Mirror, Mirror on the Wall… Who is the Most Bearish of Them All?

With the market up nearly 1% today, there’s not a whole lot of Bearish noise to be found. So as a bit of counter-programming (via Roubini Global Economics) comes this comparo of Bearish sentiment.

Yes, I am one of the  guilty.

From any of the following, you can find economic, technical, cyclical, commodity, and historical reasons for slowdown in the future.

The US and Global “Stagflation-Lite” Shock
Roubini Global Economics, Nouriel Roubini, Jun 29, 2006

Reassessing Hard Landing Risks
Analysis: Merrill Lynch, David A. Rosenberg, Feb 23, 2006 

Global: The Pitfalls of Ceteris Paribus
Analysis: Morgan Stanley Global Economic Forum, Stephen S. Roach, Jul 28, 2006

Oil and the Global Economy
Research: CEFIR, Harvard University, Kenneth Rogoff, May 2006

Cult of the Bear
Analysis: The Street.com, Barry Ritholtz, Jul 28, 2006

Recession very likely, prominent economist says – Interview with A. Gary Shilling
Analysis: ITNEWS, John Roberts, Jul 25, 2006

Risky Business
Opinions: American Enterprise Institute, Desmond Lachman, Jul 28, 2006

Hundred Dollar Oil, Five Percent Inflation, and the Coming Recession
Analysis: The International Economy, Philip K. Verleger Jr., Winter 2006

The Yield Curve and Predicting Recessions
Research: Federal Reserve, Jonathan H. Wright, March 2006

Pretty decent company, too.

I think of lists like this whenever someone claims the market is perfectly efficient. The lag between identifying threats that (potentially) raise risks, and the time it takes for investors to act on that can be huge.

In other words, there is lots of good info available, yet much of it is widely ignored by many investors.

There is a definite difference between "Information" and "Knowledge," and a further still distance between "Knowledge" and "Wisdom."

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What's been said:

Discussions found on the web:
  1. Sherman McCoy commented on Aug 14

    A thought on your Information / Knowledge / Wisdom comment: The market might be (almost) perfectly efficient with PERCEPTIONS of realty as input. This does not mean that it has the same degree of efficiency regarding ACTUAL reality (such a market is hypothetical anyway).

  2. Anoynmous commented on Aug 14

    Markets can stay irrational far longer than you can stay solvent. – John Maynard Keynes.

  3. Chief Tomahawk commented on Aug 14

    How about a little talk on the falling dollar? Down 25% plus in 5 years… In 2001 dollars, the Dow is now trading at (11,200 * .25 = 2,800) 8,400 (11,200 – 2,800). Or, to still have the same value as 2001, the Dow would presently need to be at (11,200 * 1.25) 14,000, yet we’re not anywhere close to that. No one seems to be figuring this into their stock talk. To not do so seems pretty inaccurate…

  4. ss commented on Aug 14

    Gosh Barry…you left out Fleck, Prudent Bear, Arch Crawford, Maudlin, et al…all in the CONCENSUS of negativity.

  5. Gunther commented on Aug 14

    Does someone remmber the market valuation of pets.com at the top of the bubble? Today we have the rational valuaon of this idea: zero.
    Rational markets are a myth, not a fact.

  6. M.Z. Forrest commented on Aug 14

    And I thought I was bearish. I called 8900 at the beginning of the year and was termed “Mr. Gloom and Doom” at the office. My office mates had picked: 10,350; 11,000; 11,250; 11,400; and 11,700. Maybe if we made our predictions in Gold, our predictions would be more accurate. Given the money production, I’m not sure how much of the downside will be visible.

  7. tjofpa commented on Aug 14

    Good pt Chief. During the last period of stagflation;
    Dow 1965 – 1000
    Dow 1982 – 800
    Inflation adjusted loss of 75%! 17 years later.

  8. Craig H commented on Aug 14

    I’m thinking Dow 9,500, maybe even 9,000 could be hit this year, but Barry is at 7,000? I think that makes me a bull. ;-)

    And Barry, did you notice that you and Garz are at opposite ends of the extremes? Must be the hair!

  9. brion commented on Aug 14

    “…Inflation adjusted loss of 75%! 17 years later.”

    inflation adjusted loss, or, to play “SS’s advocate”
    inflation adjusted upside….hmmm.;)

  10. ss commented on Aug 14

    Anybody check the prices of Sept Guns and Butter futures?

  11. Chief Tomahawk commented on Aug 14

    Thanks, tjofpa. But I think it’s a point more folks should be talking about. As stands, what’s holding up the market is a lot of 401k money sleepwalking into mutual funds and some folks playing the technicals/sectors. It’s also why I believe so many financial experts are touting overseas investing and some even are endorsing commodities/precious metals, which are a competing asset class to stocks…

    I valued the market in 2001 dollars versus now. What’s even more of a tell is how much gold has risen from 2001. Take that percentage increase and value the Dow in that! The current value would be a fraction of what it was in 2001…

  12. tjofpa commented on Aug 14

    Most average “Folks” could do well at investing simply by following the Dow/Gold ratio and divining which direction its headed. (Its currently going down.)

    1929 – 18
    1965 – 28
    2000 – 44

    Rather “Elegant Universe” no? 35 years between peaks and an acceleration ratio of 1.55.

    2035 – 68

  13. Blissex commented on Aug 14

    «From any of the following, you can find economic, technical, cyclical, commodity, and historical reasons for slowdown in the future. [ … ] Pretty decent company, too.»

    And I think they are all wrong! Not because I see the Dow at 36,000 in the near future :-), but because I think that both being a bull or a bear right now is wrong, as the outcome between the two is undetermined, except by politics and happenstance.

    Will Bernanke and Paulson choose high sustained inflation (bull) or a prolonged recession (bear)? That’s not something that I think one can rationally argue either way (it could be they choose both :->).

    «whenever someone claims the market is perfectly efficient.»

    The ”efficient market hypothesis” is hedged with so many conditions that it ends up saying different from what many people think. It ends up being mostly a tautology.

    Note that the ”random walk hypothesis” is instead well supported by the empirical evidence, but its import is very different to that of the ”efficient market hypothesis”.

    «There is a definite difference between “Information” and “Knowledge,” and a further still distance between “Knowledge” and “Wisdom.”»

    Well, there is a different between data and interpretation of data, and if there is groupthink on the interpretation… And groupthink on the interpretation side is pretty easy to fall into, especially for fund managers, because of the strong agency problems thereof.

  14. Amy commented on Aug 14

    It depends on who asks the question in the title and who responses. They may think they are right both of them.

  15. Blissex commented on Aug 14

    «Will Bernanke and Paulson choose high sustained inflation (bull) or a prolonged recession (bear)? That’s not something that I think one can rationally argue either way (it could be they choose both :->).»

    Uh oh uh oh, ten minutes after writing the above I was looking upon the Producer Price Index graph:

    http://research.StLouisFed.org/fred2/series/PPIACO/31/Max?cs=Large&crb=on&cosd=1921-01-01&coed=2006-06-01
    http://research.StLouisFed.org/fred2/series/PPIACO/31/Custom?cs=Large&crb=on&cosd=2001-01-01&coed=2006-06-01&cg=Go
    http://research.StLouisFed.org/fred2/series/PPIACO/31/Custom?cs=Large&crb=on&cosd=1970-01-01&coed=1985-12-31&cg=Go

    What strikes me is the steep slope of the graph in the most recent 4 years between 2001-2006, and a slope that steep only occurred once before in semi-living memory, that is for 10 years of those between 1980-1985.

  16. ss commented on Aug 15

    Looking at that chart blind (not knowing what it represents) I suggest it looks like an exhausted, unsustainable spike. You can even see the first blip of direction change.

    Thanks for posting this. It is unsustainable.

    Here’s one to check out as well….a healthy view on commercial lending. No wonder the BKX continues to confound the bears. This doesn’t suggest a recession to me:

    http://research.stlouisfed.org/fred2/series/BUSLOANS/100

  17. ss commented on Aug 15

    Hmmm, while one report does not make a trend, this morning’s PPI numbers certainly DO back up my (pre 8:30) obeservation in the above post. PPI should moderate, as this trend shift suggests.

  18. me commented on Aug 15

    So did Roach capitulate for about a month and then bocome a bear agaiin, as his latest article suggests?

  19. me commented on Aug 15

    So did Roach capitulate for about a month and then bocome a bear agaiin, as his latest article suggests?

  20. thebizofknowledge.com commented on Sep 2

    I could not have said it better myself! So many ignore the significant distinctions between information, knowledge, and wisdom. They are not the same thing, nor are they necessarily equal in importance!

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