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Investors Are Getting Overly Enthusiastic, Says Tilson

All this week Fast Money is speaking with the handful of investors who saw the Wall Street crisis coming.

Whitney Tilson, the founder of T2 Partners, is widely known for predicting the mortgage meltdown. What does he see down the road from here?

He’s still bearish, very bearish.

"I'm worried that investors are getting overly enthusiastic. They see a couple of month-to-month sequential home price increases, (and they get excited). We saw the exact same thing a year ago. Don't get faked out by the seasonality."

"We think home prices have another year to go before they bottom and that's going to impact any stock that has exposure to the housing sector."

His outlook comes in stark contrast to what we've been hearing from countless market mavens and even Fed Chief Ben Bernanke who all seem to agree the recession is over.

The Wild Card

Although it appears the economy is improving, unemployment is not and Tilson thinks jobs are the wildcard that could derail the whole kit and kiboodle.

When people lose their jobs they’re able to hang on for a while. They may not pay credit cards but try and keep up with the mortgage. But after a while it become impossible to pay the mortgage.

"What happens to underwater homeowners when they're underwater? Do they walk away from their homes if its economically rational to do so?"

Tilson is betting they do.

As a result Tilson predicts that mortgage defaults are about to skyrocket— the same with consumer loans. In fact, the damage Tilson forecasts is kind of scary.

“There are probably going to be $700 billion of losses in total over the next 8 years and we’ve only seen a few billion of it because those loans haven’t reset,” he tells the traders.

Also Tilson fully expects trouble in commercial real estate. In a past interview he told the desk that "the reason it hasn’t suffered badly so far is that they’re dealing with interest only loans with 5 and 10 year re-sets. Borrowers have been able to make interest payments. It’s upon re-set that they probably won’t be able to refinance."

What’s the trade?

I'd look at regional banks. 50% of their assets are in commercial real estate which is just starting to tip over. I'd short the weaker players such as Regions and Zions .

And in case you're wondering, Tilson's largest long position is Berkshire Hathaway .

What do you think? We want to know.


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Trader disclosure: On Sept. 16, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Seymour Owns (AA), (DRY), (BAC), (EEM), (FXI), (RIG), (SBUX); Seymour's Firm Owns (BUD); Najarian Owns (AAPL) & Short (AAPL) Calls; Najarian Owns (ACI) Call Spread; Najarian Owns (BAC) & Short (BAC) Calls; Najarian Owns (C) Calls; Najarian Owns (CUX); Najarian Owns (FCX), Owns (FCX) Put, Is Short (FCX) Calls; Najarian Owns (GE) Call; Najarian Owns (JPM) & Is Short (JPM) Calls; Najarian Owns (JOYG) & Short (JOYG) Calls; Najarian Owns (MS) And Is Short (MS) Call; Najarian Owns (MSFT) And Is Short (MSFT) Call; Najarian Owns (PALM) Calls; Najarian Owns (RIMM) Call Spread; Najarian Owns (TEVA); Najarian Owns (V) & Short (V) Calls; Najarian Owns (WFC) Put Spread; Najarian Owns (YHOO) Calls; Terranova Owns Gold Futures; Terranova Owns Oct, Nov, Dec Crude Contracts; Terranova Is Short Dec 2010, Dec 2012, Dec 2016 Crude Contracts

For Whitney Tilson
Tilson's Funds Were Short (PMI), (RDN), Bear Stearns, Lehman Brothers On 3/20/08
Funds Managed By Whitney Tilson Own (WFC)
Funds Managed By Whitney Tilson Own (AXP) And Are Short (COF)

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