Uh oh - "Fundamentals are sound" alert!

The National Association of Realtors calls silly people like me who blog about economic and housing bubbles Chicken Littles. In the January 2006 Insights article by Kevin Thorpe and Wannasiri Chompoopet called Taking Inventory, the same reasoning errors are made that are made by virtually all economists and forecasters - they extrapolate the past trend, which nationally has been fine, up to now and say the future will be the same - maybe a little more moderate, perhaps, but fine. And in listing reasons why housing prices won't crash,

One of them is demand. Demand for homes is double what it was in 1986. Another reason: fundamentals. The U.S. economy is fundamentally sound – jobs are being created, interest rates are still low (and will remain under 7 percent, mortgage credit is readily available, and homeownership has proven itself as a viable investment alternative to stocks and bonds.

Like just about every other economist, the authors have not shown they have any tools at hand for anticipating trend changes. Soon-to-be retired Fed Chairman Alan Greenspan is on the record as saying that is impossible to know an asset price bubble has developed until it has burst. According to an April 2005 commentary by John M. Berry at Bloomberg.com, Burton G. Malkiel has said, "My very strong view is that one cannot identify a bubble or its size until after it has burst."

These guys don't ring bells at the top and alert you to changes. It's up to you to protect yourselves. We had lots of "fundamentals are sound"-bites back in 1999 and 2000, right through the Nasdaq crash, which didn't prevent massive losses.