WARNING to all Investors!
Trust What You See –
And Not What the Fed Chairman
Is Telling You
“Asset values aren’t out of line with historical norms.” - Janet Yellen, 9/21/16
With U.S. housing, stock and bond prices sitting at or near their all-time record highs
as of September 2016 -- Fed Chairperson Janet Yellen was asking us to believe that asset values were not "out of line" with historical norms?
Sorry Janet, but yes they are - as is clearly illustrated above.
And how incredibly wrong was Ben Bernanke
about the 2000-2006 Housing Bubble?
October 20, 2005: Ben Bernanke: "There's No Housing Bubble to Go Bust"
"House prices have risen by nearly 25 percent over the past two years.
Although speculative activity has increased in some areas, at a national
level these price increases largely reflect strong economic fundamentals."
Four months later (on February 1, 2006), Ben Bernanke was appointed Chairman of the U.S. Federal Reserve Board by President George W. Bush -- after which Ben promptly announced this: "The Fed Expects Housing Prices to Continue to Rise"
"Housing markets are cooling a bit. Our expectation is that the decline
in activity or the slowing in activity will be moderate, that house prices
will probably continue to rise."
How good was that housing market forecast?
As per the above chart, U.S. housing prices (adjusted for inflation) peaked out in Feb 2006 -- and then proceeded to fall 30-35% during the crash that followed. When prices finally did hit bottom (2012), 35 million home owners were left underwater on their mortgages.
Then this. To explain his market-timing error, on December 5, 2010, Ben said ...
"I wish I'd been omniscient and seen the crisis coming."
Really Ben? I know you're a smart guy but the 2006 housing bubble was a 4.0 standard deviation market event. You didn't need to be an economic prophet to know what the outcome was going to be -- just a student of history.
How about Fed Chairman Alan Greenspan:
Did he see the 2000-2006 Housing Bubble?
Prior to Ben Bernanke becoming the Chairman of the Federal Reserve
in Feb 2006, Alan Greenspan held that position for the prior 20 years.
Did the "Maestro" see the housing bubble?
Nope - he didn't see it either.
May 21, 2005: Alan Greenspan: "No Sign of a Nationwide Housing Bubble"
"I see no sign of a nationwide housing bubble ... but there is "froth" in
the market ... and there are a lot of local bubbles around the country."
Follow Trends - and Not what the Fed Chairs' say
Let's be honest. If you listen to what Fed Chairmen say about the housing market (or any other asset market for that matter), you are going to get royally screwed.
But there's no need to fear.
As trend followers, we’re prepared for any “danger” that comes our way -- which allows us to relax and let go .... and let the system do it's work.
Comments/questions are always welcomed - and you can send them to Robert@RealEstateTiming.com