The fall of Warren Buffett continues...

Schiff - Gold up $27, Dow Futures Down 276, Buffett Wrong

When asked about Warren Buffett’s comments where he said S&P made a mistake by downgrading US debt Schiff responded, “Well he owns a big chunk of Moody’s doesn’t he? Moody’s hasn’t lowered their rating, so somebody is mistaken, it’s either Moody’s or S&P. It stands to reason that Buffett would say his competitor was mistaken rather than himself.

What’s important, people are criticizing S&P, and I think it’s kind of funny because they are criticizing them for missing the subprime crisis. Well, why not criticize Moody’s and Fitch for the same reason, and what makes us think that their AAA rating is right?

So, potentially the real mistake they’ve made is to have had the US government at AAA so long because they (the US) are just as AAA as those mortgage backed securities that went under.”

Peter Schiff sees another 30% decline in housing

Housing's Big Picture Isn't Pretty:

The authors of the Case-Shiller index had assigned the index a value of 100.0 in January of 2000. This figure does not represent a dollar value for home prices but is simply a benchmarking tool. In December 2008, after a severe 28% decline from its June 2006 peak of 226.29, the Case-Shiller 10 City index stood at 162.1. However, if home prices had followed the 3.4% annual 100-year trend line from December 1997 (when the index was at 82.3), then the index would have arrived at only 118.92 in December 2008.

This would suggest that the index would need to decline an additional 27% to get back to the historical trend line. Extrapolating along the sunnier 50-year annual average increase would put the index at 132.2 by December 2008. This would still put the trend line 18.5% below current prices. A cursory look at the chart below should disabuse anyone of the notion that home prices have now hit bottom. Policymakers and economists should by no means rely upon projections that see home prices turning around in the near term.

However, the story by no means ends there. Given the current conditions in the real estate market, with bloated inventories, growing unemployment, nonexistent consumer credit and shattered illusions of real estate riches, it would be logical to assume that prices will fall below the trend line. How much is anybody's guess, but 10% would be conservative.

Given that we are entering uncharted territory with price declines much sharper than those seen in the Great Depression, I would argue that the 100-year price trend would be the better projection to use. In such a scenario, the index would bottom out at around 108 if a 10% overshoot on the downside is seen. That leaves another 34% decline in home prices on the table.

Schiff thinks the decline may take place nominally, as inflation outpaces home price growth. There are as of yet no signs of inflation, however.

The American consumer will be down for the count, by fire or ice.