Marc Faber, Bill Gross and Stephen Roach are household names in the world of investment, but little known to the general public. And all three predicted some years ago that we would end up where we are today.
Of course, we gave Faber, Gross and Roach air time, and their small band of followers are no doubt sitting pretty and ready to ride out these wild economic times, but the rest of us did what human beings always do when the sun is shining and we are relaxing. We refused, because we could not see it on the horizon, to believe that the storm clouds were gathering.
Bill Gross is a highly successful bond strategist at the California-based Pacific Investment Management Company. He (and this is probably because he works in a cool beachside neighbourhood) is fond of quoting '60s pop songs in his entertaining writings. But don't let that deceive you Gross is razor sharp, as his prognostications as far back as 2004 show.
Back in August of that year, Gross penned his monthly Investment Outlook for clients. He did not mince words. Hedge funds would lead us down a rocky path and into an abyss, warned Gross.
''On a broader perspective, the growing fascination with hedge funds and indeed the ability to lever almost any asset at minimal borrowing costs which was the heretofore province of strongly regulated banks, promises excessive speculation that inevitably will follow the financial metronomes pendulum towards greed then back to fear, producing a number of near certain bubble poppings in the process,'' Gross wrote. ''America's and, therefore increasingly, the world's economy is unstably founded on a base of cheap money used as leverage to support certain asset prices of dubious value. If and when the cost of those funds moves sharply higher for any reason a dollar crisis, inflation, foreign central bank sales of treasuries, increasing budget deficits, to name a few then the flaws of a levered economy will be quickly exposed.''
How right events are proving him to be, with the hedge fund world shrinking before our eyes, courtesy of market regulators taking a harder line of trading methods and funds liquidating themselves.
Marc Faber, known as ''Dr Doom'' to many, is another to whom we should have listened with both ears fully extended. His website, gloomboomdoom.com, published from his home town of Hong Kong, has been littered with forecasts over the past few years about the inevitability of a United States economic meltdown of sizeable proportions.
Here's Faber in October 2005. ''[W]hat really baffles me is how the world, and also Mr Greenspan still believe that the US economic expansion is 'sound'. Consider the following: Your household spends all or even more than you earn every month while your next-door-neighbour puts aside 20 per cent of his income and invests his savings into the shares of a company whose business prospects are favourable or into property investments or bonds. After 10 years, which family will be richer the one that spends all its income and even borrows money to maintain its standard of living or the family that puts aside month by month money for the purpose of savings and investments?'', Faber wrote in his Monthly Market Commentary.
Perhaps most prescient of all is Stephen Roach, formerly the chief economist for Morgan Stanley. Long known for his bearish or pessimistic views, Roach attracted media attention in November 2004 when he told a supposedly off-the-record, no-media-allowed briefing of fund managers in Boston that the US had only a one in 10 chance of getting through the next decade without a financial meltdown happening.
The Boston Herald obtained a copy of Roach's presentation and on November 23, reported that Roach told his audience, which was apparently stunned by his pessimism, that there was a 30 per cent chance of a slump soon and a 60 per cent chance that ''we'll muddle through for a while and delay the eventual Armageddon''.
The forecasts by this trio of contrarians were not isolated. They continued to hammer the same theme over and over. But their voices were drowned out and their message was not what we wanted to hear. They were useful to the media as counterpoint voices swimmers against the prevailing tide and therefore good copy. But of necessity they were viewed as loners, or iconoclasts.
But now, with the cycle fully turned, their views have become orthodox. We are now realising that all along the crash was inevitable.
Greg Barns is a Hobart writer.