Looking Back: Boom-Time Economists And Their Fantastic Predictions

The period from 2000 to 2009 was a brutal decade for the US economy. First there was the dotcom bubble, that burst only to be followed by the real estate bubble leaving investors scrambling for safer havens like bonds and gold, which almost feels like yet another bubble in the making.

But during the boom, a number of experts predicted a much rosier picture. Here’s a short list.

The Rules for Growing Rich : Making Money in the New Information Economy – David Lereah

This book came out at the peak of the dotcom bubble. The premise of the book was to teach investors on how to grasp this new economy run by technology stocks and profit from it. The advice in a nutshell was to buy and hold dotcom stocks!

To put this into perspective, the NASDAQ composite which tracks technology stocks reached its peak in 2000 going over 5000. Today it is a little over 2500. If you invested a dollar in 2000, it would be worth 50 cents today.

Amazon.com price: $4.00

Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market – James K. Glassman, Kevin A. Hassett

James Glassman wasn’t just another author. He was a good friend of former President G.W. Bush and was politically quite active. Among other high profile positions Glassman was also the Undersecretary for Public Diplomacy and Public Affairs under G.W. Bush and served as the executive director of the George W. Bush Institute.

His co-author, Kevin Hassett was no stranger to the economy either. He was was a senior economist at the Federal Reserve. Hassett was also the economic advisor to the G.W. Bush campaign. His articles have appeared in numerous journals.

In the book Dow 36,000, the authors ridicule timetested metrics like the PE ratio to evaluate if a stock is overvalued and instead claimed the stocks were actually supressed and the old rules don’t apply in this ‘new’ economy. The authors urged investors to not miss out on the coming bull run.

The Dow at the time of publication had touched 10,000. Today after 10 years, the Dow touched a low of 9,600 in 2010. The Dow went nowhere.

Soon after this publication and after the market crash, Glassman founded Investors Action, a non-profit group to promote the interests of small investors (no I’m not kidding!).

Kevin Hassett was signed up by John McCain as his financial advisor for the 2008 election campaign. Aparently, no one told McCain about this book.

Amazon.com price: $17.21

Why the Real Estate Boom Will Not Bust – And How You Can Profit from It: How to Build Wealth in Today’s Expanding Real Estate Market – David Lereah

Yeah, this is the same David Lerah who wrote ‘The Rules for Growing Rich : Making Money in the New Information Economy’ at the peak of the dotcom bubble. This book came out at the peak of the housing bubble when rent or buy was no longer a trick question! As the title suggest, David predicted that this time it’s different and the real estate boom is just getting started. He used all the right words – macro economics, baby boomers and low interest rates. He called his opponent ‘Chicken Littles’ and urged people to not miss out on this boom.

Turned out David was a shill for the NAR – National Association of Realtors. (He was the chief economist for the NAR). This is what he had to say after the real estate market collapsed:

I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right inline with most forecasts. The difference was that I put a positive spin on it It was easy to do during boom times, harder when times weren’t good.

The NAR forced David out of the organization and wants nothing to do with David now. What does David think of the market?

“My views are quite different now. I’m pretty bearish and have been for the past year and a half. Home prices will continue to drop. I think we’ll see a very modest recovery in sales activity in 2009. But we’ve still got excess inventories, a bad economy and a credit crunch that will push prices down further, another 5% to 10% more. It’ll take a long time to get back to the peak prices we saw in many markets.”

Amazon is fresh out of his book, but you can snag a pre-owned copy for $0.10.

3 thoughts on “Looking Back: Boom-Time Economists And Their Fantastic Predictions

  1. After the last couple, I think everything seems like a bubble in the making. Have you ever watched “Finding Nemo”? There’s a scene in there where a little crab (I think), says “Bubbles!” everytime the treasure chest in his tank opens, and he immediately goes chasing after them. The scene used to make me giggle…now I cringe.

    You did a really good job of summizing those books into where they fit in the “big picture.” I’ll have to check out the books.
    .-= Jessica07´s last blog ..Why Are Inflation and Deflation Important =-.

  2. Good analogy Jessica!

  3. I can’t believe people follow these crazy predictions time and time again. Think of all the recessions and booms in the past 100 years…every time someone predicts a “new normal.” And eventually we always return to the regular cycle of boom and bust.

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