Smart Guys - Dumb Comments

Quite literally this was an amazing week for stupid
comments by wise men put under the spotlight. In aggregate,
it was a totally stunning and possibly unprecedented
performance. Let’s take a peek.

I will start off with one comment that is so blatantly
stupid that it was instantaneously perceived as such by
practically everyone. I intended to do an essay on this one
item alone, but by the time I passed the comment around,
three other blogs were already reporting on it. In case you
missed it however, here it is: Federal Reserve Bank of
Dallas President Richard Fisher said this to CNBC on

"Where would the world be if Americans did not live out
their proclivity to consume everything that looks good,
feels good, sounds good, tastes good? We provide a service
for the rest of the world. If we were running a current
account surplus or trade surplus, what would happen to
economic growth worldwide, and what would be the economic
consequences? So I think we are doing our duty there."

Now let’s take a look at what Mr. Alan Nevin, chief
economist for the California Building Industry Association,
said this week:

"People have the ability to borrow against their homes. If
times get tougher, they could borrow a sufficient amount to
pay their mortgages."

Another startling revelation! Borrow money to pay your

In any other week, the above comment would easily win hands
down as the stupid comment of the week, but unfortunately,
this was not any ordinary week. Mr. Alan Nevin had to
compete and lose to Mr. Fisher. Such is life.

Not to be outdone, former Fed Governor Laurence Meyer
offered this advice: "Be careful how you interpret a very
narrow curve, or even an inverted curve, in the context of
structural forces that may have flattened it…It doesn’t
mean the same thing that it used to mean."

He should have just said: "It’s different this time."

Could the April job numbers possibly have been more horrid?
I was stuck in gloomy woe on those numbers, saying, "Woe,
woe, woe," until I saw analysis from Wachovia’s chief
economist John Silvia, who had this bit of wisdom to offer:

"Wages and unit labor costs rising and unemployment rates
falling suggest we are running out of workers."

Wow. We are running out of workers. That is staggering. I
think this is a national disaster. Then again, if we are
running out of workers, why are we threatening China with
27.5% tariffs on grounds that they are stealing all of our
jobs? OK, Mr. Silvia, I now have the dreaded CD (conundrum
disease) on top of spring fever. This could be serious.
Here is my question: How can China be stealing our jobs
when we are running out of workers to fill them? Then
again, that comment seems so blatantly stupid I must award
it the silver medal.

CNBC was quite interesting on Friday. I hope everyone had a
chance to catch the pearls of wisdom from a real estate
investment club in L.A., in which members shared investment
strategies reminiscent of the stock euphoria of 2000. Said
one club member, "I am using negative amortization loans,
and yes, it adds $10,000 to my loan, but the properties are
appreciating $100,000-150,000."

Another commented, "I quit my job that I had for 30 years
and I am investing in real estate full time. I am not just
investing, I am investing smart." Gee, after a 20-year run-
up in housing prices that has gone parabolic in the last
couple of years, I am sure relieved to know that he is
"investing smart." I have another question: Does negative
amortization with leverage sound remotely like margin?

The following message goes out to the Mogambo Guru. I ask
you kindly to take a swig of the strongest stuff you have
before reading any further. My readers and your readers
alike would hold me completely responsible if I posted
something that caused you to keel over in fright, laughter,
disbelief, outrage, disgust, or shock, so please hold on
tight for the next few minutes.

This news is so shocking that any combination of the above
is possible.

Federal Reserve Governor Gramlich reported today that
nirvana has been reached. Here are the snips from The
Washington Post:

"’To me, that is the ultimate test of price stability — do
you think that $10,000 goes further this year than it did
five years ago? I would argue in that sense we have
achieved price stability,’ Gramlich said to a group of real
estate editors.

"’I would further tell you that we mean to keep at it, that
other aspects of the economy don’t suffer when we stabilize
prices in this sense, and that’s what we’re going to do.’"

Mr. Mogambo, I have been looking for signs of "price
stability" nirvana for quite some time. Unfortunately, I
have not found any. Since nirvana has now been reached, I
am quite sure that a person of your stature knows where to
find it. Could you please run down your list of items and
report your findings on "price stability" to the readers of
the Rude Awakening, now that we have reached nirvana?

Did You Notice…?
By Tom Dyson

What percentage of Americans claim to have heard nothing
about a potential housing bubble?

First, some facts…

In the last four years, the rise of housing prices has
outpaced the rise in consumer disposable incomes by 50%

The National Association of Realtors reports that one in
four homes sold in 2004 were purchased by investors.
Another 13% of all homes sold were vacation homes.

The California Association of Realtors recently reported
that the income of an average state household is only half
the amount required to qualify to purchase a median priced

The median home price in Los Angeles, now $446,400, is up
54 percent over the past two years, according to the
National Association of Realtors. In Riverside and San
Bernardino counties, the median price, $296,000, has
increased 69 percent over the same time.

The new real estate mania has created more wealth than all
the stock market wealth lost in the 2000-2002 crash.

A bubble is defined by Investopedia as, "A temporary market
condition created through excessive buying, and an
unfounded run-up in prices occurs." According to a recent
Experian-Gallup poll, only 23% of Americans have considered
the possibility we might be in a housing bubble. When the
economic definition of a housing bubble was explained, 37%
reported that they believe a housing bubble is "somewhat"
or "very likely" to occur in their area in the next three

Also found in the survey, "70% of Americans believe that
housing prices will increase over the next year and only 5%
believe they will fall. Of those respondents that believe
housing prices will continue to rise, 23% believe prices
will rise by more than 10%. At the same time, 75% of people
believe that mortgage rates will also continue to rise in
the coming year."

And the Markets…



This week

















10-year Treasury





30-year Treasury





Russell 2000


























JPY 109.49

JPY 109.48



Dollar (USD/EUR)





Dollar (USD/GBP)