Wednesday, July 13, 2011

Gypsy Fortune Teller

Gary Shilling, and others of his ilk, are responsible for the recession.  I submit this as an irrefutable fact.  And now, Shilling has predicted another recession next year, to be accompanied (or perhaps caused by) a 20% fall in home values.  What the news-writers miss is that by publishing Shilling's prediction they lend it credibility.  Thus investors, would-be home buyers, are afraid to purchase, which reduces demand, leads to greater increases in already over-abundant supply--and causes prices to be driven down.  In other words, it's not 'natural' market forces (supply/demand) that will drive down value, it's Shilling's prediction.  If other people with Shilling's credentials said, "I see a slow but steady recovery," people would be encouraged--they would begin to spend money on new houses.  All that has to happen to keep some control on prices then--to keep them from ballooning as they have at other times, is for banks and mortgage lenders to exercise greater care in approving loans; and, not just to buyers, but conservative in approving construction loans for speculative builders and developers.  There may be emotional demand, but practical demand will be limited to truly 'able' buyers.

Personally, I don't see Shilling as any more credible nor important than Madame Zena, the fortune teller.  He can't know what will happen next year, but he can certainly influence actions in the future.  And, it's careless and irresponsible for him to do so.  I can't imagine his motivation--who or what will he help by his dire forecast?  His rich investor friends--maybe, but at whose expense?  The poor homeowner already upside down on his mortgage trying to unload?  The growing numbers of chronically unemployed on the brink of bankruptcy and foreclosure?

I suspect the truth is that Shilling is preparing the excuses that he'll use to defend portfolio losses--portfolios that his company manages.  It works this way--he'll encourage his investors to go all cash, then when stocks, bonds, real estate, tank next year, they won't suffer great losses.  And, by frightening everyone away from real estate, he's assuring there won't be any big gains that his clients might have missed.  He'll look golden to the morons who listen to him.  He'll get credit for predicting the recession, but in truth--he'll be the cause.