Sifting thru some material for Bailout Nation, I came across this video interview — recorded exactly 3 years ago today!
This was a pretty contrarian stuff back in 2005 — although now its become a lot more common place — but I recall it generated surprisingly little email. I always find the nasty emailers comforting from a cognitive perspective — it means you are challenging a deeply held emotional viewpoint.
I suspect that, at the time, this broad discussion about Housing and Financials was perceived as merely that of a crank. Three years later, it turned out to be rather prescient:
• Housing Tops out in in 05/06 after a 6 year bull move; Condo Sales, rising interest rates, are all weighing.
• Percentage of asking price, length of time on the market, inventory for sale, and Home affordability are all negative;
• Look for real estate prices to fall to 15-25% (even 30%) from the peak;
• Avoid Home Builders, Money Center Banks, Financials and REITs, avoid Home Depot and Lowes; In these sectors, get defensive in 2006.
• If the Yield Curve gets Inverted, it is broad negative for the economy
• Look for a possible recession in 2006/07
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click for video
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A pretty contrarian call, with a lot more right than wrong at the time. The institutional clients that followed this advice — especially about the Home Builders and Banks — made a lot of money . . .
The recession call was a bit early, but overall, I’d give this a A-.
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Source:
Awaiting Housing’s Big Chill
Maxim Group’s Chief Market Strategist Barry Ritholtz predicts doom after the boom.
2005-08-23
http://www.forbes.com/video/?video=fvn/business/ab_maxim
Solid A-
I wish I followed that advice sooner — I got out of homebuilders at a loss — but it could have been much much worse.
Thanks for your honest take on what is happening, regardless of criticism.
Your work is appreciated
Great call…and great to have it all documented!
Scary part of it…the biggest housing bubble in history only resulted in an “ok economy”. That indicates to me that the economy, ex-housing, has been rather weak for awhile now…so what will happen to it in the biggest housing bust of all time?
Damn Barry,
What I always suspected…
You may be smarter than you look…
Keep up the good work.
Bruce in Tennessee
As always, right on the fundamentals. A bit early in the timing. But I have no room to talk there.
It’s the trouble brilliant people have that we assume everyone is as analytical as we are :)
Or as someone (Keynes?) said, the markets can stay irrational longer than you can stay solvent.
All I can say is, thank goodness I don’t have to rely on my looks!
BR,
way to keep records and provide links.
it, really, is a beautiful thing that separates you from so many of the great pretenders, script-readers, cheerleaders, and water-carriers.
the hidden + may be that it’ll diffuse any potential future “newsletter”-issues..
to reiterate that you’re one of the best, seems weak, but, You’re one of the best.
Barry-
Great call! What is your current call in the US stock market for the end of year. I know you made a forecast in the beginning of the year for the CNBC’s Squawk on the Street (1/10/08), but what is it now that you have the benefit of half a year of info?
Thanks,
Dustin
Given the nature of this entry, I think it’s fair and relevant to ask you what you think — frankly — about Cramer writing on April 1, 2008 (exact quote): “Was there anyone out there who more loudly announced this credit crisis before it happened than I did?”
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BR: Man, that is revisionist history.
At this point, I think his credibility has taken quite a hit.
Barry, I went 90% cash back in late 2006 because of what I was personally witnessing while living in metro Detroit. I simply could not believe the rapid deterioration in housing, jobs, small businesses, etc. would be contained to metro Detroit nor the state of Michigan. Keep in mind, this was a period of time when the prevailing view was that the trees were going to keep growing to the sky, and that Michigan’s deteriorating economy was an (insignificant) exception to the rule. I ended 2007 beating the S&P 500’s performance, and my 2008 YTD portfolio performance is about 1% up versus an S&P 500 that’s down over 12%. What’s your portfolio’s YTD performance…were you able to monetize the prescient views you had when that video was recorded?
Add this to the contrary indicator file:
A presentation from June 2006 called “A New Asset Class: Residential Real Estate.” by David M. Blitzer (the dude who’s in charge of the S&P Index stock-picking committee)
http://www2.standardandpoors.com/spf/pdf/index/061606SPWebCast_Blitzer.pdf
to be fair…he did mention that some people were calling housing a bubble.
You only need to be right 51% of the time (without blowing out, of course) to be right in the long term. I credit Barry and a few others (back then, there was only a few!) with sounding the alarm. Plus I learned to appreciate the evidence of early indicators (late property tax payments in certain “bubblicious” counties, incentives in tract home sales contracts, etc.) of the bloom coming off the rose. As As a result, I made some decent decisions and macro trades.
you win. now if you can just tell us exactly when to start the new bull.
You certainly had it right on housing valuation vs affordability, the impact of interest rates, and which sectors to avoid. However, if you had any inkling of the impact mortgage fraud, CDOs, overleveragering (both by investment banks and consumers via HELOCs), and the implosion of Freddy and Fanny, Countrywide, Bear, Lehman, etc… would all have, well, then you kept it to yourself.
I’ll give you a B.
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BR: What part of SELL FINANCIALS do you find ambiguous ?
Barry said:
“It won’t be like a bubble blowing up …”
Excellent timing of your message; quite prescient. Interesting that even those few who recognized that the gig was over very early on (Barry) didn’t see the RE market falling as far as it has.
I’ll give you an A-/B++.
P.S. Obviously the purple tie had not yet debuted back in ’05. :)
Good call, and like Roubini, Whitney and other clear-sighted individuals, you have taken your fair share of abuse from the mindless cheerleading fraternity.
I am actually very very concerned about the future at the moment because whatever government is elected seems hell bent on repeating the mistakes of the past. This is because despite the dangers around us the greater part of the entire mainstream economics universe seems unable to accept reality. How are they going to make effective policy if they cannot see what is happening around them? Bringing back Bob Rubin is not exactly what is needed here.
Steve Barry recently suggested here setting up a think tank of economists who have been consistently correct on the credit crunch, banking crisis and deficit problems (Roubini, Stiglitz, Ritholtz…). Do you think the politicians would ever get on the right wavelength enough to listen to these guys? Can you see Roubini advising Treasury? (Not under McCain of course..)
You are as bad at calling the top as current idiots are at calling the bottom… If you claim “its going to rain tomorrow” each day, at some point you’ll be right. that doesn’t make you a weatherman though.
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BR: Ted, why do you hate America?
Good job, Barry. Really nice work.
“It won’t be like a bubble blowing up …”
In fairness, the interview was 3 years ago. The bubble got a lot bigger after he made the call. Really had two more years of fraud by Countrywide, et al and their accomplices on Wall Street, plus all those HELOC’s, consumer deficit spending and lot’s more people in loans that they could not afford.
I think it if had stopped then, the downturn would not have been nearly as severe.
“BR: Ted, why do you hate America?”
Sorry, I went to Trinity United Church of Christ and can’t help it…