Is The Economic Crisis Coming to End?
By Keith Gilabert,(originally posted 02/22/10)When I was invited to speak at the prestigious PMRA Conference on Integrating Performance and Risk into the Investment Chain at the Waldorf Hotel in London, England, I sensed a lot of arrogance. I don't think anyone had any idea of how brutal the forthcoming economic crisis would be. I do recall that many large and well respected money managers were buying billions in mortgage backed bonds as a hedge. In 2007 the hedge fund industry had over $2 trillion in assets.
Today that number has been cut in half due to the implosion of these bonds that were designed in theory to protect value. The most recent S&P/Case-Shiller Home Price Index shows that home prices today are comparable to levels seen in 2003, down approximately 33.5% from the all-time highs of 2006 prior to the recession. I believe based on recent data that the economic crisis is not over and that we will see a further 10% decline in housing prices for 2010. Why do I say that? It's because the high-end housing market where home values are between $1,000,000 to $5,000,000 have not rolled over like the lower end markets. I find it suspicious that "Joe the plumber" loses work and then eventually his home to foreclosure but the plastic surgeon in Beverly Hills is still hanging on to all his toys.
Last time I looked around LA, I didn't see many soccer moms getting nose or boob jobs. These insecure souls are the bread and butter of the aesthetics industry and guess what... all these soccer moms are married to "Joe the plumber". According to the data I compiled, I expect to see the next leg fall over the next six months and the top end market that seems immune will start showing some cracks.
About Keith Gilabert
Keith Gilabert has worked side-by-side with equity and derivative specialist developing trading programs. In 1998 Keith Gilabert developed a trading strategy to boost performance of managed portfolios. The trading strategy returned a staggering 27% year over year return. In 2002 while the market finished down over 30%, Gilabert’s strategy returned 15% net of all fees. You can find him on Google+ and Twitter.
