Why the Two Spins on Housing and the Coming U.S. Recession
Monday, March 19th, 2007
By Michael Lombardi, MBA for Profit Confidential
The battle of the economic know-it-alls:
In the one corner, we have the current Fed Chief Ben Bernanke, in his semi-annual report to Congress, stating that the damage to the economy caused by the fallout from the housing market is difficult to predict at this time. Bernanke, while happy with how the U.S. economy is slowing, acknowledges that consumer spending and housing-related industries will be hurt by the slowdown in the housing sector.
>From what I read in his remarks, Bernanke doesn’t know how bad the damage will be to the U.S. economy due to the housing fallout. However, he does acknowledge the relationship between the U.S. housing market and the economy.
In the other corner, we have former Fed Chief Alan Greenspan saying the worst is over for the U.S. housing market and that there will be no economic spillover effects from the poor housing market. Greenspan also says the U.S. could be headed for a recession by the end of this year.
At first, Greenspan didn’t qualify the probability of a recession happening. In later speeches to economic groups, he quantified the probability of the U.S. falling into a recession as having a 30% chance.
And now the referee’s take:
On the spillover effects of the weak U.S. housing market and the economy: Bernanke is right; Greenspan is wrong. There is no doubt in my mind that the U.S. will suffer economic headaches from the worsening housing market. We can already see it in the subprime industry where lenders are under immense pressure — some have stopped taking loan applications. Bernanke, while not a real estate man, is calling it right in this respect.
On the possibility of the U.S. recession this year: In a Profit Confidential I wrote in late 2006, that’s exactly what I forecasted. Greenspan is right. The U.S. will fall into a recession in late 2007 or early 2008. But it’s not a 30% chance of happening. In my opinion it’s only a 30% chance of not happening!
As for Bernanke, he’s the current Fed Chief. He cannot come out and forecast a recession because confidence in the markets would be severally shaken. Bernanke is a smart man. And if I were a betting man, I’d wager Bernanke does have serious concerns that the U.S. is slowly moving into recession territory.
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
