Chuck Ponzi February 9th, 2007

For many perusing the site, you’ll appreciate what a strong contrarian indicator mainstream media can be. For the rest of us, the mainstream media often acts as a blubbering beaurocratic beheamoth. No offense intended, just stating the obvious.

It is for this reason that by the time ideas come to print, they are often outdated and decidedly deceptive. Just such a cover comes our way. (Hat tip and thanks to JMF of immobilienblasen, or “real-estate bubble” for non-German speakers, for bringing this to my attention)

The article “It’s A Low, Low, Low, Low-Rate World: Money is cheap. And some experts say it could stay that way for years. That’s creating opportunity—and brand new risks” is here.

This is the cover of the current issue of Business Week:
How accurate you might ask, has the mainstream media been in predicting so far in the housing bubble? Consider, for example, the cheerleading piece Time magazine published in June 2005, at the near exact top of the housing bubble:
Not surprisingly, when you go to BusinessWeeks homepage, you’ll see this little one (the arrows are mine)
If you don’t see the irony in how the 2 issues impact each other, here it is:
1. Rates are low and credit available because there is low percieved risk. Risk is perceived as low because housing prices were rising.
2. Housing prices are supported by low rates and available credit. If rates go up, housing prices will go down. They are “priced to perfection”

Reminds me of something Alan Greenspan said:

Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low-risk premiums.

• Contrary Indicators , Debt , SubPrime