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Who Predicted the Financial Crisis

Who Predicted the Financial Crisis

The Accuracy and Reliability of Med Jones' Predictions
Can they be relied on for investment decisions?

Med Jones Predictions

Med Jones Bio - Med Jones Predictions -  Wall Street Expert Who Predicted the Financial Crisis and Ensuing Economic Crisis - Who's Who of Wall Street

Med Jones is the president of International Institute of Management (IIM) – A US based research and education organization. Jones is recognized as one of the few experts who predicted the US financial crisis. In his seminal research paper, US Economic Risks and Strategies 2007-2017, he warned about the housing bubble, the subprime mortgages and the rising national debt. In Jan 2007 he challenged the US President’s State of the Union Address, the Federal Reserve Chairman and the popular opinion of mainstream economists. In a Reuters interview (March of 2007) he warned about the loss of confidence in the US economy as a result of financial market bankruptcies caused by subprime mortgages. In several other interviews, he warned about the US financial crisis of 2008 followed by global socioeconomic challenges driven by sovereign debt, inflation and currency crises. His statements and predictions are followed by investment advisors and researchers around the world. Jones provides strategy consulting and education to governments and the global Fortune 1000 companies.

Note: Med Jones is also known as Med Yones and Med Jonss

Source: medjones.com

Politics: Non-partisan

Note: If readers have comments or corrections, please email them to research {at} economicpredictions.org

Med Jones Bio - Med Jones Predictions -  Wall Street Expert Who Predicted the Financial Crisis and Ensuing Economic Crisis - Who's Who of Wall Street

Med Jones' Predictions
 

Wall Street / Economic Predictions

Source & Date

Accuracy

Comments

The (real) economic growth is much less than advertised. Since 2001, economic growth has been largely fueled by rapid increases in asset prices (housing bubble) and expanding consumer debt rather than development projects, which results in non-sustainable and unhealthy (debt-driven) growth...

Due to the housing bubble in recent years, U.S. home buyers took on more debt to buy overpriced homes, thus reducing share of disposable income. Many Americans refinanced their homes during the real-estate boom to pay for living expenses. With the expected housing bubble bust (declining housing values), Americans could lose a significant part of their savings.

June 2, 2006
US Economic Risks and Strategies 2007-2017
True Uncannily accurate

The housing bubble burst in 2007-2008. Many people lost their savings and the economy went into recession.

To his credit most economists and experts ignored the signs until the markets crashed in summer of 2008. The three exceptions are:

Dean Baker's warning July 21, 2005

Two experts warned about the crisis after Med Jones

Nouriel Roubini (September 7, 2006)

Peter Schiff's warning
December 16, 2006
 

When combining all the numbers from different national and international research agencies, we see a different picture than the one advertised, the country seems to be headed to a major crisis. February  5, 2007
Troubling US Economy Risks
True Economic crisis hit in 2008 driven by the housing bubble and excessive debt leverage
But how come the stock market is doing well? The short-term impact of the slowdown in real estate prices is to drive investors to move their money into the stock market for better returns. But as the dollar value drops and the interest rates increase, investors will move their money from stocks to bonds, gold or even to other international markets with competing currencies to avoid the depreciating dollar February 11, 2007
Scoop New Zealand
Partially True True:
Real estate prices slowed down in 2007.  Stock markets rose in 2007 right before their crash. Dollar value dropped in 2008. Investors fled to bonds and gold in 2009 and 2010

However - Interest rate dropped and did not increase
 

"The worst thing that could happen to any economy is the loss of confidence" - In reference to the subprime mortgages and bankruptcies and financial markets. March 11, 2007
Reuters
True Uncannily accurate

To his credit he did not only talk about the subprime, he linked it to the financial market and the loss of confidence in the economy. He published the only paper that gave account of all the risks and linked them to each other in a specific and clear way. Most other experts only warned about one risk in one sector. Only after the crisis started to unveil media analysts started to cover these issues.  The buzz by the news media, analysts, experts, policy makers, became about regaining confidence in the US economy

On January 22, 2009, few months after the collapse of Lehman Brothers, Treasury Secretary, Timothy Geithner said "We have experienced a great loss of faith in our economy" (America.Gov)

On March 2009 President Obama and top White House staffers urged Americans to remain confident about the economy and its ability to rebound. CBS News 2009 Obama Economic Confidence

The bursting of the real estate bubble and high consumer debt were a major worry and "if people started to think there may be a lot of bankruptcies (in the subprime lending market), then you're going to see the stock market sell off." March 11, 2007
Reuters
True Uncannily accurate

New York Times reported
Worst Single Day drop in two decades

Prices will deflate in general mainly for real estate, (US) national products and services. Imported material costs will rise. I'm less worried about the US currency in the short term, but more worried in mid to long term. There is a minor risk of inflation tied to wrong Fed policies. On the other hand, I see asset bubbles and inflation risks for emerging economies by the end of 2010 or early 2011. With global inflation risk on the rise, we could see more socioeconomic troubles and political unrest in economies with thin middle class. 2011-2012 will be challenging for many policy makers in US and the world October 9, 2008 CEO Q via  Wall Street Italia
(Italian and English)
True Uncannily accurate

Tunisia and Egypt unrest they started in Dec 2010. They both have thin middle class, this already started to spread into other countries too.

CNBC reported Middle East Unrest sparked by food inflation

South East Asia, India, Jordan
BBC, Reuters and The National.

The general economic decline cycle will bottom in 2009 and we could see stability sometime late 2009 or early 2010, then we will be back to modest recovery in late 2010 or early 2011. However, the real estate, construction and financial Industries will bottom in 2010; the recovery could start in 2011. Jan 14, 2009 Politicusa

Also on Bloomberg News, same date

 

True Uncannily accurate

When the many on Wall Street were talking about the great depression, doom and gloom scenarios after the collapse of Wall Street and massive layoffs, this analyst was the first to call the bottom in 2009 and predict a quicker recovery than most anticipated.

During the height of the crisis Newsweek reported only 2% of the people thought the market could turnaround.

CNN money Economic Bottom

He is not only right about the economy but also about the sectors

Housing bottom in 2010 (Yahoo Finance)

Financial sector bottom in 2010

Over the next 12 months, markets could experience sharp volatility swings. This is part of the economic cycle correction, speculative and short-term investing, and the global ripple effect,” he explains. “Most people tend to underestimate or overestimate the growth and decline cycles. Our analysis indicates that 2009 will have mixed results for different industries, and the hardest hits will be in the financial, real estate, auto, retail, construction, advertising, and disposable income industries –tourism, gaming, hospitality, and travel. The relatively unaffected or growth industries are the export industries, food, alternative energy, education, new technologies, and healthcare. Jan 14, 2009
Fleet Owner Magazine
True Seeking Alpha Volatility Rivals that of 1930

 

Food, alternative energy, education, new technologies, and healthcare sectors were least affected by the crisis

I predicted the U.S. would bottom down in 2009 followed by modest recovery in 2010. In the past few weeks, economists and the media have begun talking about "green shoots," basically positive signs that consumer confidence is improving a little bit. There's still decline, but it's a slowing decline, and it looks like we're crawling to the bottom. That will begin growing upward in 2010.

The bad news, unfortunately, is that we're not going to see hiring. The only way we're going to see hiring is for the real economy to pick up, and, right now, this growth is based on the bailouts and the stimulus package, so it's artificial.

On the market, we'll see improvement not in a straight line but in very sharp swings. I still don't recommend investing in the market yet. Commodities are great, including gold, and the best investment is in distressed assets.

July 1, 2009
Prague Post
True Uncannily Accurate

The bottom was in 2009

Financial markets improved but were very volatile in 2009 and 2010

Price of gold went up from about $900 in July 2009 to over $1400 in March 2011 Kitoc

World Bank commodity price indices went up from about 185 in August 2009 to 354 in Feb 2009 Source: Mongaby

In the short-term (1-2 years): The decline cycle will bottom in 2009 and we will see a modest recovery in 2010; however the recovery will not be permanent, neither will it happen in a straight-line for every quarter. In the medium term (2-3 years):  We will experience stop and go economic activities and stagflation of higher inflation and no real economic growth (growth will be driven by government debt-spending). In the longer term (3-5 years): We will experience another economic crisis that will affect the economies with high debt to GDP ratios such as USA, Italy and Japan. The exact timing, the depth, and the speed of the economic decline and recovery depend on government intervention policies, but there is not much more room remaining. The hole they dug themselves into is already deep. Global market forces are stronger than they think. At best they can delay the crisis but they have to pay an even higher price later. How will they pay it? This is subject to the politicians’ decision: Either sharp/quick decline and quick recovery; or soft/slow decline and slow recovery that could take decades. Someone has to pay for the debt, the Americans or the foreign investors or both June 21, 2009
PR Log
To be determined  
A modest US recovery of about 1% in 2010 June 23, 2009
Special Economic Report
False GDP growth for 2010 was reported at 2.4%

Med Jones says that government numbers maybe inflated. We disagree. We have to use the same frame of reference for all economists.

The reported unemployment rates could hit 10%. The real figures may reach double that rate. (counting those stopped seeking jobs or now have part-time jobs)

Credit cards and auto loan delinquencies (late and unpaid) could double

Federal income tax will be reduced by about 30-40%

Residential real estate prices will decline about 10% and bottom in 2010. Commercial real estate will bottom in 2011

The Federal Reserve will continue to print trillions of dollars out of thin air which will pressure the dollar to decline in value. We will see higher gold and oil prices.

June 23, 2009
Special Economic Report
True Uncannily accurate

In Nov 2009 HuffPost reported unemployment hit 10% for the first time since 1983

In Nov 2009 Experian reported Auto loans delinquencies doubled

During 2009, individual income taxes declined 20%, while corporate taxes declined 50%  Source: Wikipedia CBO data
If you average them they come to 35%

NABE reported that residential real estate prices hit bottom in 2010

In June 2010 MHC economist said Commercial real estate bottom in 2011

Barron reported that Fed printed more money

Guardian reported Fed announced another round of money printing

and Oil prices and gold continued to climb

Up until 2007 the government collected more taxes than it paid. It is estimated that Social Security funds will turn into negative cash flow by 2015 or even earlier. The rate of workers-to-beneficiary has gone down from about 17-1 to 3-1. People are living longer, birth rates are declining, and anti-immigration sentiments are increasing. These will lead to the reduction in social security or increasing of payroll taxes, reducing business profits and increasing inflation. The EU and Japan are facing even more troubles with their ageing demographics. June 23, 2009
US Economic Recovery
True CNN Fortune reported on Feb 2, 2010 - Next in line for Bail Out
The Coming Crisis of 2015

In the longer term (3-5 years): We will experience another economic crisis that will affect the economies with high debt to GDP ratios such as USA, Italy and Japan. The exact timing, the depth, and the speed of the economic decline and recovery depend on government intervention policies, but there is not much more room remaining. The hole they dug themselves into is already deep. Global market forces are stronger than they think. At best they can delay the crisis but they have to pay an even higher price later. How will they pay it? This is subject to the politicians’ decision: Either sharp/quick decline and quick recovery; or soft/slow decline and slow recovery that could take decades. Someone has to pay for the debt, the Americans or the foreign investors or both

June 23, 2009
US Economic Recovery

 

To be determined Following his warning in 2006 about the Debt and Currency Crises. In a keynote speech to conference for some of the  wealthiest families and their bankers he gave that warning and published  an interview to CEO Quarterly Magazine and a press release. He was the first to give a specific warning date of 2015. His warning is picking up steam, other economists and analysts are warning about the same  or related crisis around the same date (Coincident?)

2011 - Barrie Wilkinson  Oliverwyman warning of Banking crisis 2015

Collen Roche - Business Insider warning of 2015

Shildon Filger 2010-2015 Warning of Depression

September 2010 - Roubini warning of 2015

After the initial deflation due to high unemployment, the reduction in demand, and the continued depression of the real estate prices, we will more likely experience stagflation or higher inflation with no real economic growth due to lower dollar exchange rate causing higher prices of imported raw materials and foreign products. Most growth numbers will be driven by government debt-spending and inflation. The US economy will most likely suffer like the Japanese economy after their financial crisis. June 23, 2009
US Economic Recovery
Partially True Deflation was accurate prediction

US will suffer like the Japanese economy was Inaccurate prediction.

Currently each of Asia and the US have a share of the world’s economy estimated at 28%. My prediction is that in 10 years, the US’ share will be reduced to as low as 20% while Asia will increase its share to as high as 40%. June 23, 2009
New World Order
To be determined  
The the economy will recover despite
government policies. Unfortunately, the U.S. government's policy to bailout the financial institutions by printing money, will increase the pressure to raise the taxes, and or drive inflation higher. This does not solve, but merely delays the correction and the recovery.
July 20, 2009
Daily Business Latvia
True Interview in Latvian (translation)
The financial rescue plan or the economic stimulus package in its current version will cost taxpayers more than a trillion dollar over the next 2 years, and there is no guarantee that it will achieve its stated goals. The plan will more likely soften the fall but it will not correct the economy, it will only delay the correction, and therefore, the recovery too. The most cost effective and quickest method to stimulate the U.S. economy is to support job creation through investing in the creation of U.S. small businesses and innovation development. U.S. Census Bureau statistics show that 98 percent of all U.S. firms have less than 100 employees. These 27 million small businesses create over 85 percent of all new jobs and employ over 56 percent of all private sector workers October 9, 2008
CEO Q Financial Crisis Interview
Undetermined To his credit, it is worth noting that in in Feb 2,  2010 Reuters reported that  Obama proposes TARP for small business

The economy recovered in 2010 and added jobs  in 2011 but we cannot determine if this is due to Obama's policies of bailing out the banks,  small business TARP or other factors. Also it is early to determine if this is a  correction or delay in the correction.

The world is in front of the next crisis, and its causes are accumulated debt, social security deficit and an aging population. Most vulnerable are countries with high external debt to gross domestic product, such as Latvia.

U.S. and European population aging and social security constitutes a enormous pressure on the government budget.  Many countries have accumulated large debts, saving banks and corporations out of bankruptcy. Government expenditure in most countries is 20-40% of GDP. Comes a time when governments have to balance the budget and they would be forced to cut spending or raise taxes or print more money which will lead to devaluation and inflation.

Dec 27, 2009
Daily Business Latvia

(translated content)

Partially True Euro Zone Debt Crisis and tax hikes 2010

News reports Greece Debt Crisis 2010

Senior Tax Official Quits on Tax shortfalls 2011

Greece Wont Pay

Ireland Debt Crisis
 

UK Debt Crisis

UK Austerity Measures

Although, the stock market will rally and the credit will start flowing again, we have to be aware that it is only a psychological trick. It is like making the rabbit disappear with a magic trick (but it is only hidden out of sight). The saying you could fool most of the people for some of the time is true here. This is not a real solution to the crisis; it is only a transfer of the bad assets from the banks to the government and the tax payers. We all have to pay the price later. Obama's Administration or the next Administration will have to pay the price for the worthless Bad Bank assets, out of control budget deficits, bad dollar value, and even a worse economy March 25, 2009
RedOrbit
To be determined  
I believe the deleveraging process of the banks is still not completed. Unfortunately, more banks could fail. Jan 3 2011
US Economic Outlook
True FDIC Report March 2011 tens of banks closing in the first quarter
Source FDIC
As for oil, I would not be surprised if the price of oil crosses the $100 mark in the short term. In the mid term to long term, I would not be surprised if it increases by more than 50%. Jan 3, 2011
Global Investment Outlook 2011
Partially True On February, 11 2011 CNN Money reported Oil tops $100.

However the increase was caused by the Libyan Crisis. Med Jones did not specify the cause. So it appears that it was more of a lucky guess.

The jury is out on the mid and long term

In my opinion, there is still room for growth in Gold prices in 2011 Jan 3, 2011
Global Investment Outlook 2011
To be determined  
New World Order - US and the West will Decline, China and Asia will rise. However US will not turn into a third world or a poor country Jan 26, 2011
Daily Tribune
To be determined  
There is a real risk that by the time the US economy recovers from this financial crisis, they will enter another crisis driven by the much less publicised social security, medicaid and medicare debt and the burden of ageing baby boomers along with unmanageable national debt, large consumer debt and a real risk for a currency crisis. Jan 25, 2011
Daily Tribune
To be determined  
Economies that have high Debt-to-GDP ratio with high budget, trade and investment deficits will continue to struggle and will suffer even more if they do not reform soon. The list of economies includes the US, UK, Spain, Italy, Portugal, Ireland, Greece, Iceland, Latvia and others. On the other hand, China, India, Australia, Brazil, and the GCC weathered the storm much better than the US and Europe. Jan 3, 2011
Global Investment Outlook
To be determined  
I see the world economy growing 1 to 2 % from about USD 62 Trillion in 2010 to USD 64 Trillion in 2011. However, the distribution of that growth will be uneven; the emerging economies, which represent about 30% of the global GDP, will contribute about 70% of that growth. Jan 3, 2011
Global Investment Outlook 2011
To be determined  
While in the short term the US will continue to recover, I'm not fully optimistic about the mid and long-terms yet. A change in my outlook depends on the US government policies, global competition and private sector variables. Jan 3, 2011
US Economic Outlook 2011
To be determined  
I'm not worried about the oil prices at this time, but if the hot summer flare between Israel and Iran or if the US war lobby wins next year, the risk to the global economy is very high. The whole world will suffer not only US. The oil prices could easily rise 50% to $150 or even more depending how bad and how long is the conflict will take. I have no doubt that the US and the EU will enter another recession and my worst fears, the a sharp rise in oil prices could spark hyperinflation and send us into depression and possible currency collapse. March 9, 2011
Wall Street Italia
To be determined  
From a long term point of view, in addition to the BRICs, in Asia, I'm optimistic about South Korea, Indonesia, Vietnam Philippines, Bangladesh, and Pakistan. In the Middle East, Egypt, Iran, and Turkey. In Latin America, I like Mexico and Argentina. In Africa, I like Nigeria, Ghana and South Africa

The only caution I have is that on the path of growth, there will be bubbles and investors have to be careful of them. Some will bet on their failure as the bubbles bursts, but they will eventually recover.

These countries (include BRICs) are part of the emerging New World Order. I would not be surprised if we count some of them among the leading economic powers in the next two decade.

Jan 3, 2011
Global Investment Outlook
To be determined  

In about two decades China could take over the US as the world leading economy and India could be ranked third or fourth. That is assuming that they do not suffer from slowing economic events such as war with Pakistan or internal instability with China or other major natural disasters.

Jan 3, 2011
Global Investment Outlook
To be determined  

Med Jones Bio - Med Jones Predictions -  Wall Street Expert Who Predicted the Financial Crisis and Ensuing Economic Crisis - Who's Who of Wall Street

How accurate are Med Jones' economic predictions? Can they be relied on for investing?

The most accurate predictions from all the economists who warned about the crisis belong to this economist.

Can his predictions be relied on for investment purposes?

The best answer comes from Med Jones himself in a response to our email:

I'm not an economist and I do not advise anyone to invest based on my outlook of the economy without conducting their own due diligence. At IIM, we do not sell investments, we offer education to help our clients make better investment decisions. If my research findings help you, then good for you. The truth is that when people invest on Wall Street they are essentially making bets and guesstimates about the future.  Analysts and investors study target market events and analyze their complex relationships and behavioral patterns to determine emerging trends and make their bets. There are two problems facing investors and economists when they try to predict markets and future investment performance.

The first problem is any prediction formula that is valid for one context is not necessarily valid for another. Formulas must be updated with changing environments. 

The second problem with prediction is that even if you get the formula right, your prediction results are dependent on so many uncontrollable variables such as mother nature, geopolitical events, new regulations, and changing relationships that affect the prices of the assets in question.

Luckily, to be a successful investor you do not need to be right all the time, you just have to be more right than wrong. That is how Vegas Casinos make so much money and even the best gamblers lose, they only play games that have the odds in their favor, they play in more controlled contexts. Playing the stock market is not much different. Successful investing is as much about risk management as it is about forecasting.

Just remember no one has a crystal ball, and even if I was right before, there is no guarantee that I will be right when regulations and markets change. If you want to be a better economist or investor, be a better student of the markets and the companies that you invest in. This is the most I can give you at this time, I'm busy and I cannot help with your school project. You can find useful resources and interviews in my media link at my website medjones.com 

I ask you to correct my name to Med Jones. Although I'm also known by Med Yones and Med Jonss, please use Med Jones instead. Best Regards, Med Jones

BTW: It is disappointing to see how many economists and commentators use several of my statements without citing my work. In June 2006, I published a paper on US Economic Risks, which was viewed more than a million times between 2007 & 2008. In that paper, I warned about loss of confidence in the US economy and later in March 2007 in an interview with Reuters, I gave the same warning about the financial markets, I was not talking about the traditional consumer confidence. I was talking about the financial markets, global investors and lenders. If you research the media, you will find the mantra (after the crisis hit) by every economist and policy maker was about the need to protect or regain the confidence in the US economy.

In the same paper, I also wrote about virtuous and vicious economic cycles describing how government policies can impact the US economic health through debt spending and taxes. Later, I found several economists and media articles that used the exact same phrases or adapted the word cycle to "circle" to describe the recession and recovery. While the concept of virtuous and vicious cycles was used before in other contexts such as biology and sociology (poverty), when it comes to "virtuous economic cycle" and "vicious economic cycle" theory describing the economic growth and decline and the economic crisis of 2008, to my knowledge, the International Institute of Management was the first to develop that theory. It is surprising to see how many other economists and commentators used that theory without citing the paper. The paper is is ranked on Google in the top three results since 2006 from about 20 million competing pages. Who do you think would search for the phrase: US Economic Risks ? In my opinion, economists, investors, journalists and researchers. Can professional analysts forecast the economy or advise their investors without researching the US economic risks? If you conduct a research on this topic you will find that all their statements and work were published after the date of our paper.

Research Comment

If you were to follow this expert advise, then you would probably drop most of the stocks in your investment portfolio and invest only in what you know well or in companies that you know more than others.

Med Jones Bio - Med Jones Predictions -  Wall Street Expert Who Predicted the Financial Crisis and Ensuing Economic Crisis - Who's Who of Wall Street

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