2007 vs 2012: Stick with our playbook

Well, I got up before 6am and was out the door to Roswell (70 miles away) to replace my lost social security card so I can get a local driver’s license but my birth certificate was illegible so I went to the Health Office in Roswell (where I also happened to have been born) to get a new birth certificate to get the new social security card to get the new license….this experience was just slightly better than the time in Lithuania right after it’d left the USSR when to borrow a friend’s father’s car for the weekend took two days of registration and licensing at four different locations in Vilnius and the only way I actually got the papers signed was because one official happened to walk by and recognize a sister of my friend and he brought us up into his office, smiled and chatted with my friends and then signed the papers happily.

I sure love being back in NM in a lot of ways, but having to drive 1-3 hours to get anything official done is a pain in the butt.

At any rate, the markets are mostly flat today….the bank stocks are weakest and I’m hard at work finalizing our new picks for tomorrow.

Earnings barrage really starts tomorrow with lots of tech and other “tells” lined up to report this week and next.

Sticking with our playbook.

Speaking of our playbook, I found this old column of mine from 2007 this weekend when I was trying to find something else…it’s a great snapshot of where the world was in 2007, as I was out and out bearish about real estate and the broader markets, but finished by explaining,

I expect there to be more waves of mass repricing of assets, causing more turmoil in the financial markets in the near term. And I expect the Fed to “bail” out those financial markets and probably inflate my “echo techo bubble.”

Here’s the full article:

I’ve been very cautious and even, at times, bearish for most of the last couple months. After some of the feedback I’ve received, I want to be clear that I’m certainly not turning into my favorite teasing target — a permabear.

But longtime readers know that I want to respect the economic and market cycles. And I am not at all comfortable being out-and-out bullish right now. Sure, I think we are likely to head into the “echo techo bubble.” But I just haven’t thought that the stability and steadiness of this five-year bull market was sustainable when people like Sumner Redstone say there’s more capital than they know what to do with out there, and whenprivate-equity groups are selling stakes in their own companies to the public.

And frankly, even as I think you can trade this market for the next few weeks by buying extreme weakness and selling extreme rallies, I think there’s too much risk for sudden extreme weakness and downside dislocations in the market for me to be anything but extremely cautious myself.

See, I’m seeing it as though the permabears finally have some real catalysts to take down this still-ongoing, wondrously steady economic boom we’ve been living through for the last half-decade. Would it surprise you at all if I told you that I think they’re missing the entire dynamic that’s going to cause their long-promised — and long-wrong — downturn? (Click here for more of my rantings on the permabear culture.)

The fact is that I don’t really understand why I’m supposed to be freaking out about the permabears’ No. 1 quoted reason for “the coming collapse”: the hundreds of billions of dollars in variable-rate mortgages that are going to be reset at (probably) higher rates in the next few years. I agree that rates are much more likely to trend higher in the near-term, as the quarter-century-long decline in interest rates reverses to go higher again. I explained that in detail in the Financial Times a few weeks ago, as well as here on RealMoney.

But the fact is that everybody already sees, expects and is actively scrambling to prepare for all that resetting. As I once wrote in a song, “It’s only there if you don’t see it.” We all see this risk, and it’s already been more than prepared for. In fact, as I explain below, that’s exactly what this recent turmoil and credit crisis has been about — pricing in this coming reality.

However that leaves me far from sounding the all-clear. See, I’m much more worried about the actual asset prices of those mortgages than I am about the interest on them. That’s because residential real estate is always valued on a relative basis using comparables of similar homes and properties.

I worked as a registered residential real estate appraiser in college in New Mexico. And I know that when an appraiser puts together a valuation guess for a refinancing or a sale, he doesn’t go, “Oh, well these people are going to put 20% down (and/or not lever up too much on this loan) and they have great credit, so I won’t compare the value of this house to those houses that are being foreclosed because the gamblers who lived in them took out subprime, no-check mortgages.”

All that excess demand inflated real estate prices. Now that excess demand is long gone, and even normal demand is in serious decline.

We shouldn’t be worried about the mortgage resetting — we should be worried about the valuations of any lower-priced real estate in the U.S. I mean, we already see prices collapsing in that sector. All those properties priced “slightly” above the lower-priced/subprime/alt-A world are also about to take a big-time valuation hit as well.

And we’re already seeing the ramifications of this mass-repricing of assets (and you thought it was a mass-repricing of “risk”! Ha, you gotta “flip it!”). Every investor wants to know her exposure to real estate and to make sure those assets are being priced right. As all the money managers of the world and their brokers updated the value of the subprime and Alt-A portfolios, marking those assets to market, investors are freezing their capital.

I expect there to be more waves of mass repricing of assets, causing more turmoil in the financial markets in the near term. And I expect the Fed to “bail” out those financial markets and probably inflate my “echo techo bubble.”

I’m not really a big fan of trying to game these types of macroeconomic forces. But I also recognize that the risk/reward for being long just isn’t very compelling for me right now. Stay cautious, stay vigilant and stay skeptical in the summer of 2007.