To many followers here, Jerome a Paris and bonddad have been providing valuable financial insight for years. Bonddad is great in his own right, but this diary chronicles the genius of Jerome a Paris. He is a genius, if not a Nostradamus on the economy.
Sit back, and let's follow the brilliance the Jerome has provided us and the good fortune we have had to read his diaries....
From predicting $100 oil over 2 years before it happened, the credit crunch, housing crunch, and inflation, Jerome has been on top of things. ( (though I found a type-o in a diary of his! :)
If there is a voice to listen to, Jerome (and bonddad) are it.
If anything this will be a nice break from the Obama/Hillary talk and the silly strike that is underway
Jun 20, 2005 Diary Countdown to 100$ oil (diary 1) link
In this diary, Jerome chronicled that oil prices hit a record of $59 dollars a barrel (the good old days :). Jerome noted:
I think it is precisely the opposite: people realise that ALL the factors are pointing to price increases, and that's what's the most worrying - there is not enough oil, and mo spare capacity, which means that any random factor that modifies demand or supply (like strikes in oil producing regions, or unusual weather patterns that force consumption changes, or anything else) WILL have a disproportionate impact on prices. Today, all these impacts are upwards, because the simple fact is that supply cannot cope with demand.
he even had a poll about how many diaries it would take to $100 oil. 27% thought it would be only 11-20. A weak 24% thought he'd get tired and quit before we got there.
Jun 17, 2005 Real estate: the biggest bubble in world history link
In this diary, Jerome predicts the housing bubble that had yet to start to pop...
He cited the Economist which said
"And, increasingly, little or no documentation of a borrower's assets, employment and income is required for a loan.
Interest-only mortgages are all the rage"
Jerome added:
Remember 1990? The Japanese economy was invincible. They were invading the markets with their cars, semi-conductors, and buying assets all over the place, what with the land in Tokyo being worth more than the whole of the USA (or something like that). Remember how it ended?:
In the end he noted that
the majority of financial instruments currently provided in the housing market are incredibly risky;
housing price increases have sustained so much of the current economic growth that even a slowdown of that growth (a highly optimistic scenario) will create real economic pain;
a drop in housing prices, like has already happened in Australia and the UK is very likely, and will have horrifying economic conseuqences in overextended America?
Aug 21, 2005 Real estate and credit
LINK
Here Jerome noted that interest rates were too low for loo long,
The bubble has grown and grown beyond reason; now that they are belatedly being rised, they are having a terrific effect on the economy - that is, on the economies that rely on debt to sustain growth. The housing "treasure" is about to be empty - and will need to be paid back
In his wisdom, he warned fellow Kossacks that:
* "Consumer spending is going to go down badly in the near future.
pay all the debts you can;
* switch to fixed interest rates if you cannot
* invest what you can in energy saving devices (ideally starting with your car)
* blame Bush for the whole thing!
May 24, 2006 Inflation - not looking good link
we've had de facto inflation for the past 10 years - in the form of a long series of asset bubbles, now finally mutating into "real" inflation. Today's inflation is just a late symptom, and treating that consumer price inflation will certainly not solve the underlying problem.
and...
Fighting inflation now (by increasing interest rates) will only accelerate the bursting of the bubble - making debt more expensive will wreck the balance sheet of certain countries, many investors and more households. Not fighting it will lead to the same result as inflation is just a sneaky way to default on one's obligations and debt will get more expensive by market mechanisms rather than by fiat.
Crunch time is definitely getting closer.
Bonddad is equally great and I will dig through the archives to find his greatest hits as well
Merci Jerome a Paris (sorry all the French I know)
UPDATE
Older classics:
Coming: recession, stagflation, trade wars and oil shock 5/18/05
Falling dollar, offshoring and the coming crunch 12/5/04