just getting started. Corrupt mortgage lenders get burned in live testimony. Will 'Big Angelo' go to jail or get whacked by his cronies when he travels to Sicily? . . . LOL . . . LOL !
If you do not have a high speed Internet connection, use a friend's or drive to the public library. Have a good, long horse laugh for free.
There are a lot of times when its prudent to be bearish. I'm bearish right now. I was just pointing out that there are people who make a career out of being bearish and then want to be treated like a profit when they are right. Like a weather man that predicts snow every day of the year, and then runs around yelling "I told you so" on the day of the big blizzard.
Yeah, that CNBC infobabe enjoys her high 6 figure job, that’s for sure!
I wonder if Laffer will send Schiff the penny and the letter?
I am so counting on it I am turning blue in the face holding my breath.
Or did he not? Did you watch the debate video?
You are a perfect example of someone trying to discredit Schiff with his own “broken clock” comparison. You're perfect. Don't stop. You make his point beautifully.
Profit? Hmmmmm.... Kind of appropos in this discussion.
According to the moneychangers of the world we are ALL just profits and losses.
Holy cow, history has splattered mud on Laffer’s face.
Although travis was wrong about interest rates going up...
And that bimbo kicking in about women and jobs? She does not deserve the soapbox she gets. Nor do her opinions.
>>I just got approved for a 900,000 dollar loan, Im going to be RICH!<<
Skip the country and move to a nice abode in Central America and you will be!
Oranges are a penny a piece. No building permits. Hired help for a few dollars a day.
I have a friend that has a 50 acre ranch, a 6,000+ sq ft house and puny property taxes. The whole thing cost less than $100k! The locals are very friendly, corruption is about the same as in the US.
But you gotta learn spanish.
I don't know who Schiff is but, according to what I read, he has been a perpetual bear for years. IF he has clients they would have all fired him by about April of 2007.
I prefer to listen to this guy who called the market top in 2000 and is very bullish right now.
Or because taxes are too high, Laffing Boy, or because the breadwinner took a pay cut, or there are lots of medical bills, or they both work at McDonalds, etc.
Dr. "Doom" AKA Dr. " Got It Right" nailed it - and saved his clients grief and money. But what's Dr. "Got It Right" saying now? How much further down do we go? (My guess - housing will lose another 30%) and when will it end?
The declared expectations by the “oh so wise ones” concerning jobs would be that there would be 25,000; however, the reality is that 63,000 were lost. That’s in the public sector.
The private sector lost 101,000 jobs.
Manufacturing lost 52,000 jobs.
Construction lost 39,000.
Restaurants and health care lost 19,000 and 37,000, respectively.
Yeah.....a “broken clock” is right twice a day.
I know what’s happening. I would tell you. But then I would have to call some of Angelo’s buddies. They would want to silence both of us forever. The fish would be very happy . . . Just kidding . . . LOL . . .
[All of America seems to have the head-in-sand condition]
Agreed. It is part of being snake bit.
>>Like a weather man that predicts snow every day of the year, and then runs around yelling “I told you so” on the day of the big blizzard.<<
Good point. But what if a weather man just this week started saying it is going to snow and then it does? It is disingenuous to then say that he was just a “stopped clock being right” because SOME OTHER weather man has been saying since June that it was going to snow.
Also, a lot of people missed the timing of this meltdown because few knew just how many tricks would be pulled to keep the bubble inflating. I thought it was crazy when banks increased the allowable mortgage payment from 30% to 50% of income. I thought THAT was creating unqualified buyers. But I had no idea just how silly they would get in granting loans.
And that simply prolonged the day of rekonning but also ensured that it would be worse once it got here.
And it has been said that these sort of collapses always take longer to arrive than predicted, but once they arrive, they unfold more rapidly than predicted.
This is going to be a VERY interesting year. Popcorn futures should be up.
Yep. She's not waiting tables or sewing garments or loading boxes to feed her children.
What a pompous ass she was.
Our local conservative talk station (KVI) has Carlene Johnson as a “sidekick” to Kirby Wilbur. She started off as a traffic, news, weather girl and still really is. I’ve met her. She is a nice person.
But she gets to stand on the soapbox quite often with her opinions much like the bimbo in the video. I agree with most of her opinions but she is like a child merely echoing their parents opinions. She cannot back them up and just sounds lame when she tries.
Yet callers that clearly have the ability to articulate the foundations upon which their opinions are based are given the bum’s rush.
It is one of the reasons I don’t listen much any more.
Who owns the defaulted mortgage is a headache for the government, which Morgan Stanley insists doesn't always know the correct owner of the property. Judges in at least five states have stopped foreclosure proceedings because the banks that pool mortgages into securities and the companies that collect monthly payments haven't been able to prove they own the mortgages, according to court records.
Banks or mortgage companies typically hire people to care for repossessed properties. As foreclosures increase and the value of property drops, more companies are simply walking away, Zandi said.
The three-bedroom condominium on Boston's Hendry Street deeded to Morgan Stanley is on the market for $54,900. The unit, located in an area known as Meeting House Hill for a nearby church founded by Puritans in 1631, sold for $299,000 two years ago, according to public records.
Morgan Stanley said it bought the loan in April 2006 to package and resell it in a security. That didn't happen because the homeowner defaulted on the first payment.
Ben Bernanke only wants to save his wealthy Wall Street cronies. Even if it wrecks the U.S. dollar. Even if doing so ruins the entire American middle class.
Ain’t that the Truth....
Hey, there used to be people here that believed that Bush was a godsend.
Whats up with that?
...but aren't you the FReeper who always used to post the "Mr. Housing Bubble" photo?
(I'd love to see it again, Hint, hint).
The discovery by financial capitalists that they made money out of issuing and selling securities rather than out of production, distribution and consumption of goods accordingly led them to the point where they discovered that the exploiting of an operating company by excessive issuance of securities or the issuance of bonds rather than equity securities not only was profitable to them but made it possible for them to increase their profits by bankruptcy of the firm, providing fees and commission of reorganization as well as the opportunity to issue new securities.
Tragedy and Hope: A History of the World in Our Time', by Carroll Quigley;
The "operating company" being the American Dream.
The American Dream was doing just fine before Subprime Posterboy, (Ex)Ambassador to the Netherlands, Roland Arnall, and his pirate armada sailed out of Long Beach:
Godfathers of subprime Established in 1979 by Roland Arnall, Long Beach Savings grew rapidly after Wall Street opened the credit tap. It moved to Orange in 1991 and gave up its banking license in 1994, converting to a pure mortgage company. In 1997, Long Beach Savings split into privately-held Ameriquest and a publicly traded subsidiary, which sold for $350 million in 1999 to become the subprime arm of Washington Mutual Inc. Other companies were started by executives who learned the ropes at Long Beach Savings: ResMae Mortgage Corp. in Brea in 2001 and Encore Credit Corp. in Irvine in 2002. ... "You also had the Godfathers of subprime." Daurio said the Godfathers were Arnall, Brian Chisick of Irvine-based First Alliance Mortgage Co., Russell and Rebecca Jedinak of Guardian Savings & Loan in Huntington Beach, and John T. French, founder of Santa Ana-based Plaza Savings & Loan.
Established in 1979 by Roland Arnall, Long Beach Savings grew rapidly after Wall Street opened the credit tap. It moved to Orange in 1991 and gave up its banking license in 1994, converting to a pure mortgage company.
In 1997, Long Beach Savings split into privately-held Ameriquest and a publicly traded subsidiary, which sold for $350 million in 1999 to become the subprime arm of Washington Mutual Inc.
Other companies were started by executives who learned the ropes at Long Beach Savings: ResMae Mortgage Corp. in Brea in 2001 and Encore Credit Corp. in Irvine in 2002.
"You also had the Godfathers of subprime."
Daurio said the Godfathers were Arnall, Brian Chisick of Irvine-based First Alliance Mortgage Co., Russell and Rebecca Jedinak of Guardian Savings & Loan in Huntington Beach, and John T. French, founder of Santa Ana-based Plaza Savings & Loan.
What a snake pit to untangle!
The only time equity is money is when a person or couple sells their home, takes the capital gain, moves to an area of the country where the property taxes are much lower, and buys a smaller home 30-50% what they sold the previous for.
Though there are market sectors and individual stocks that can return 8% or better at times, as a whole, it is counter productive for the entire economy to average a pace like that. The population and the standard of living have to increase at 3-4% annually to create the demand for the economy to grow and the rise in our standard of living cannot be leveraged.
Because they are beholding to the corporate financial sector and it was the only near term solution to slow catastrophic failure of the big banks and securities firms.
Travis IS NOT WRONG. We are in a period of stagflation and inflation is going to continue with food and energy and medical and taxes in the near term and at least 2 years out.
Because China and India's and Asia's on other nations' economy have grown much faster than ours, but, they will still have to eat too.
The next gold mine is in the food commodities and the politico's know it.
In the meantime, the buying power, savings / investment effect of America's middle class will be trashed by 20% permanently from here on out. Average wages will lag 4 years behind this current recession.
Until American government gets its financial houses in order (cut spending and pay off some debt) and reinvests in domestic manufacturing and domestic consumption of those higher quality / better technology goods, the strength of the dollar will be even less now as I type.
When it comes to real value, you can't BS the world and a continued trade deficit every quarter and every year is nothing but US dollars flowing out to other countries economies so their wealth can increase.
We ain't seen nothing yet.
Layoffs, nationwide, in half the business sectors are coming by early summer.
Funny how that record figure of $38 billion in bonuses to Wall Street in December doesn’t get a lot of press exposure, neither. Reminds me of the looting in the aftermath of the LA riots and Katrina.
What I find difficult to believe is that all the preachers of the faux prosperity over the past eight years could believe their own BS.
Millions of Americans have been using their home equity for several years just to survive. And then they tap out their 401K, in spite of the penalties and additional taxes. Unless they fit into some government statistical report (i.e. employed, recently unemployed, in default or foreclosure, etc.) they simply don't exist.
And most people really, really don't understand -- until their number comes up.