Lessons From 18 Years Apply Today........

I remember 1991. I remember reading and hearing worse and worse stories about commercial real estate. The stories were horrendous. Each month was more negative than the previous ones. What started in Texas spread to New York and then California. It was a wildfire. Panic everywhere. Headline after headline of the coming storm. Real estate tsunami ahead.

Then, one day, WFC said the problems were winding down. The worst was behind us.

Many just assumed they were lying; talking their book. They had to be trying to stay afloat. They obviously didn't even read the papers.

And it turned out they were right. We were wrong to question the credibility. The coming storm gathering? The storm had already happened. The worst was over.

JPM's call this morning may turn out to be a similar event. TV and the web are aflame with stories about the big coming spike in foreclosures, how things are getting worse and worse, that there is no end in sight.

And JPM says the worst is behind us for a whole host of loans and charge-offs for individuals, including residential real estate. It definitely is not getting worse. Given that JPM owns Washington Mutual, obviously the worst major residential lender on earth, even worse than the Golden West portion (pick or don't pay) loans of Wachovia, we have to listen to them. We have to.

No one seems to be listening. No, they are just repeating what happened in 1991. I just don't think it's a good idea to assume the worst is still ahead. Reminds me too much of 1991; I am siding with JPM today, not with those who are singing the jeremiads about foreclosures, especially because Southern California, the epicenter of foreclosures, is seeing transactions up huge and rising prices. How can we have rising prices if foreclosures are flooding the market? The answer is that in the area that led us down, we are about to go back up.

It is so compelling to stay short and negative. And, as Jamie Dimon said, regional banks are going to get hurt as commercial real estate is going to get worse and worse and worse. Will the net interest margin bail out the regionals that have bad commercial real estate? I don't know. In 1991 some regional banks stayed in trouble and failed. But that's always going to happen.

Seems to me like JPM today is like WFC of 1991.