Can You See The Future?

The W$J is profiling some of the people (all men, as it turns out) who - in one way or another - "predicted" the Crash/Panic of '08.  Some of these guys' predictions were more useful than others. However, I think all of them should be commended for going against the tide in a big way. Each of them predicted doom, put their money where there mouths were, and profited while everyone else got creamed.  It's not often that non-conformists get rich off their anti-social impulses! Let's see how everybody did: 

1. David Einhorn was one of the most impressive short sellers of 2008. He took a very public short position against Lehman Brothers and took the lead in prophesying that company's dramatic fall. When Lehman's pretty blond CFO couldn't convince Einhorn of Lehman's solvency, she was fired, and Lehman continued to deny reality. 

2. Marc Faber predicted a fall in housing prices in 2006. Pretty good, but a little early.  You could have stayed in banks and real estate for most of 2007, and done a lot better than if you got out in 2006. 

3. James Grant said in 2005 that the Fed had fomented the greatest of all credit bubbles. True, but not out there. The Forbes and W$J's editorial pages were saying pretty much the same thing. This almost falls into the Krugman-esque realm of gratuitous predictions of doom. 

4. Jeremy Grantham said in 2000 that a "sensational bust" was coming. 2000! Big deal. He was also critical of the post-9/11 interest rate easing, which means he has joined the ranks of folks who have forgotten the post-9/11 atmosphere when the very real possibility existed that the economy might stall. Grantham was correct in predicting that the crash would come in October 2008. 

5. Paul Kasriel started warning about high home prices in 2004. He also said that the US banking system would be collateral damage during the bursting of the housing bubble because of the banks' exposure to mortgage securities. 

6. John Paulson pinpointed in 2006 that credit default swaps and other tools would ruin banks. He made billions in 2008 shorting banks and financial companies, meaning the wealth of the bankers was often not destroyed, but transferred to men like Paulson. Good Show!

7. Bob Rodriguez saw the quality of the borrowers on which the pools of subprime mortgages were based and immediately ran the other way. He also aggressively moved to get out of banks and finance, much to the annoyance of some of his clients. Didn't really predict anything, but he did know enough to go defensive long before everyone else. 

8. Peter Schiff is widely viewed as the man who "predicted" the Crash of '08. That's a little grandiose. Schiff was probably the most prominent bear in 2007 and 2008, going on CNBC, CNN, and Fox and repeating that housing was overpriced and the banks were over-exposed. Schiff didn't just make wild predictions. He named names and accurately predicted how and why the crisis would unfold. he said early and often that Lehman Brothers, Bear Stearns, Citibank, Fannie, Freddie, and Countrywide were all doomed because they were engaging is a massive ponzi-scheme that was winked at by ratings agencies, ignored by regulators, and flatly misunderstood by investors. The only problem is some of Schiff's other predictions - that the dollar would collapse and international stocks would rise as US stocks fell - not only did not come to be; the exact opposite happened.