Paulson’s Most Bearish Speech Ever

This is I think one of the most bearish speeches by a sitting finance minister I have ever read; I certainly can’t recall anything like it from any US Treasury Secretary.

In it, Hank Paulson seems to be channelling Nouriel Roubini. He covers all the points: "unsustainable price appreciation," an "inevitable" housing correction, an "unprecedented wave" of mortgage resets, "market failure"… and all that’s just in two consecutive sentences!

And the speech barely lightens up from there. Paulson talks of "excesses" and "turmoil" and "major challenges"; he says that "the price adjustment is not yet complete" in the housing market, and then returns to his theme of "stress and volatility" in the capital markets more broadly, along with the associated "inevitable challenges".

Only at the very end does Paulson attempt a weak stab at bullishness, saying that although "we will likely have further indications of slower growth in the weeks and months ahead," he expects the US economy "to continue to grow".

If I were to take my trading tips from Paulson’s speeches, however, this would be a clear indication to me to start going short, just about everything. On the strength of this speech, I reckon that Paulson has now joined Summers in expecting a recession in 2008.

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