Wednesday, September 02, 2009

History, Today and the Folly of “The Experts”

Did you know that the Great Depression was preceded by a great real estate boom centered in Florida? The Florida real estate bubble burst in 1926, three years before equities.
Just as in 2007, no one foresaw a decline, let alone the seriousness of the decline. On December 4, 1928, President Coolidge sent the following message on the state of the Union to the reconvening Congress:
“No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment and the highest record of years of prosperity. In the foreign field there is peace. You may regard the present with satisfaction and anticipate the future with optimism.”
Harvard-How Great Thou Art!
Before and during the Great Depression of the 1920/30’s, the Harvard Economic Society, previously esteemed for its pessimism, turned bullish a few months before the market topped. In fact, the Society remained bullish all throughout the downturn until it was dissolved just before the depression ended.
One of the many blunders that lead to the untimely (though not soon enough for investors' welfare) demise of the Society, was its March 24th, 1930 assessment that; 'The outlook is favorable.' This was just days before the onset of the above mentioned second leg to new lows. The second leg reduced the Dow by another 47%, but it didn't stop there.
There are many modern-day parallels to the Harvard Economic Society. The Blue Chip Economic Indicator survey, a survey of private economists, is just one of them. According to their most recent survey, 90% of economists believe that the current recession will be declared to have ended this quarter.
Watch Out!
Interestingly, the consensus estimate of U.S. economists also believed that in March 2009 the market's worst was yet to come, when the Dow traded below 7,000.
* Source: much of the above was based upon, a research service that my firm, Wade Financial Group, Inc. subscribes to.
Investing lesson:
It may sound crazy, but the more college degrees and closer to academia a purported “expert” is, the further you should probably run.

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