Tom Predicts
I’ve been noticing lately that in my small hometown’s paper, half of the printed pages are filled with legal notices of foreclosure on properties financed by GMAC and other sub-prime lenders. I’ve been looking at the general overpricing of stocks and the economic crisis stress points around the world, and I am now ready to make precise predictions concerning world markets. Billy Joe was chiding me the other day for being too vague in my statements, so I am going to be as specific as I can.
1) In the future, a date in the period March 1-May 1st 2007 will be cited as the appoximate start of the next market crash.
2) The crash will be induced by the failure of the sub-prime mortgage market in the United States due to excessive numbers of foreclosures and subsequent investigations by the SEC triggering interlocking financial systems’ reactions world-wide.
3) In the areas in which housing prices have been most overinflated, I expect a drop of between 40 and 50% in real valuation before the market bottoms out. I don’t expect the property values to reach the values currently exhibited in terms of real money until at least the early 2030s, if then.
4) Top 6 housing markets where the fall will be greatest: Boston, NYC, Ft. Lauderdale, Washington DC, Detroit and LA.
5) The American market’s collapse will trigger major sell-offs in foreign stock markets. It could be as high as an 80% adjustment in some Asian markets. Even the Chinese markets could drop as much as 30-40%.
6) The bear markets will end and the valuation of stocks will be back at the present levels by about October of 2009 or so.
I’ve used a lot of sources to determine these estimates, ranging from David Lindorff to Jim Rogers with a good dose of common sense and engineering systems analysis. We’re at a saddle-point in the systems where even a small perturbation can be magnified and result in international repercussions.
Are these predictions specific enough for you now, Billy Joe? Let’s keep track and see how many of these are correct.
Tom
Comment by J. Prescott on 16 March 2007 at 9:48 am:
Tom -
So are you predicting a situation like Japan in the mid-90s, with their real estate issues? Because if so, Japan is still kind of digging themselves out of that. If the next recession is property driven, it will take the US significantly longer than 2 years to dig out of that.
That being said, the more interesting issue will be how the US attempts to recover. If you remember last time, (2000), the Fed dropped interest rates to encourage borrowing and housing purchasing, as those two stimulate the economy as homes have so many industries effected. If there is a debt issue which triggers the recession, a pure monetary response will not be that effective. That leaves fiscal, which will be no help, as the debt pressures will preclude that vast tax breaks necessary to pull out of a recession.
Anyway, to me that is the most interesting part of a recession that you are suggesting is that the traditional means (read the 1930s and FDR) will not be available.
Comment by kofi the it's ridiculously risky but if you're confident... on 16 March 2007 at 10:02 am:
Tom, if you’re so confident the last thing you want to be is liquid. You want to be shorting and hedging! Get ridiculously rich while everyone else gets ridiculously poor!
Comment by kofi the it's ridiculously risky but if you're confident... on 16 March 2007 at 10:02 am:
Tom, if you’re so confident the last thing you want to be is liquid. You want to be shorting and hedging! Get ridiculously rich while everyone else gets ridiculously poor!
Comment by kofi the it's ridiculously risky but if you're confident... on 16 March 2007 at 10:02 am:
Tom, if you’re so confident the last thing you want to be is liquid. You want to be shorting and hedging! Get ridiculously rich while everyone else gets ridiculously poor!
Comment by Billy Joe Mills on 16 March 2007 at 10:03 am:
Tom,
You’ve made the claim, which seems to be in fashion at the moment, that the American stock market is overvalued. However, you haven’t ever actually shown any statistics or evidence for why you feel it is overvalued…You just state that it is. My guess is that this belief comes from the momentum of bloggers making the same baseless claim and you allowing the conglomeration of those impressions to inspire you into making your own baseless predictions.
Comment by Billy Joe Mills on 16 March 2007 at 10:05 am:
And I agree with Kofi for once…If you’re so damn confident about these predictions you would be buying puts and shorting the hell out of the market right now. But you’re not going to do that because the predictions have no meat or data behind them, which by the way makes them difficult to refute since they are really just a statement of how you “feel” about the markets.
Comment by tet on 16 March 2007 at 10:20 am:
I’m sure that the government’ll try to do things to help. They might work and they might not.
There are a number of factors complicating the whole thing:
The housing market in the most-inflated areas are tightly regulated by the cities (things like rent control), so traditional ways of reacting to a fall in value may not work.
The entire bankruptcy process has been significantly altered, so it is going to be harder for individual citizens to recover from overextension. There are a lot of latecomers to the whole housing market who bought houses at the maximum value without taking note of how their ARM mortgages will impact on their lives if either the prime goes up or their financial situation changes.
With the mounting deficit and cost of the Warn Terra and the increasing costs of entitlement programs like the prescription drug benefit and boomer SS, the FedGov will not have enough money to either finance new programs to help or lower taxes to encourage more spending.
The Japanese situation is a pretty good parallel, to tell the truth.
One thing I can picture happening out of desperation is the division of large “McMansions” into two to four rental housing units by clever owners. This, of course, will result in cries of outrage and lawsuits by The Homeowners’ Council. [With the economic pressure that could occur, I imagine that those little petty fascist groups are going to become obsolete real quickly.]
Unemployment should also be more of a problem since the building trades (and those supplying building materials like two of my sons-in-law) are a significant part of the non-export economy.
[It also means higher crime among immigrants, since the building trades are a major employer of Latinos in the Southwest (and elsewhere to a lesser extent.)]
The speed of technological innovation here is what I see pulling us out after only two or three years. The rest of the world’s not going to be as lucky.
Kofi, Billy Joe, I am not citing any figures because you two are absolutely right about me. This is how I “feel” about the market. I don’t have the formal training in finance, so I don’t know how the equations work.
On the other hand, one does not have to be an astrophysicist and know Kepler’s Laws of Motion to look at the moon through a telescope and see its motion through the stars to the east each night.
These are guesses. They *can* be refuted, Billy Joe. Just wait a year or two–you asked for specific predictions the other day. One thing that a scientist does is use the available evidence to form hypotheses that make testable predictions about the future. The value of foreign markets are measurable quantities, as are the average home values in the markets that I mentioned.
If the values of stocks and real estate don’t drop the amounts I predict, I’m wrong. It’s as simple as that.
Sometimes it feels like I’m touching on some kind of religious dogma of yours here, Billy Joe. I’m just an amateur at this–a very, very smart one, but an amateur none the less.
Oh, one last thing. Kofi, I’ve been rich, it’s not all it’s cracked up to be. My late second wife was worth $25 million. She died of a cocaine-induced stroke in a bathtub at the age of 32. The only difference between being rich and poor is that in the former case you have more money.
Tom
Comment by Brandon on 16 March 2007 at 3:48 pm:
“
You’ve made the claim, which seems to be in fashion at the moment, that the American stock market is overvalued. However, you haven’t ever actually shown any statistics or evidence for why you feel it is overvalued…You just state that it is. My guess is that this belief comes from the momentum of bloggers making the same baseless claim and you allowing the conglomeration of those impressions to inspire you into making your own baseless predictions.”
That’s sort of a non-response Billy. Tom’s predicting about the future. He could be getting his predictions from the pattern he left in the snow one night. There’s no empirical evidence and I’m pretty sure he didn’t intend there to be. He’s making forecasts based on what he thinks he sees happening in the world. He’s pessimistic, but there’s no absolute objective indicator saying he’s wrong. I mean hell for all we know the earth could open up and swallow Chambana in an earthquake. The future is never certain and even the best futurologists don’t have hard data to back them up. Chill.
Comment by kofi the i hope i don't get swallowed by an earthquake on 16 March 2007 at 4:00 pm:
I never asked for any data support or anything similar. My only point was that if Tom confidently believes what he wrote he should be acting on it. It doesn’t matter what his basis for his belief is.
That said I don’t actually want Tom to act on his post. I think he’s wrong and would hate for him to sink his retirement funds into a false prediction. ;)
Comment by kofi the i hope i don't get swallowed by an earthquake on 16 March 2007 at 4:00 pm:
I never asked for any data support or anything similar. My only point was that if Tom confidently believes what he wrote he should be acting on it. It doesn’t matter what his basis for his belief is.
That said I don’t actually want Tom to act on his post. I think he’s wrong and would hate for him to sink his retirement funds into a false prediction. ;)
Comment by kofi the i hope i don't get swallowed by an earthquake on 16 March 2007 at 4:00 pm:
I never asked for any data support or anything similar. My only point was that if Tom confidently believes what he wrote he should be acting on it. It doesn’t matter what his basis for his belief is.
That said I don’t actually want Tom to act on his post. I think he’s wrong and would hate for him to sink his retirement funds into a false prediction. ;)
Comment by tet on 16 March 2007 at 4:25 pm:
Considering that I’m going to be starting to use my retirement in 288 days, I’m hardly going to risk it even if I was guaranteed a long-term investment.
To me, the ideal action in the present situation would be to remove all liquid assets from the banking system and hold it in cash or metals, then, after the market has bottomed out, invest in things that will go up in value in the long-term. This is how my grandfather managed to paylay his last two paychecks in 1929 into land worth 800k in 1992 dollars.
As it is, I don’t expect to live long enough to see the return on such a long-term investment, so I am going to Vegas in two weeks. :)
Tom
Comment by kofi the cold hard yen? on 16 March 2007 at 4:29 pm:
Given the glum outlook on the United States economy, is cash even an ideal option? Wouldn’t the current of a country with a more favorable predicted future be better?
Comment by tet on 16 March 2007 at 6:19 pm:
A major characteristics of recessions in the past (with the major exception of the late 1970s) has been deflation. If there’s a massive bursting of the housing bubble, it would drive deflationary pressure since a economic index would have suddenly gone down in value.
In deflationary times, the longer you hold off before spending money, the more stuff you can get for it. A notable characteristic of the busts in the late 19th century, as well as the Great Depression was land for a dollar per acre and no dollar in your pocket. When the banks closed in ‘29, some of them didn’t reopen until three or four years later, and when they did, the refunded ten cents on the dollar.
Now, in the case of a return of “stagflation”, the quicker you can get rid of the money the better. I don’t expect that, however, since I attribute the 28 point misery index of Carter’s Presidency to the combination of overspending on both guns and butter in the period 65-75 coupled with wage and price controls.
I think that one of the reasons that I’m seen as pessimistic is because none of you Xers or younger have ever seen economic hard times. There was the 90s boom followed by the early 21st adjustment followed by the real estate bubble.
Things can really go to hell, and go to hell fast. Sometimes I seriously believe that had Reagan not been elected in ‘80, we might have had a rather unpleasant revolution here, things were so bad.
In short, I’m not pessimistic at all. I figure we’re going to survive this.
Tom
Comment by kofi the it looks like a king size bed made of $20s on 17 March 2007 at 8:22 am:
This guy was just trying to follow Tom’s advice and stay liquid (very, very liquid) and the government gets all up in his house and takes it all away!
On an unrelated note, I’m dropping out of law school, moving to a central American country, and getting into the pseudoephedrine business.
Comment by tet on 17 March 2007 at 10:27 am:
Kofi, when my mom and uncle opened my grandmother’s safety deposit boxes after she died in the early 90s, they found $250,000 in $20s and $50s that she’d been placing in storage since about 1948 or so.
It’s amazing how tightly you can pack bills. I am also amazed that she trusted that she would be able to get into the bank in a crisis situation.
Oh, and Kofi, you don’t have to go to Central America, you just have to drive over to Danville and buy a trailer.
Tom
Comment by Anonymous on 19 March 2007 at 8:29 pm:
Why would a US collapse lead to a huge Asian sell off? Wouldn’t people divesting in the US invest elsewhere? Are they going to put it under their mattresses?
Comment by Allan Niemerg on 20 March 2007 at 5:00 pm:
I wrote an insightful and toughtful response to Tom’s predictions, but Blogger ate it and I didn’t save it. I hate Blogger. Anyways, the jist of it was that while we may be in a recession now, Tom’s gloomy predictions are way off the mark. It does seem that a recession is pending if not already in full swing. Take a look at this chart:
http://research.stlouisfed.org/fred2/series/DGORDER
which clearly shows that orders of durable goods have recently dropped sharply. It is suggestive evidence that we may be entering a recession. Moreover, the general economic commentary as of late suggests that a recession is likely.
However, I am not at all pessimistic about it. Global growth is at an all time high. Central banks have become extremely good at handling economic trouble. Investors and businesses have become much more sophisticated at using financial products to hedge and control risks and smooth out rough parts of the business cycle. So, absent a catastrophe or nuclear terror attack, I think the economic outlook over the next few years is very very good.
Allan
Comment by kofi the every way the wind blows really does matter to you, to you. on 21 March 2007 at 12:20 am:
I watched the “war on science” post drift off the main page, and not having the ability to bump or post new threads have pretty much kept quite. But given the hearings, I wanted to point out that the past few weeks have seen several articles critical of the manmade global warming conspiracy. Fancy documentaries have been made (just as fancy as Al’s and therefore just as credible, right?) and men with fancy letters after their names have expressed opinions in numbers not previously seen. Even the NYT got in the mix, calling Gore an exagerator at best. Apparently the most recent development is Gore’s refusal to submit comments on time for fear that a senator might peak at a remedial science textbook. All this has gone on… and none of it was brought up by the environmentally concerned Urbanagora faithful. But that’s not my real question (I know it won’t be squarely met), my real question is: Do you all still feel so rock solid confident? Is manmade global warming still a fact in your minds?
I think it’s a fair and interesting question. I have never subscribed to what I consider to be “global warming bull sh*t”. Faced with “conclusive evidence” and a chorus of “intelligent” people in the media, my colleges, even my circle of friends, I always held my ground based on what I believed was right. Are the pro-manmade theorists as strong? Or did this latest change in wind currents take some of the wind from your sails? Did you really believe what you believed? Will you stand by the statements you made yesterday and may make today, when tomorrow comes? Or will you claim the wool was pulled, blame the Bush administration for not giving you “all the information” (they aren’t involved, but you’ll find a way to blame them won’t you), and march blindly/joyfully/dangerously ignorant into the next mess-o-the-week?
Comment by Evan on 21 March 2007 at 9:31 am:
Kofi -
Do you have links to some of the articles / documentaries (?) you mentioned? I saw the NYT piece, but I haven’t really been hearing or reading much else about it – maybe I haven’t been paying attention.
I definitely don’t think primarily man-made GW is a “fact,” but I don’t really think discrediting Al Gore or noting how he may have misused information in his movie is particularly relevant to the question of whether GW is primarily man-made, except to those who only think so mostly because of his movie.
Comment by illinikc33 on 21 March 2007 at 12:23 pm:
“…except to those who only think so mostly because of his movie.”
I would think this would be a fair amount. For some reason people in this country have an infatuation with listening to anything the people in Hollywood have to say.
Comment by tet on 22 March 2007 at 4:28 pm:
Between 1 and 3 million foreclosures predicted for this year:
http://tinyurl.com/yv3de6
“Mailing in the keys,
Mailing in the keys,
We shall come rejoicing,
Mailing in the keys.”
The Center for Responsible Lending estimated the money involved in these defaulted mortgages to be about $164 billion dollars.
Tom
Comment by Brandon on 23 March 2007 at 9:57 am:
http://www.nytimes.com/2007/03/23/us/23vacant.html?ref=us
Suburbia is imploding yet again…
Comment by J. Prescott on 23 March 2007 at 12:00 pm:
Its not suburbia…its the “lets spend now, spend later, spend some more, and then if there is any money left over, let’s get a pizza,” ideology made popular by FDR and his democratic cronies in what I like to call: “deficit spending…great financial policy, or GREATEST financial policy.”
Comment by Mose Kushiner on 15 December 2011 at 6:09 am:
lol found your site when looking for different cook books, dont know how that happened!