wallstreetexaminer.com / by Jesse Felder via The Felder Report /
“We’ve never had a decline in house prices on a nationwide basis.” -Ben Bernanke, July 2005
Just because something has never happened in the past doesn’t mean it can’t happen in the future. Believing this to be true is just another form of recency bias or extrapolation which, as I have written, is the single greatest mistake investors make. Furthermore, the sort of confidence that underlies the willingness to use the word “never” can be a wonderful sentiment signal on its own.
“In the investment world when you hear ‘never,’ as in rates are ‘never’ going up, it’s probably about to happen.” –Jeff Gundlach
This certainly proved true after Ben Bernanke famously used the word back in the summer of 2005. Real estate prices were just beginning to embark on their very first year-over-year decline on a nationwide basis just as he was denying the very possibility. The fact that Dr. Bernanke was so comfortable extrapolating the historical record indefinitely into the future and to disregard all of the evidence of a bubble should in itself have served as a clear warning.
More recently we have seen this sort of confidence appear in the bond market. Over the summer I wrote a pair of posts tracking what I thought was an ongoing “blowoff” in bonds (here and here). Since then I’ve collected a number of headlines that reflect exactly the sort of confidence that inspires the word “never” (or, in some cases, “forever”).
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