Recession for a Year. I Told You So!

Monday, December 1, 2008
By Faisal Laljee

It comes as no shock to me, that the National Bureau of Economic Research confirmed today that we have been in a recession for almost a year. In fact, it makes me laugh. I find it utterly ridiculous how long it takes for NBER to determine the point at which we entered a recession. Back in January of this year, I had written in my post titled “Stay Away from Consumer Stocks“,

“Oh and by the way, we are definitely in a recession. No doubt about it. I said it last April and you will see that it will be officially announced at some point during Q1 that the US economy entered a recession back in Q3 of last year.”

So I guess I gave NBER too much credit. I thought that they would have got it earlier this year, that the recession really started back in late 2007. It is not often in this market that I get to say I told you so, so let me do this right “I told you so!” There, I feel better.

Here is what S&P Chief Economist David Wyss had to say today regarding the recession:
Last month, I wrote about the Top 10 Reasons why the Market is Down. Those same reasons are why the Dow dropped 600 points today.

Speaking of I-told-you-so’s, I also wanted to highlight something else I had talked about back in 2006 – The housing market. Back then, my post met with some serious debate and it would be a good time to highlight some of the key points I made back then, which appear to have been right in retrospect. In the post titled “Is the Housing Market Doomed?”, I wrote:

“Is the housing market doomed? Let’s see:
  • The number of people defaulting on the very first payment is sharply higher these last couple of months. Shows that people refinancing at current rates or buying at these prices cannot afford the rates they are getting and homes they are buying.
  • Housing inventory levels are at multi-year highs. It takes time for municipalities to issue permits for new residential development. Such permits are finally being issued for applications submitted 12-18 months ago, causing supply to rise at a time when demand is low due to high prices.
  • Wage growth has not kept up with increase in home prices, rising rates, gas and energy prices and inflation.
  • Home Builders desperate to lure doubtful buyers are offering major incentives like free upgrades, appliances or 6 months no interest financing much like auto manufacturers. Look what happened to the auto business.
  • Consumers are finally tapped out. They used equity in their homes to off-set lack of wage growth. Now they don’t have any equity, in fact, if they sell their homes, they will owe more than their home is worth.”

“…. we are no where near the end of the housing bottom. The “soft” landing is going to be a little harder than most people expect. While houses are not going to dump 50%, the next 6-12 months will see houses specially in markets like Southern California, Florida and New York go down by another 15-30%.”

Looks like I got that one right too. I have also mentioned in the past that pumping money into the system, issuing bonds, bailing out some of the firms is not the way to go. Recession is part of any economy and we needed to have let it happen rather than try to avert it. The more we avert it, the more we exacerbate it.

Jim Rogers seems to be of the same opinion. Earlier this year, he told CNBC to abolish the federal reserve completely:

– Faisal Laljee

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