Predictions – Elaine Garzarelli, Gary B. Smith, James Grant

By on December 9, 2007

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The market continues its extreme gyrations since the sub-prime crisis reared its head. How the market resolves this depends on a lot of factors, but the governments feeble and corrupt attempts to manipulate the mortgage market and prop up real estate will almost certainly fail. I suspect we are at the beginning of a significant downturn in the economy and equity prices because things were completely out of control on the credit front. A lack of regulation and discipline led to the problems which will not be fixed overnight. The fact that individuals are required to have 50% equity to buy stocks on margin, but can buy a house with 0% down is still a mystery to me.

The Fed will continue to cut rates in an attempt to prevent the real estate asset deflation, but in so doing will begin the inflation of another bubble. Investors should be on the lookout for this because it could be very profitable if identified early.

James Grant of Grant’s Interest Rate Observer is equally negative on the market’s prospects, although I recall him being basically bearish during the entire bull market from 1982 – 2000. Elaine Garzarelli doesn’t see any problems on the horizon unless oil hits $120 per barrel. Gary B. Smith must feel Countrywide Financial is too big to be allowed to fail despite the actions of its corrupt and over-compensated CEO, Anthony Mozillo. The phrase, “privatize the gains and socialize the losses,” applies in spades to him.

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