Bestselling Financial Expert Who Predicted the dot.com Collapse, the Housing Crash and the Current Global Economic Crisis
Economic and Investment Predictions
In 1999, Talbott warned that the hi-tech sector may crash because advertising dollars alone were not sufficient to support many free internet companies.
In 2003, Talbott warned his audience about a coming housing crash that would crush the banking system and lead to a global economic crisis.
In 2006, Talbott called the absolute fifty year peak in home prices and advised people to sell vacation homes, investment properties and if possible, to rent rather than own their primary residence.
In 2006, Talbott predicted the country would see a decline in home prices nationally of approximately 33% and cities in Florida, California, Arizona and Nevada would see declines of as much as 60% which incredibly turned out to be exactly right.
In 2006, Talbott told his readers looking for a real estate hedge to short Fannie Mae and Freddie Mac stock which each then declined in value from over $60 a share to under $1 a share in just twelve months.
In December 2007, Talbott told his audience to sell their common stock holdings as the Dow collapsed from 14,000 to 6,500. He warned that the entire US banking system was heading rapidly toward insolvency.
In 2008, Talbott advised to buy gold at $650 which quickly nearly tripled in price.
In 2008, Talbott was the first to warn that municipal tax-free bonds would face increased bankruptcy risk as the coming economic slowdown would deplete cities' cash reserves.
In 2008, Talbott argued that the subprime mortgage crisis of the US would mutate and infect markets and economies worldwide, especially the banks and countries of Europe.
In late 2008, Talbott warned that Ireland, the UK and Spain would see dramatic declines in the prices of their housing stock.
In 2009, Talbott predicted that the lobbying strength of the big Wall Street banks in Washington would prevent any meaningful reform of their corrupt business practices with investors.
In 2010, Talbott warned that solvency problems in Greece would not be contained and would spread to Spain, Italy, Ireland and Portugal and even the UK, France and Germany would face serious debt problems.
In July 2011, Talbott warned that Facebook's true inherent long term value is some 78% lower than its IPO price. Facebook subsequently trades off almost 60% in price.
In December 2011, Talbott reversed his long held bearish views on housing and recommends investing in residential real estate. It turned out that December 2011 was the absolute bottom for US home prices nationally and cities like Phoenix, Atlanta and Sacramento have seen 60% to 80% increases in price since then.
In 2012, Talbott explained that the stock market was not trading at an all-time high, but rather, once historical and expected future inflation were taken into account, was trading at a historical low making selected stock investments feasible. The stock market has appreciated 30% plus since then.
Excerpts from Talbott's Previous Books
“We shall see that the real culprits causing our recessions, depressions, inflationary spirals, real wage declines, major business collapses, unemployment and growth stagnation are not our hard-working people, but rather, a very powerful combination of our largest corporations, our commercial banks, and our governmental institutions that are more interested in responding to the lobbying of big money special-interests than in providing to the needs of their people.” - Originally written in 1999.
“Only if banks are allowed to fail by our government will their shareholders implement safeguards necessary to see that their lending programs are disciplined.” - Originally written in 1999.
“I would also put a physical limit on the maximum size that our commercial banks and our largest corporations could grow to. These companies must be of a size that allows for fair competition, and more importantly, lets the worst performing companies seek bankruptcy and orderly liquidation without an overly burdensome cost to the society.” - Originally written in 1999.
“Market theory predicts that the current high home prices are a good predictor of future home price performance and we know that real markets are less susceptible to bubbles and crashes because of efficient pricing and that because some participants are irrational does not make the entire market pricing system irrational or inefficient. But I hold the opposite view. I believe that current home prices are artificially high and due for a major correction downward. And I don’t think the reason is because the market participants are irrational. As a matter of fact, I believe that the homeowners and lenders and guarantors are doing exactly what you or I would do in a similar situation -- namely, they are each acting very rationally. So how can I conclude that the market is overvalued? The answer is that the housing market in the United States is not a true “market” at all.” - Originally written in 2003.
“Homeowners have grown accustomed to a world of aggressive mortgage brokers, realtors and bankers. It is hard to imagine a future world in which ‘For Sale” signs stand on lawns for years rather than days, where instead of multiple offers above the asking price, you are faced with taking numerous discounts to your asking price, where you need to serve lunch at your open house just to get the brokers to come over and look, and where banks have retrenched with new lending policies that include asking questions like what did this property sell for 10 years ago. If bankers retrench, and we assure you that is what they do for a living (just ask any farmer in the Midwest), then all the formulas you know for lending and pricing go out the window. There will be no comparables in the neighborhood because nothing will be selling. Bankers will have to go back to very realistic valuations, probably based on square footage and historical pricing. Valuations will further be damaged by the banks’ own activity as they dump foreclosed properties on the market at huge discounts to the mortgage amount. Banks really do not want to hold bad loans on their books because it only reminds them of managerial errors of the past. They are infamous for buying high and selling low when it comes to foreclosures. Unfortunately, their aggressive selling will only exacerbate an already weak property market.” - Originally written in 2003.
“As usual, it will be the unsuspecting public that will be left holding the bag when all this gets sorted out. The taxpayer will have to honor Fannie Mae and Freddie Mac debt commitments. The taxpayer will absorb the cost of cleaning up the real estate and mortgage industry. The public will absorb the trillions of dollars of cost of bailing out the commercial banks that get in trouble with their mortgage portfolios. And the public will suffer layoffs and wage hits as they weather the recession or depression that will result when these major housing-related industries plummet, taking the entire economy with them. And during all this pain, the public will wrestle with losing their homes to foreclosure when many will find their mortgage balances far exceed their homes’ depressed true market values.” - Originally written in 2006.
“Another argument made by the naysayers and those still in denial as to whether there will be a recession is that everything is temporary, that these are not permanent losses but only cyclical losses. Nothing could be further from the truth. These losses from the bank’s perspective are indeed permanent. These mortgages are not going to spring back to full value. Housing prices that have declined are not going to re-inflate. The reason is that the bubble is bursting and is deflating a boom and returning to more normal pricing. The banks in the future are not going to lend 11 times your household income to buy a house. They might lend three to five times your income if you have a good job with demonstrable income, if you have a good credit score, if you are willing to put down a substantial down payment and if you have some verifiable means of demonstrating your job and income. This is a return to normalcy. Bank’s losses are not going to be reversed. They are permanent. The effect on the general economy is permanent.” - Originally written in 2008.
"European countries are facing a double whammy. Housing price declines in many European countries are just beginning. As England, Ireland and Spain experience eventual housing price declines of 25% to 35%, their banks will realize significantly greater losses, their financial system and financial institutions will increasingly become more insolvent and their remaining banks will pull back on lending. This will push these countries into even deeper recessions. I would not be surprised to see Europe's GDP contract by as much as 10% or more over the next four to five years in real terms." - Originally written in 2008.
"Many local governments are going to have serious problems over the next two decades. They have promised their employees generous retirement, health care and pension benefits that are going to be enormously difficult to fund. ...[I]t will be difficult for local governments to cut back expenses to remove themselves from this cash crisis. The reason is that so much of their expenses will be retiree costs. These types of intractable problems are what cause local government bankruptcies. - Originally written in 2008.
“I am much more pessimistic than Milton Friedman. I believe that capitalism is based on trust. And that when that trust is violated, and contracts are not certain to be honored, and loans are not certain to be repaid, and when businesses hide losses, and when banks cannot be trusted with deposits, there is a real risk that all economic activity will stop. People will take their money out of banks and put it in their mattress. People will stop buying new things. Companies will cut production and workers. Companies will cut investment. It is not at all obvious to me how a country gets out of such a negative spiral. This is the risk that occurs. The biggest businesses and the largest banks and investment banks were allowed to run crazy for decades with little to no government regulation. The price must now be paid. I can only hope that the price is not too severe and that the country can pull out of these difficulties. But I also hope that the lesson is learned.” - Originally written in 2008.
“If corporations ruled the world, corporations and banks would be announcing record profits and paying their executives record bonuses in this crisis even as ordinary Americans face record levels of joblessness, foreclosures and asset loss. The DOW would recover thanks to government intervention in the economy; economists would claim the recession was officially over even though average families continued to struggle paying bills with paychecks that had not increased in thirty years. Both parents would have to find work to afford basic necessities like a home, a car and food and healthcare for their children. If corporations ruled the world, important issues to ordinary Americans would never be addressed by our government. Our schools would decay, our environment would suffer, crime would continue, poverty would increase, jobs would disappear overseas, illegals would force wages down at home, our homes would be foreclosed and our savings and pensions eliminated. Aren't you glad you don't live in such a corporate dominated society?” – Originally written in 2011.
“It is incredible that the cost of a crisis caused entirely by bankers, corrupt lobbyists and corrupt politicians is being carried on the backs of working men and women, the unemployed, the elderly and the disadvantaged. Even after the crisis, bankers are now paying themselves record bonuses as the world's citizens suffer a loss of 50 million jobs, 20 million homes and approximately $30 trillion of accumulated wealth." – Originally written in 2011.
"Why does home buying make sense now? Prices have dropped. Nationally, the average home price has declined 24% to 32% in real terms. Based on my analysis, then, the market should be bottoming out because prices have returned to [more normal] 1997 levels, the levels [seen] before the bubble. The fluff is gone. New mortgage lending is much saner than the crazy amounts of money that were extended during the boom. Many cities are seeing homes trade at prices below what it would cost to build them today." – Originally written in December 2011.
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