This week’s commentary is attributed to all those economists and analysts who  maintained a stance of “warning and alarm” regarding the underlying risk to the US economy over the past few years.  Individuals like Stephen Roach, Gary Shilling, Jim Grant….and yes the Market Doctor….you were correct !!

When you look at the economic data releases and the performance of the US Equity markets, along with such things as the prices of Gold, it’s easy to say there’s been a problem in the US economy for a while.  However the true test of well-established analysts and economists is when they correctly post warnings and dangers of inappropriate business activities and monetary and fiscal policies during apparently prosperous times and are criticized as a result.  The current situation is case in point.  Since at least 2003, monetary policy which held a negative real interest rate scenario for some time, questionable lending practices in the real estate sector (including interest only structures and the like) increased speculation in Housing, as practices like flipping grew exorbitantly, increased deficits, all painted a dangerously negative scenario.  However, the economic fallout from these negatives took a while to surface, and in the interim period (2003 through 2006), GDP grew at a healthy pace, jobs were abundant and real estate prices posted double digit returns.  These falsely positive times enabled many to criticize the cool headed and correct analysts.  But as we’ve all seen over the past few months….risk WAS high, policies WERE inappropriate and the short term prosperity was built on a base of quick sand.

So for all you correct wise men…well done.  Let’s just hope that policy makers and business leaders pay closer attention to credible analysts to help mitigate the problems that we are currently facing.