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"Best Shape Since '97" - Guru Who Called Housing Crash Is Bullish On US Economy

Article illustrative image Partner logo Bullish

NEW YORK - The economics blogosphere was invented in early 2005 by a retired technology executive in Southern California named Bill McBride.

Thank God for that, because his blog Calculated Risk, has been an invaluable and influential read for numerous reasons.

For one thing, it's always been right. In its early days, when we all started reading it, it was way ahead of the curve in terms of warning about the housing bubble, horrible bank lending practices, and generally the economic collapse. From his perch in Newport Beach, California, he could see first hand the people taking out loans worth 10 times their income, filling their Inland Empire garages with Harleys and Boats that they obviously couldn't afford.

But unlike many other bloggers who made a name during the crisis, he didn't stick with the doom and gloom message. He started making arguments for a GDP rebound in 2009.

Then in February of this year, he made his most important call: He announced: The Housing Bottom Is Here. McBride had officially come full circle from his days warning of housing collapse. Today, eight months later, the housing bottom is becoming general consensus.

In addition to being correct on the economy, Calculated Risk has imparted the internet with other good practices, such as dutifully charting out the data, and examining data in an impartial, apolitical, non-hysterical manner.

In a 30-minute conversation with Business Insider, he explained how dutifully charting numbers every single month for nearly 8 years has allowed him to "let (the data) tell you a story," and accurately track each twist and turn we've seen during this historic period for the US economy.

Because he's been so uncannily good at assessing the state of the economy, we had to get his take on what's coming next. Despite some concerns about the Fiscal Cliff, and the omni-present threat of a Europe blowup he says "I’m not a roaring bull, but looking forward, this is the best shape we’ve been in since ’97."

His general outlook is also quite optimistic, and he explained why he doesn't get seduced by the gloom mentality:

"You’ve been around long enough to know that there’s a whole industry of gloom and doom, that the ZeroHedge mentality kind of guys. I’m almost 50 years old. All my life there’s been people telling me that the world’s gonna end for this and that reason in the next few years.... I don’t think so, I think things are getting better in general. And there’s reasons for that. There’s good technology, I’m talking to you on a cellphone today that I couldn’t even imagine when the first cell phone came out. I tend to be positive about the future. I was telling people, when I started my blog in January 2005 that I wasn’t a doomer."

Among other things we talked about: Why the Wall Street Journal is always worrying about soaring interest rates, how much time per day he spends on his blog, and why he's not too worried about the fiscal cliff.


JW: How would you describe the economy right now and how do you see things going into 2013?

BM: The economy, I think right now, is still sluggish. Growth – of course, you read a lot of the internet stuff, half the guys on the internet think it’s in recession. But I think we’re going to see a pick-up next year. I think things will – there’s a couple things that are really positive – obviously, there’s the negatives, your fiscal cliff, all that stuff.

But the state and local gov’t drag is pretty much over, and getting rid of that is really going to help and then of course, housing is a big plus.

JW: One of the things I really like about your approach is that whether it’s auto sales, housing, there's a very straightforward, simple approach to it. I don’t hear anything fancy or theoretical, just basic facts about population, the need to establish new households, replace cars, the inevitable advance of technology. Thinking about it that way seems to have served you well.

BM: A lot of it is simple. I read a lot of different economists to try to understand theory, because I’m not an economist – I have an MBA – I kind of understand business, I’ve always been good with numbers, but I read economic theory and I’m glad to read…when we were going into this crisis, I was reading (Paul) Krugman all the time because it was clear to me that he had a handle on what was going on, from what was going to happen to interest rates….I’d read what he would write and read what other people would write and go, this makes a lot more sense to me. And all that has worked out.

JW: I’ve noticed you’ve been fairly sanguine about the fiscal cliff. Could you frame your thinking around that and why you’re not too worried if we go into January and taxes jump and spending goes down?

BM: Well, I think the hardest thing to do is predict what politicians are going to do. It’s hard to imagine, but of course we saw the debt ceiling debate a year ago, that people are really that crazy. Obviously, tax rates are going to go up in some way on the high income earners, that’s why I originally thought they’d let it slide past January and then vote, so that Republicans could say “Oh we’re just cutting taxes we’re not raising any”. They could do that now and say they’re going to expire and there’s nothing you can do about it. You can’t predict, really. You kind of have to say, “well are they going to do something dumb or are they going to come to some sort of compromise?” I think they’ll come to some sort of compromise that seems like the most logical thing to me. I could be wrong about that.

Besides the cliff, What warning signs would make you worried about a recession possibly coming?

BM: Clearly, the one thing that’s always hanging over our heads is some kind of implosion in Europe. You’re talking about guessing what politicians are going to do – I don’t know – I do know that you can’t keep everybody in a recession forever and expect to have the same policymakers because those are democracies. Those people will eventually be gone. The clock’s ticking on Europe, I just don’t know how they get from here to there. Other than that, I spoke at a housing forum up in San Francisco a few weeks ago, and one of the things I’ve said is I hate to say it, but this is the most optimistic I’ve been since the 90s. I’m not a roaring bull, but looking forward, this is the best shape we’ve been in since ’97. Looking forward, this is the best we’ve been since then. We have plenty of problems to work through, but gosh, housing is going to be a tailwind for some time.

JW: Finally, if you were stranded on a deserted island and could only track 3 or 4 economic indicators, or if someone was asking for the best indicators to follow, which would you recommend?

BM: I think two most important are GDP and employment reports, and after that, anything housing. Residential investment and housing starts would be ¾, tied. Usually those move somewhat together – to me, those are the forward looking indicators. GDP and employment tell you where you’ve been, and housing tells you where you’re going.

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