Oracles of Doom
By Barry Ritholtz - December 9th, 2008, 3:30PM
This is apparently Media week:
There is a fun piece in NY Magazine about the guys who “got it right” this year.
I am privileged to be keeping company with the likes of Jeremy Grantham, Nouriel Roubini, Richard Russell, Gerald Celente, and Peter Schiff.
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Source:
Oracles of Doom
They always knew the economy would collapse. What do they think will happen next?
Jeff VanDam
NYMag, Dec 7, 2008
http://nymag.com/news/intelligencer/52772/
December 9th, 2008 at 3:38 pm
Roubini is bound to be wrong sooner or later. I suspect things aren’t going to be as bad as he says. I know, stag-deflation, etc. But I think fiscal stimulus and short term nationalizations eases the burden.
December 9th, 2008 at 3:49 pm
It is nice to be in that group however the real question is “Did you make your clients money”? I know of all those bears not everyone made money.
December 9th, 2008 at 4:00 pm
You predicted the S&P500 at 1350 by year end (http://www.ritholtz.com/blog/2008/01/media-appearance-cnbcs-squawk-on-the-street-11008/). I wouldn’t call that “getting it right”
~~~
BR: That was January. Weeks later we issued a sell warning. I also had said SELL financials and home builders, SHORT LEH BSC FNM AIG, etc.
But they were obviously referencing the totality of the overall economic calls, and I assume most fair minded people recognize that.
I am the first guy to admit that forecasting the motion of the stock market 1 year hence is a fool’s game.
See this 2005 article:
http://www.thestreet.com/_tscana/comment/barryritholtz/10226887.html
December 9th, 2008 at 4:09 pm
What about Gary Shilling and that English guy who used to be on Kudlow? I can’t remember his name but he was right too and took a lot of abuse from Larry. Joe Battipaglia was on the right side too. And Jim Grant…
They should do an article on the Boobs of Boom, starting with you know who and the other usual suspects.
~~~
BR: Kiplingers has an article coming out on that
December 9th, 2008 at 4:28 pm
Richard Russell? You have to be kidding me. Last I read his stuff, he turned bullish as the DOW crossed 14,000!
What a joke. They should have used Robert Prechter instead. And what about Marc Faber, Fred Hickey, and James Grant?
December 9th, 2008 at 4:28 pm
I respect Peter Schiff, but lets face it he only got it half right at this point. He firmly believed in the de-coupling of the USA from the emerging markets and put his clients heavily into China equity. USA equity maybe down 30-40% but China is down %70. I think it was Gary Schilling that forecasted this mess and put his clients into treasuries at least a year ago—simply brilliant.
December 9th, 2008 at 5:01 pm
Mike (Mish) Shedlock should be on the list too.
December 9th, 2008 at 5:48 pm
here we go again. richard russell was all over the place in his calls. he claimed 2001-2003 was not a bear market but a minor correction in an overall multidecade bull market. he remained bullish well into the dow 13k’s14k. peter schiff while getting the equity and credit market right failed to see the gigantic tsunami of deflation to hit the globe. his calls for inflation and dollar collapse cost his clients 30-40% this year. here are the individuals who nailed it dead on….. bennet sedacca of atlantic advisors and a number of guys on the minyanville site, robert schiller, mike shedlock, tanta, meredith whitney,
December 9th, 2008 at 5:53 pm
I’m glad none of the NYT Online comments refer to BR as a “hacky dirt bag.”
December 9th, 2008 at 5:59 pm
I sort of feel sorry for Peter Schiff. He got everything right here in the US, and was regularly abused for getting everything right, but was spectacularly wrong about foreign equities. He might still be vindicated on the dollar, at least partially, but his clients were wiped out on commodities and foreign equities.
December 9th, 2008 at 6:01 pm
Barry,
That’s good company you’re keeping.
And you’re a good egg.
I always appreciate your views.
December 9th, 2008 at 6:03 pm
BR……I am privileged to be keeping company with the likes of Jeremy Grantham, Nouriel Roubini, Richard Russell, Gerald Celente, and Peter Schiff……………
BR, you are a bull, the other guys are still bears.You are now a bull like Kudlow, Luskin, etc, etc.
—-
BR: Grantham is bullish now also.
The difference between me and the permas you cite is I can flip back and forth. The permas-Bs do not.
I am bullish for a trade — but read the whole Barrons interview…
Try this also:
Bull or Bear?
http://www.thestreet.com/_rms/comment/barryritholtz/10219637.html
December 9th, 2008 at 6:06 pm
sorry, not all bears, BR is now bullish like Russell, etc,
but the big family of Bears like Roub,Schiff, Marc Faber are no longer
your bretheren
December 9th, 2008 at 6:14 pm
Whoa! They left me out…AGAIN. I was calling Dow 5K when Ritholtz was still dating cheerleaders. Oops, Mrs. Ritholtz might be reading this.
Uhhh, OK, how about the second-team “Pimps of Doom”? Actually, I would prefer to be on that team.
December 9th, 2008 at 7:07 pm
Anyone go long after the selloff today? I took a chance and bought at the close. Hoping for a bounce back and then a final break through the 910 area. I like how the 880 area held this afternoon. But who knows what will happen tomorrow…
December 9th, 2008 at 7:17 pm
I sold the SRS that I bot yesterday afternoon. But the EEV didn’t move enough. I don’t understand what is going on with the emerging markets, too oversold I guess. So I’ll held it over. I’m not expecting much gain on that tomorrow, but I have good confidence in it long-term, so either way I’m OK holding EEV.
I’m still hoping for a bigger rally near term to reload ultrashort ETFs big time again.
December 9th, 2008 at 7:25 pm
FWIW, nothing long — the rest is in cash.
December 9th, 2008 at 7:26 pm
We need for the market to pull out of this negative action. Previous daily action shows 2 red days in a row have lead to many red days in a row. More money needs to come in. I’d expect we see -2% tomorrow sometime before the market turns around. My guess says if we get around this point the Fed will juice the futures again if we get another 2% down. The gov’t can not afford for the market to go down anymore; at any cost.
We can not go red again tomorrow, we will lose confidence again.
December 9th, 2008 at 7:29 pm
Barry – Grantham was sort of bullish in his Q3 newsletter, but the video you posted 14 days ago or so had him shaking in his boots, saying there was going to be a lot more pain. He wasn’t ruling out 600 S&P or “quite a bit” worse. Is that really bullish? No. It’s called covering both bases. Squishy. Very squishy.
I’m reminded of the ESPN guys who say “The Cowboys are gonna be very hard to stop. But you never know, if the Eagles score more point than we expect, they might be able to pull it off.”
A random walk…
December 9th, 2008 at 7:32 pm
jm – I agree. We need an up day or even a slightly negative day (staying above 870-875) would be fine I think. I just don’t want to see another 200+ plus selloff in the Dow. I think it may rest on the bailout tomorrow.
December 9th, 2008 at 7:37 pm
I’m just so glad that we’ve reached bottom and everything is up from here! I guess no one living has any recollection of what true deflation is like. Enjoy your little rally.
December 9th, 2008 at 7:41 pm
Bailout, Schmailout. Same ‘ole same ‘ole. We’ve seen this story play out in the previous months and we’ll see it play out again. The newest bailout gooses the market for a while and then everyone sells into strength, exposing the fact that there was never any real confidence in the first place. Some of us never regained any confidence in the markets and won’t any time soon, not as long as fundamentals don’t continue to rapidly deteriorate……..
December 9th, 2008 at 7:42 pm
Doug Kass just turned bullish also. I’m not turning. Dow would still be within its long-term uptrend to hit 3500…if not from this situation, when would it ever bounce off the bottom of its uptrend? I also reserve the right to up my QID target of 120.
December 9th, 2008 at 7:43 pm
The US will be fine Justin. It’s the emerging and Asian markets dependant on us which will crumble. (Korea, China, Japan, Taiwan, India) are going to see things much mcuh worse than they ever expected.
December 9th, 2008 at 7:45 pm
Kass was early on his bearish turn in late ‘06/’07 (if I recall correctly he was lamenting that fact at the time) and he’ll be early here as well…………
December 9th, 2008 at 7:45 pm
Steve Barry you need a 78% gain to get to 120 now (a 39% loss for the QQQQs at this point).
The volatility will destroy that funds value before it gets anywhere close.
December 9th, 2008 at 7:47 pm
I don’t think many of us are saying the economy will get better any time soon. It’s horrible and will remain horrible for 2009, if not longer. I just try to play the market as I see it. Seems like they’re going to push it up before year end (on low volume) to make their performance not look as horrible as it has been. Same type of month end stuff that usually goes on.
We need AT’s technical perspective. I think he said something about the 880-890 range being support, or if not there, then 869???
December 9th, 2008 at 7:51 pm
I’ve been bullish about the equity markets since 4:01pm on October 10th. And I’ve been legging in ever since. On November 20th, the S&P hit the bottom and I started buying Emerging Markets.
@CNBC – If Mrs. Ritholtz is anything like Mrs. TrickStar, she could give two shites, so long as she doesn’t have to hear the droning on and on about the markets.
December 9th, 2008 at 7:51 pm
That would put the QQQQ’s at $18.30. That would be a 66% loss from the QQQQ’s peak of 55.07.
December 9th, 2008 at 7:58 pm
The current rally is nothing but end-of-the-year window dressing. Don’t know where it will peter out (9,500 on Dow, maybe even 10,ooo), but it’s back in the crapper after the new year, with fresh new lows. FWIW, I think we get close to 6,000/600 before the real bottoming process begins.
December 9th, 2008 at 7:58 pm
@jmborchers — yes, your math is correct.
What levels do you expect QQQQ to be trading at when the USofA is in danger of defaulting?
Or let me ask it another way — when do you see the Fed+Treasury nuking debt instead of fertilizing it?
December 9th, 2008 at 8:01 pm
Kudos to Barry. But the real measure of any prognosticator or advisor is: show me your YTD return.
Too many of the best have ridden this thing down to the ground. The old joke is very apt, a 401k is now a 201, or maybe just a k.
December 9th, 2008 at 8:02 pm
BR,
Oracle of Doom, what a title. Congrats. Really though, you aren’t a bull or a bear you just call it like you see it. You can Doug Kass are stars.
Trickstar
to me it seemed like grantham basically said in the Q3 letter what he said in the video. he mentioned 600-800 as a bottom on the S&P and thought fair value was 975 + or – 25, I’m fairly certain that’s what I read. I doubt he changed any of that in the last 30 days, after all, he called this whole thing 10 years ago!
He said in that Q3 letter that he’d be a steady buyer below his fair value target, not all in, just a steady buyer so he’s doing what you are doing most likely, same thing I’m doing, legging in. For someone that is a value investor with long time horizon I’d call that bullish.
December 9th, 2008 at 8:02 pm
Also, so many smart people are getting bullish, does this mean we should start worrying?
December 9th, 2008 at 8:08 pm
Let me a bit less opaque — only when we see some debt destruction, will the downward trend be halted.
That means these monsters (or a LOT of lesser companies) are going to have to start filing bankruptcies.
There are only two ways (that I am aware of) to reduce debt — either pay it down or write it off. And neither the Fed nor Treasury nor anyone willing to publicly say so in the Obama administration is willing to admit that not every company is going to get out of this intact.
We have an aggregate level of debt in this nation that is more than triple the GDP, when it appears that about 150% of GDP is a “manageable” level of debt.
I dunno about the global debt, or the global GDP, nor do I have a clue as to what level of debt relative to global GDP is “manageable”. Anyone having credible numbers for those items is invited to post them.
December 9th, 2008 at 8:12 pm
jmborchers
i’m with you on the QID, steve could prove us both wrong but those ultra’s are not as price efficient as advertised and reality may be no $120… or higher for QID.
i’ve asked on here several times so I’ll ask again, how does anyone set a price target for a QID, or I should say, a long term price target such as the $120 call. If they worked that way why aren’t many of the ultra’s higher, such as DUG, FXP, etc.
What am I missing?
December 9th, 2008 at 8:26 pm
Price targets for anything are just guesses. Targets on short funds are worst because they degrade with time.
December 9th, 2008 at 8:36 pm
@ ben22: math lesson, bro… let’s start with 10, down 50% – divide it by 2 = 5. up 50% – then multiply by 50% = 7.5. down 50% – divide by 2 = 3.75; up 50% – then multiply by 50% = 5.625. Got it yet???
you just cannot stay in the ultras – long or short – they will ultimately destroy your gains. They are strictly for surfing. I jumped on the SRS wave on Monday, will hop off it after we start down tomorrow, take my profits and look for the next big wave.
If QID ever reaches $120 I will buy Stevo a massive burger. BTW, Bruce, I didn’t make it to Huey’s but Corky’s BBQ is finger-lickin good.
December 9th, 2008 at 8:37 pm
@ JM Borchers: relax, John, I think we bounce off support at 870 tomorrow. Have a good one.
December 9th, 2008 at 8:59 pm
leftback,
that’s the whole point, bro. why would one stay in them. they aren’t buy and hold. thanks for the math lesson though.
December 9th, 2008 at 9:01 pm
I definitely wouldn’t call Jeremy Grantham “bullish.” Grantham says that he fully expects to be early and get run over by the stock market. He calls it the curse of the value manager. In fact, he pretty much comes out and says that the S+P could very well go down to 500 or even 350.
December 9th, 2008 at 9:15 pm
O’Shaughnessy sees best stock market since 1982
NEW YORK (Reuters) – Stocks are the most compelling since 1982 because investors are pricing in a depression while the economy is only in a recession, Jim O’Shaughnessy, an influential investor on Wall Street, told Reuters on Tuesday.
O’Shaughnessy, chairman and chief investment officer of O’Shaughnessy Asset Management, told the Reuters Investment Summit in New York that it is a fool’s errand to call the market bottom; he suspects that the declines on November 20, when the S&P 500 closed at 11-year lows, is the bottom.
The yield on 10-year U.S. Treasuries could climb as high as 4.5 percent within 12 months as stocks rally, O’Shaughnessy said.
O’Shaughnessy told Reuters he likes the consumer discretionary sector, especially stocks that cater to consumers who are scaling back spending in the economic downturn.
The full text of the story is on Reuters.com at:
http://www.reuters.com/article/InvestmentOutlook09/idUSTRE4B867R20081209
December 9th, 2008 at 9:20 pm
ben22 @ 8:12
“If they worked that way why aren’t many of the ultra’s higher, such as DUG, FXP, etc.
What am I missing?”
Don’t make the mistake of grouping all of the ultrashorts together. QID and SDS come far closer to producing -2X the underlying index than many of the others. EEV is probably the worst of the lot. SKF is not a good vehicle for “buy and hold” investors, but is an excellent tool for day traders. Take a look at the performance of QID and SDS over several 3- and 6-month periods (versus the underlying index). They’re not that bad.
December 9th, 2008 at 9:42 pm
@jmborchers:
With all due respect, I don’t listen to you. When I corrected your poor analysis in the past you didn’t acknowledge your errors, so I don’t really let your opinions affect me.
December 9th, 2008 at 9:45 pm
Now Charles Schwab wants to restore the uptick rule:
http://online.wsj.com/article/SB122878208553589809.html
December 9th, 2008 at 9:54 pm
@ Steve Barry: I am really getting more and more worried about the credit markets and I am looking at them every day as we approach the end of year rollover. I think Jan and Feb will be absolutely horrible, I am in line with Mannwich on that one. I am playing a rally here but I am trading small with one eye over my shoulder.
December 9th, 2008 at 9:54 pm
Scott F @ 9:15
As always, it’s a question of time frame
December 9th, 2008 at 9:56 pm
leftback @ 9:54
I’m thinking the market heads south after January 20th
(I suspect I’m not the only one who thinks that).
December 9th, 2008 at 10:08 pm
As Warren Buffet said, “It is one thing to call a flood, another thing all together to build an ark.” Which of those guys built an arc?
December 9th, 2008 at 10:08 pm
Charles Schwab, since he loves to be the face of his company, is a liar. He took out an ad in Barrons’ saying we can trust them because they just stick to keeping our money safe for us and only focus on investment services. That very fucking day, I get a letter from them offering me a Schwab credit card.
December 9th, 2008 at 10:13 pm
sb, my guess is they have some corporate “arm” that also deals with mortgages/loans. I don’t know for sure but would expect that to be the case.
December 9th, 2008 at 10:17 pm
@ben:
Maybe…but a credit card is the type of “investment” that got us into trouble. BTW short interest is so low that to blame the uptick rule for anything is plain stupid. And show me one case in history where shorts brought down a healthy company.
December 9th, 2008 at 10:19 pm
I know you guys are smarter than me on this stuff, but I don’t get this bashing of Ultra ETFs. Let’s look at SKF as an example. In 2007 it traded from 66.37 to 111.50; about half the year it traded below 81 and about half above 81 (looking at a weekly chart). So using 81 as typical price an investor could have bought it for in 2007, let’s see how they did in 2008.
There were 31 days in 2008 (looking at a daily chart) that SKF traded above 162 (100% gain) and 7 days when it traded above 200 (146% gain); its high for 2009 was 303.82 (275% gain). Now, as far as I’m concerned, I don’t give a damn if it tracked the underlying index by 1.2 times or 3.7 times or any other number. All I know is that is a helluva potential for gain. What am I missing?
December 9th, 2008 at 10:33 pm
KJ @ 10:19
I think one of the questions is, for a given time period (e.g., three months), what percentage of the time does SKF give a BETTER result than -2X the underlying financials index, and what percentage of the time does SKF give a WORSE result?
My conclusion, as I posted above, is that it’s a great tool for people with very short holding periods (a few hours or days), but for longer periods, it’s probably better to buy SDS or QID, or perhaps to just short QLD (outside an IRA).
December 9th, 2008 at 10:37 pm
QID was messed up most of the day today. Nasdaq was down 1.5% all afternoon, QID was down slightly most of the afternoon too.
Still, they do capture the big moves nicely which I guess is their point. I hold about 10% QID to offset a larger long position. Buy in the 60s, sell in the 80s, repeat. We’re going to have to break out of the range in one direction or another soon, the market doesn’t give gifts like this for long.
One day I’ll buy in the 60s and it will never go back to the 80s, but by that point the round trips will have more than paid for it and the I’ll happily take QID at 20 tomorrow for what the would mean to the long positions.
@SB: Admire your resolve, but it would really suck to have been so right for so long then miss the high if 105 turns out to be it.
December 9th, 2008 at 10:44 pm
@DP: It would suck more to enter a Depression and not have a huge cash reserve with hardly any debt. I won’t second guess myself, so it won’t suck if I missed 105. I’d be more upset if I didn’t stick to my guns and was right all along.
December 9th, 2008 at 10:53 pm
Thanks for your reply.
I have avoided DXD and SDS because they move less, percentage wise. Even QID and QLD have been less than spectacular compared with others like SKF, SRS recently, TWM, and SMN. And the only time SKF was seriously decoupled from the financial index was when Hank banned short selling in them.
The problem, IMO, is not the lack of perfect correlation, but the extreme volatility that one must learn to tolerate. You get the potential for big percentage gains, but obviously also for losses. But I have done well with them both long term and trading short-term, and I would have done extremely well with them had Hank not screwed up my party and scared me out at the worst possible time. But that was still my fault (and Hank’s in the case of SKF in Sept and early Oct), not the ETF’s fault.
December 9th, 2008 at 11:09 pm
@SB: I got one as well from Schwab today………the game is still going, meaning credit still expanding in some corners. Unreal.
December 9th, 2008 at 11:15 pm
@SB: Good point on having been right all along. I do that way too often.
Zero debt here either, unless you count a $400 electricity. I was the idiot who let all that money in the house “sit there going to waste”. The idiot who decided not to pull it out on a 5-6% HELOC and put it in the stock market for an average 12% return. I’ve never considered money in the market safe, even during the good times. 100% long (which I’m not) means “100% of my brokerage account”, not “omg the market better go back up soon or I’m dead”, so can afford to wait also.
I suspect we’ll both be rewarded, just in different timeframes. Enjoying these free trips on QID in the meantime even if all they do is offset losses on longs. Oh yeah, I’m the idiot who is still buying and holding down here
December 9th, 2008 at 11:20 pm
Asia up pretty big right now. I have a sneaking suspicion we’ll be up big tomorrow and may continue to rally into the end of the year. My bet with karen could be in peril, but it won’t change my mind any about medium (and maybe long) term outlook for ‘09.
Santa rally will be nice window dressing for the mutual funds to lather the lipstick on their pigs for quarter and year-end but that’s about it. Back to reality in ‘09 though.
December 9th, 2008 at 11:27 pm
If anything remotely close to this scenario plays out, we’re all in for a longer, uglier ride than anyone is truly ready for……
There are many chapters remaining in this mess.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a6iiap2DL_gQ&refer=home
December 9th, 2008 at 11:41 pm
@Mannwich:
thanks…I easily see a scenario where S&P trades at .5 times sales of 900…or 450.
December 10th, 2008 at 1:27 am
A brief time-out to get back to the original topic of this entry: Oracles of Doom.
Does it occur to anyone besides me that this is the exact opposite of the kind of thing we might see at or near a market top? Where the Big Bulls run in all their (well-earned) glory, only to stumble shortly thereafter?
So maybe “Oracles of Doom” is, once again, media’s way of announcing that the best days of the bears are drawing to a close. Just take your favorite long-term chart(s), hold them up to a mirror and turn them upside down. What do you see now? It wasn’t that long ago where anyone who suggested the S&P500 might go under 500 would be laughed off the boards. Now, they’re taken seriously. Sounds all too easy. And when it’s easy, it’s over.
December 10th, 2008 at 1:32 am
i was 100% long till today. i am %60 percent cash now. and short an etf thru puts. it will be interesting to see if Ecuador defaults:
http://www.bloomberg.com/apps/news?pid=20601086&sid=a30EJxRNF7PY&refer=latin_america
if anybody knows about the banks exposure it is time to share
December 10th, 2008 at 2:47 am
Is Bill Fleckenstein closing his fund because he made so much money his clients are all rich and can retire. Or did he close the fund because of losses and redemtions?? Will we ever know.
December 10th, 2008 at 5:52 am
Dean Baker is the obvious omission from the list.
http://www.prospect.org/csnc/blogs/beat_the_press
December 10th, 2008 at 7:21 am
I invite the reader to “keep record” of my predictions and see for himself whether these things come to pass. — Criswell
“for the future is where you and I, whether we want to or not, will spend the rest of lives!” — Criswell
Now you’re in good company.
December 10th, 2008 at 8:30 am
Headline from CNBC.com just now:
“Stocks Pushed Hire By Auto Bailout”
What?
December 10th, 2008 at 9:23 am
@ben22 – you’re interpretation of Grantham’s article mirrors mine. in the video, he’s much less bullish and hedges comments on the downside. makes sense, given that the interview took place many weeks after he wrote the newsletter. so he’s less bullish.
December 10th, 2008 at 9:29 am
@Steve Barry – I don’t see anything wrong with Chuck offering you credit. Presumably, you’re a good risk. Credit isn’t inherently bad, so long as the risk assessment is solid. SCHW has a brokerage, a retail bank, they provide a business platform to small brokerages and retirement services for small companies. To their credit they had almost zero exposure to mortgage-backed securities.
Besides, if you’re a good risk, then the smartest thing SCHW can do is give you a line of credit to encourage you to spend us out of this downturn. GO STEVE GO!