The U.S. subprime mortgage crisis is more than 80% over in the view of Dennis Gartman, editor and publisher of the Gartman Letter.

In baseball terms, Gartman told Morningstar Canada’s annual conference that “we’re through seven and a half innings in a nine-inning game,” which I calculate is 83% done.

“We know what’s out there, we have a pretty good idea. We’ll work through it.” This is not the first credit crisis Gartman has experienced, he said, citing 1973-1974 and the crash of 1987. “We’ve gone through most resets on mortgages.” The reset numbers are “coming off a cliff and almost done.” Homeowners are rolling their mortgages over into variable rates and “getting it done.”

That doesn’t mean there won’t still be ominous media reports of people losing their homes. “There will be 12 of them, not hundreds or thousands. We’ll work through these things. “

More bank bankruptcies ahead

Investors should expect plenty more scary headlines before things stabilize. "Before it’s done there will be hundreds of banks going bankrupt," Gartman told the audience -- most of them Canadian financial advisors. In 2001, 800 banks went bankrupt in the United States but “we’ve had two thus far” in 2007-2008, he said, “There will be a hue and cry and CNN will be rending their clothing and Lou Dobbs will be talking about the end of the world like he always does but we will get through it.”

However, noted gold enthusiast John Embry – chief investment strategist with Sprott Inc. – said he “totally disagrees” with Gartman’s assessment of the crisis being near over. “To say we’re in the seventh-and-a-half inning is pathetic,” Embry said, “We don’t know.” Anyone who buys U.S. bank stocks in this environment is “throwing good money after bad. They look god-awful. I wouldn’t buy any of them.”

To this, Gartman again insisted, “The worst is behind us.” Embry parried with “My only warning is don’t be too confident. We’ve not necessarily seen the worst. The U.S. economy is in dreadful condition.”

Patricia Mohr, vice president of economics with Scotiabank Group, agreed the U.S. housing situation is “very sad," especially for industries in Canada that sell to home builders in the U.S. "This downturn in U.S. housing which started as a normal cyclical downturn turned into quite a rout. Foreclosures are double what they are in a real recession in the U.S. … The U.S. economy will remain very soft for some time. Housing will be very slow to recover.”

Looking back at how the crisis developed, Gartman said “we did some of the dumbest things imaginable. Every Tom, Dick and Harry gay waiter making $15,000 a year bought four houses in the countryside. What we did was absurd.” Some executives in the housing/homebuilding market were selling their own stock as fast as they could in 2006, even as they talked them up on TV. But “the smart guys who were selling in 2006 are now buyers. Look at what they do with their own money, not what they say on TV.”

Panelists bullish on Canadian banks.

Eric Bushell, chief investment officer of C.I. Investments Signature Advisors said Canadian banks were well capitalized going into the crisis, are more profitable than American banks and are “ in a position to pick over the carcasses.” Canadian banks will end up by becoming bigger, more global players, he added.

Gartman agreed, predicting “Canadian banks will be in the driver’s seat the next decade and will buy everything in the U.S. and they should.” He said he lives in Raleigh, where they play ball at the RBC Center. “That won’t be the last thing RBC will buy.”

…. but consumer spending, inflation a problem

Embry said the U.S. consumer has hung on a long time but is “in a state of denial.” As energy and food prices soar, they’re “hitting the wall and consumer spending is a major issue. It’s going to have a serious impact on the U.S. economy.” We haven’t yet seen the impact of a falling economy on the banks, he said, and dismissed the idea of a shallow recession and quick recovery.

Bushell said it will take time for inflation to work through the system. “Home heating this winter will be brutal … hydro prices in Canada will be up more than 100% over the next five years.”

In reply to a question from the audience about PIMCO’s Bill Gross saying the U.S. consumer price index is understated by 3%, Gartner agreed Washington is understating inflation. “I don’t doubt we count it way too low. I’m not sure about the implications. I hope we don’t change it again so we have to ramp up the Cost of Living Allowance on pension funds.”

Bushell said the biggest question mark is to what extent the labor mark will be able to extract wage gains to keep up with rising prices.

Oil $140 or $85?

Mohr said oil prices could stay at the US$140 per barrel level for the rest of the decade, as demand continues from emerging markets and production falls from Russia, Mexico and other important exporters. But Gartman disagreed, predicting oil will be trading between $85 and $90 by next year. "The market tends to return to the mean. In all probability the idiocy of commodity purchases for a new asset class will have run its course."

Embry said he "defers to Eric Sprott, who believes in peak oil. I share his point of view."

Gold will punch through $1,000 and stay there

Embry, ever bullish on gold, predicted that the next time the price of gold punches through $1,000, “it will never ever again trade below US$1,000 ... I expect a much higher price, certainly by fall." Asked if $1,000 has proved to be a psychological barrier, Embry conceded that it was "partly" but said the fundamentals on the demand side will power the next move up. "Investment demand is exploding while supply is falling." The important factor is not jewellry demand but investment demand for gold, he added.

Gartman bullish again on loonie

Gartman said he is "getting bullish again on the Canadian dollar." He said people laughed at him seven year ago when he predicted the loonie would at least reach parity with the U.S. dollar. He likes the fact Canada has "moved from being marxists to only quasi socialists." The country has "all the stuff the world needs" but Canadians themselves found it hard to believe the world would beat a path to its door. He said he likes [Prime Minister Stephen] Harper, although "he's a bit far left wing for me," a quip that drew laughter from the crowd.

Embry said Gartman had contradicted himself since "if oil gets crushed, the Canadian dollar goes with it."

Cut your losses, be cautious

Asked by Morningstar Canada president Scott Mackenzie the one piece of advice the panel could give to the financial advisors in the crowd, Gartman said “try and cut your losses,” a phrase he repeated three times.

Embry said “be careful here. This will lead to excessive money creation to keep the debt bubble afloat.” Investors should favor hard assets over paper ones like bonds or financial stocks, he said.

Bushell agreed that in the long run investors need to protect purchasing power. Historically, homes have been “an awfully good inflation hedge” and equities in the long term will have a similar role.

Mohr agreed that in the medium term, equity investments will likely do best, especially if there is inflation risk.