Bernanke - should he stay or should he go

[Barrister]

As an aside, what led me to believe that housing was over-inflated and poised for a crash was the human factor, not any particular analytical calculation.  I sensed tremendous irrational exuberance when it came to the wisdom of buying a house, as many people were absolutely sure that it was an investment that can't fail, and yet would react very defensively when whatever passed for their logic was challenged.  When you have such widespread irrational exuberance, you know that it is priced in, and that it's very fragile.

The problem is DG is that people were (accurately) saying the same thing about the housing market for 10 years or more.

I somewhat remember a quote about a famous bear-market analyst saying that he had "successfully predicted 7 of the last 4 bear markets".  Anyone can be a pessimist and be right when the market turns south.  Anyone can be an optimist and be right when the market goes up.  What is truly difficult is to predict a down market only when it is actually going to go down, and to predict a bull market only when it is going to go up.

[DGuller]

The problem is DG is that people were (accurately) saying the same thing about the housing market for 10 years or more.

I somewhat remember a quote about a famous bear-market analyst saying that he had "successfully predicted 7 of the last 4 bear markets".  Anyone can be a pessimist and be right when the market turns south.  Anyone can be an optimist and be right when the market goes up.  What is truly difficult is to predict a down market only when it is actually going to go down, and to predict a bull market only when it is going to go up.

I think that's very unfair.  I did a little bit more than just be a permabear and predict that some point in the future, things would take a turn for the worse.  I'm actually not a permabear, I turned bearish in 2004-2005. 

I laid out my case for why I think the housing market is a bubble, and how the bursting of the bubble would set off a crisis.  I also did it at a time when in retrospect it really was the beginning of the end, but not yet at a point where my conclusion was painfully obvious to everyone (although IMO it should've been). 

I've been largely right on all points.  The fact that the precise timing of the bursting of the bubble is impossible to predict is not a mark against bears.

[The Minsky Moment]

Yeah to be fair, if you sold when DG said to sell, you would have missed a portion of the run up, but you would still be very far ahead net.  I'd take that deal any day.

[alfred russel]

As an aside, what led me to believe that housing was over-inflated and poised for a crash was the human factor, not any particular analytical calculation.  I sensed tremendous irrational exuberance when it came to the wisdom of buying a house, as many people were absolutely sure that it was an investment that can't fail, and yet would react very defensively when whatever passed for their logic was challenged.  When you have such widespread irrational exuberance, you know that it is priced in, and that it's very fragile.

While I was wrong in not thinking the market would crash, I've been saying (and posting) for a long time that housing is not a great investment--the problem being it usually isn't a rent vs. buy decision, and people buy more house than they need thinking of it as an investment. The problem is that you buy more house than you need, you get a host of expenses that you wouldn't get otherwise.