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November 10, 2005

Deep Housing Thoughts

"On this issue, it is important to note that the track record of the economics profession and so-called financial experts has been abysmal. Very few economists recognized and warned of the stock bubble in the late nineties. The vast majority of economists and financial experts continued to recommend that investors, including large investors like pension funds, put their money in the stock market even as the bubble grew to ever more unsustainable levels. It required nothing more than simple arithmetic to recognize the stock bubble. Once the price to earnings ratio in the market got far above its historic average (it peaked at 33, the historic average was 14.5), it was impossible to believe that the stock market could generate anywhere near its historic rates of return, unless one believed that economic growth would vastly exceed the widely accepted range. The fact that so many 'experts' managed to completely miss something that could have been detected as easily as the stock bubble should be kept in mind when assessing views on the housing market."

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