iTulip.com Returns after Three Year Hiatus
| iTulip.com was first
launched in November 1998. The stock market bubble was fully
inflated. iTulip.com, and few others, were warning visitors not
to
put their retirement money in the speculative bubble that the U.S.
stock markets had become. Jim Cramer was ranting on CNBC about the
latest dot com "can't lose" stock. We warned that the stock
market was due to crash, most likely by the first or second quarter of
2000. It did. August 2002, the stock market was in the toilet, as we forecast 1999. We had just gone through a short recession and the Fed and Congress were furiously pumping up The System, cutting rates and slashing taxes as we forecast in 2001. We received many letters of thanks from visitors who got out in time with their retirement accounts intact.
Mission accomplished, we went off the air and the founder, Eric Janszen, went off to run Osborn Capital portfolio company Bluesocket, Inc. Fast forward to March 2006. The NASDAQ has mostly stayed in the dumper, with various dot com stinkers sinking and disappearing into the history books, again, predictably. The DJIA, by a combination of a re-constitution of the easily manipulated 30 stock index -- throwing out some losers and adding in some winners -- and inflation has fought its way back to where it was six years ago – flat. Except that, adjusted for inflation, it is down at about 20%. But that hasn't kept Cramer from returning to CNBC to rant and throw chairs around while touting the latest "can't lose" stocks. Not coincidentally, gold has gone up, as we forecast in 2001 when gold was trading near 20 year lows and widely derided as a loser investment class. But what really kept the U.S. out of poorhouse, if only until now, was the housing bubble. But not only did we fail to predict the housing bubble in 2001 as the Fed's answer to the stock market bubble collapse, we argued that the Fed would never allow one to develop. Wrong. Our thinking was that in the past the Fed has been very quick to stop speculation in real estate, much more quickly than stock market speculation. Why? Real estate involves the banking system much more than the stock market bubble did and looking after the banking system is Job One for the Fed. Letting millions of homeowners buy real estate they can't afford with mortgages they can never pay back is a surefire road to mass defaults that can cripple the banking system. When a relatively normal housing cycle boom ended in the early 1990s, the U.S. banking system seized up. That response to the downside of that minor real estate cycle was a gran mal seizure compared to the massive stoke that the banking system is likely to suffer on the back end of this real estate freak show. More importantly, the political aftermath of a real estate bubble is the macro economic devastation of the host country's economy. Lots of unemployment and negative wealth effects that keep consumers home sulking and saving, not out at the mall buying goods from Asia that keep Asian central banks inspired to lend, and the virtuous circle of lending, borrowing, importing and exporting going, in our case leading to recessionary, inflationary and other re-election sensitive negative economic conditions. So why take the chance? Because it looked better, at the time, than the obvious alternative: a hugerecession and unemployment before the 2008 elections – never good for anyone's re-election bid. If we'd been listening more carefully, we would have heard Greenspan noting in public hearings in 1999, when one senator wondered aloud if Big Al was worried about the inevitable collapse of the stock market bubble, and he replied that only a small percentage of U.S. households own stocks whereas 70% of household wealth is tied up in real estate. Don't worry about it. We got a plan. Alas, we at iTulip.com missed the cue. What we didn't understand was that the Fed convinced themselves at the time, and may still believe today, that by the magic of securitization, the risk of defaults on all those mortgage loans that can never be repaid with current dollars is spread so far and wide around the planet that the aftermath of a housing bubble won't be anything the Fed can't deal with. Not so, and we'll explain over the next several months just how and why, and what that's going to mean to you. So we got the housing bubble prediction wrong in 2000. We didn't understand that the Fed could be so short sighted and politically motivated to make policy decisions that might doom the nation to a decade or more of bad economic times, and all that implies socially, politically, and militarily. But the Clinton/Greenspan regime and the Bush/Greenspan regime that followed turned out in retrospect to be classic Nixon/Burns president/central banker pals. Except that rather than inflation in goods and services as a consequence of the deal cut to maintain the economy through the next election, not to mention an unpopular war, we got inflation in assets that makes nearly everyone happy, as long as the asset prices stay that way. But they won't. The housing bubble will end and money will be printed to reflate the economy once again and that money will flow elsewhere. Not to stocks or real estate or bonds or hedge funds or venture capital or private equity. But where? If we missed predicting the housing bubble in 2000, at least we were one of the first to write, back in 2002, that in fact a housing bubble was happening, at a time when most of the financial press was arguing immigration rates and all manner of nonsense not worth repeating to justify silly real estate price increases. Checked housing prices around your neighborhood lately? Here's where they're headed. So what's next? We have our theories, as the pictures and comments below vaguely suggest. But rather than just say, we're going to bring the iTulip.com message forward in a new way. No more missing central banker clues about what's next for The System, perhaps the next bubble, as when Greenspan noted in 1999 that 70% of household wealth was tied up in real estate. The New iTulip.com is a community of the best and the brightest who will work together figure out not only what's coming next, but what to do before, during and after the events we collectively predict. We intend to guide a lively discussion among our prized and loyal members, especially those who contributed so much to our predictive success in the 1990s. Change is coming. Stay tuned. If you're new to iTulip.com, welcome. If you're an iTulip.com veteran, welcome back. Join the iTulip.com Community Forum where our more than 2,000 contrarian minded members discuss economics and finance daily. It's free. For the inside scoop, see iTulip Select, the subscription service for industry professionals. |
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