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When Will the Media Get It? Someone Did Foresee the Credit Crisis
Elliott investors were prepared for the housing crisis and ensuing mayhem, despite the "all is well" media.
When the U.S. housing crisis “officially” began last year, most new homeowners were unruffled.
Perhaps many thought:
- “I’m a prime borrower; subprime lenders have nothing to do with my home price.”
- “Why worry? My mortgage broker and real estate agent said I was getting a great deal.”
- “If I was at risk, the bank wouldn’t have lent me all that money, right?”
Really, it’s no surprise homeowners felt invincible; they'd been told to feel that way every day.
The mainstream media – the group who believes they're supposed to question authority for the good of John Q. Public – got caught with their pants down. Government agencies appeared equally inept – or at least unwilling to confront the problem. Even now, both media and government continue to say things like: “Nobody saw the housing crisis coming!” or more specifically “Nobody dreamed back a year ago Bear Stearns would have fallen and Fannie and Freddie would be under threat right now.” (USA Today, Aug. 21)
But the simple truth is, someone did.
A whole team of analysts was warning tens of thousands of readers about the crisis years before it began. Those readers were well aware of exactly how the debt, real estate and stock bubbles would deflate, almost as if the entire scenario was presented in a step-by-step timeline. In fact, these analysts were so sure of their research that they commissioned a trio of crystal orbs engraved with the words “Debt Bubble,” “Real Estate Bubble” and “Stock Market Bubble” back in 2002 as novelties for investors wise enough to avoid them.
Point is: Before the first mainstream media writer pecked the letters s-u-b-p-r-i-m-e c-r-i-s-i-s into his keyboard, a whole slew of investors already knew it was coming.
What's more, these savvy investors also knew which dominoes would fall once the widespread confidence in U.S. real estate was lost. Most importantly, they know what’s still to come for U.S. stocks, real estate, commodities and more.
This group, of course, consists of readers of Elliott Wave International’s two most widely read monthly publications, The Elliott Wave Financial Forecast and Bob Prechter’s Elliott Wave Theorist (and Prechter’s best-selling book Conquer the Crash).
Don’t Be Fooled By the Media and Government
The Mainstream media and government have tried to fool you for too long. The Elliott Wave Financial Forecast and Bob Prechter’s Elliott Wave Theorist forecast the housing bubble, bust and ensuing mayhem years before it occurred, so subscribers could position themselves to weather the storm. Now, the collective “they” say nobody saw it coming. Find out what else they’re keeping from you in Bob Prechter’s August Elliott Wave Theorist, called a “guilty-butt-whipping-bonanza" by one subscriber. Learn More Here
Back when a show called “Flip This House” was among the top-rated “how-to” shows on television, EWI’s founder and CEO Robert Prechter, along with colleagues Steve Hochberg and Pete Kendall, were warning their subscribers about a looming mortgage disaster that would wipe out decades of housing gains, then lending institutions, then large banks.
In 2002, Prechter’s best-seller Conquer the Crash dedicated entire chapters to the soon-to-deflate real estate and debt bubbles. One such startlingly accurate passage read:
Bank loans to home buyers are bad enough, but government-sponsored mortgage lenders – the Federal National Mortgage Corp. (Fannie Mae), the Federal Home Loan Mortgage Corp. (Freddie Mac) and the Federal Home Loan Bank – have extended $3 trillion worth of mortgage credit. Major financial institutions actually invest in huge packages of these mortgages [Ed Note: These packages are now called CDOs], an investment that they and their clients (which may include you) will surely regret. Money magazine (December 2001) reports that the CEO of Fannie Mae “may be the most confident CEO in America.” Certainly his stockholders, clients and mortgage-package investors had better share that feeling, because confidence is the only thing holding up this giant house of cards. When real estate prices begin to fall in a deflationary crash, lenders will experience a rising number of defaults on the mortgages they hold. My guess is that the Treasury will lose the $7 billion line of credit that it is required by law to extend to these quasi-government companies and even more if it attempts a bailout.
Then in March 2004, The Elliott Wave Financial Forecast published a short section entitled “Five More Signs that the Real Estate Bust Is On.” Four months later, the July 2004 Financial Forecast sounded another alarm:
The housing market is the logical sector for where the bubble should end because its positive performance during the last bear market makes it the asset class that most investors trust the most. It is also among the most illiquid markets, which means it will lock investors in during the bubble’s deflation.
Then came this warning in September 2004:
This time, the fallout will be much greater because banks’ exposure to real estate is unprecedented and the bear market is of much larger degree. Also, there will be no inflation to help break the fall in prices for all that property, which will soon be repossessed by the banks out of desperation. Bankers’ other big problem is that they don’t have the cash-generating businesses to fall back on as they did in the past. … Obviously, bankers are as convinced as the public that real estate never goes down.
Then, as real estate topped out in 2005, a special September issue of The Elliott Wave Theorist was there to tell subscribers about it:
Real Estate Has Topped Worldwide
Property prices in Sydney have fallen 15 percent. The property market in London has turned soft, with eager sellers discounting about 15 percent. One seller called the market there “dismal,” but he has no idea what dismal is. Dismal is when there are no shoppers, and the only way to effect a sale is to offer a price so low that the lone potential buyer you have managed to locate sees it as a can’t-lose gift. U.S. property prices have held up, but the glut of homes on the market is near a record, and supply is finally catching up not only to occupancy demand, which it surpassed some time ago, but also to investor demand. Meanwhile, Fannie Mae is limping through investigations of impropriety, and the marketplace is running out of bodies to offer full credit, so the credit engine is sputtering. New credit and new debtors are the fuel of all bubbles, and while credit is still freely available, the supply of potential debtors is exhausted.
In May 2007, The Elliott Wave Financial Forecast shared an email from a subscribing industry insider that “gets it.” Still, at this time, there was little mainstream concern for the safety of hedge funds and banks. Many media reports even denied that real estate was in trouble. EWI subscribers, again, were ahead of the news.
In a recent e-mail, an industry insider revealed that his careful study of syndicate activities in 1929 confirms that the parallel is solidly in place: “As for the late 1928-1929 ‘pool operation’ analogue, I have never seen or read about such financial sector combinations as exist today. Official Washington and the gullible public can only marvel at their ‘sophistication’ as stock, and still many property prices, especially commercial and high-end residential, continue to go up. In the latest quarter, it became abundantly clear to me that eight core poolers (Citigroup, Bank of America, JP Morgan, Goldman Sachs, Lehman, Merrill Lynch, Bear Stearns and Morgan Stanley) literally will go to any extreme to expand their balance sheets. If they can just keep adding and ‘carrying’ more securities, often financed by very short term borrowings and rapidly unhedgeable basis risk, they can skip over any business cycle trough.” When the trough turns out to be a way station on the way to depression, vast amounts of the paper these firms hold and distribute will be worthless.
So, with all these specific forecasts and warnings – and believe me, there are dozens more on record – how could the mainstream media possibly say “Nobody saw it coming”? Perhaps admitting that someone – actually an entire firm – did, in fact, not only “see it coming,” but also wrote a book about it, published dozens of warnings about it, and continues to keep subscribers ahead of the news regarding “it,” would be a self-admission that the media simply failed to do their jobs. Good thing EWI subscribers knew better.
Don’t Be Fooled By the Media and Government
The Mainstream media and government have tried to fool you for too long. The Elliott Wave Financial Forecast and Bob Prechter’s Elliott Wave Theorist forecast the housing bubble, bust and ensuing mayhem years before it occurred, so subscribers could position themselves to weather the storm. Now, the collective “they” say nobody saw it coming. Find out what else they’re keeping from you in Bob Prechter’s August Elliott Wave Theorist, called a “guilty-butt-whipping-bonanza" by one subscriber. Learn More Here