I am on an email list that is from a group smart hedgies and strategists. The discussions range far and wide, and while I sometimes disagree with the conclusions, but I always find the conversation provocative.

Lately, they’ve been emailing a collection of warnings of various fund managers and strategists:

• Long time Dow Theorist Richard Russell set out this dire warning:

“Do your friends a favor. Tell them to “batten down the hatches” because there’s a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don’t need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won’t recognize the country. They’ll retort, “How the dickens does Russell know — who told him?” Tell them the stock market told him.”

Reuters reported that well regarded hedge fund manager Seth Klarman “sees few bargains in the current environment and predicted on Tuesday that the stock market could suffer another lost decade without any gains.” Klarman is concerned that we could see “another 10 years of zero returns.” He has 30 percent of assets at his $22 billion Baupost Group in cash, he said. (His firm started in 1982 with $27 million and has averaged 20 percent annual gains ever since).

Raoul Pal of Global Macro Investor got even more specific warning in his newsletter: Crash Is Coming In Two Days-To-Two Weeks. He sees as an “archetypal crash pattern — a sharp decline followed by a failed rally followed by a collapse.”

Category: Markets, Valuation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

58 Responses to “Bears Come Roaring Forth”

  1. Mannwich says:

    Don’t be silly, BR. One of your sage-like commenters here already guaranteed us that we’re in a “V” shaped “recovery” and that trees do indeed “grow to the sky”.

  2. JSchmid says:

    Thankfully, I sold half of my non-retirement stock positions yesterday morning saving me a bundle of money. I am still looking for another opportunity to get out of more of my positions.

  3. Dennis the menace says:

    Whenever you say Bullish things, the crowd pushes back against you fiercely — all the way up from the March lows.

    You flip bearish (great call by the way) and the accolades and agreements pour forth . . .

    It might be worth tracking as an indicator

  4. Yeah, I have thought about that before.

    Herb Greenberg calls it his Hate Mail-spin-o-meter

  5. Mannwich says:

    The distinction needs to be made on those who pushed back against the notion of a MARKET rally vs. a “normal” ECONOMIC “recovery”. This ain’t the latter. Far from it. That’s what many bears here have been saying for a long time now. Key distinction. And note I do NOT trade the markets every day but merely want a legitimate environment in which to “invest” (what a quaint concept!) our funds for the longer term. I guess I’ll have to look elsewhere because our markets are now a complete farce.

  6. Chris says:

    Now the market might go down (or not), but what annoys me are those fund managers. Most likely they are short and now try to accelerate things. How pathetic is that, stupid parasites. Make your bet and live with it, but don’t do this propaganda crap. I really do hope that we have some miraculous economic growth and they all go bust.

  7. AHodge says:

    i am the other way still
    I lightened up 20+ % earlier, now keep remaining long term leap, 40% bonds, against some new short term OTM put shorts, may jun option shorts.

    massively stop out now? good luck with that.
    europe financial awful china a worry, so what? big picture europe will not permit a financially driven new major recession

  8. The Curmudgeon says:

    All you need to know is that Europe basically destroyed the Euro by mixing its monetary union with a quasi-fiscal one, through its trillion dollar (yet now much less than a trillion, as they Euro rapidly declines against the dollar) rescue, which did nothing but what the TARP, etc., did in America, except it socialized the losses across sovereigns, none of which are capable of meeting the promises made to their own people, nevermind the profligates of the PIIGS.

    Act II, Sovereign Default, of the Financial Calamity Play, is in full swing. Expect real deflation in the US for the time being, as all the dollar printing in the world won’t stop the spiral downward. The velocity of money will decline faster than the supply of money increases, and a weaker or non-existent Euro means another round of dollar appreciation internationally. It’s why oil and other commodities have declined recently. Oil is cheaper now if you have dollars with which to buy them. Not so much if all you’ve got is Euros.

  9. PhilB says:


    Is this the long anticipated 20-25% drop you have been calling for? Or do the governments still call the shots here?

  10. beatstreet says:

    Yeah, its definitely feeling like 2008. As I remember (seems like a long time ago), the market kind of muddled through Bear Stearns in March, Frannie in July, the GBP falling off the table in August. Didn’t the ECB actually hike rates that summer? I know many were calling for the Fed to hike since stocks seemed fine and oil was through the roof.

    Germany’s announcement yesterday struck me as the same kind of desperation exhibited by American regulators in late summer/early fall 2008. As anyone who has participated in markets knows, its the shorts who are in there buying when the market is down sharply. Without shorts, those 150 point drops turn into 500 point drops.

    I feel like I’m well positioned for what’s ahead, but what if I’ve got a bunch of chips and they stop the game?

  11. Patrick Neid says:

    I suppose there has to be a first time but the nature, of what is an extremely rare event, a crash, is that they are not predictable by the masses. If we are going lower, a cruel slow burn is actually the most devastating.

    Richard Russell’s, “you won’t recognize the US by the end of year” is the prediction I fear the most.

    Crashes? I make money in crashes.

  12. call me ahab says:

    TC makes some good points-

    and I like this from Patrick Neid-

    “If we are going lower, a cruel slow burn is actually the most devastating”

    a la 1931?

    also I caught that “batten down the hatches” quote from Richard Russell yesterday- it’s how I have been feeling for quite a while-

    and I respect Germany’s stance on things- going to it- not wringing their hands-

    where as this country slopped around for the last year desperately trying to get it back to “the way it was before”

  13. franklin411 says:

    –”They’ll retort, “How the dickens does Russell know — who told him?” Tell them the stock market told him.””

    Hmm…would that be the same stock market that once told us that Bear Stearns was worth $68.08 on March 11, 2008 and $3.17 six days later?

    Ah yes…the great and powerful Oz! Knows all! Sees all! Tells all!

  14. wunsacon says:

    Barry, since you married some econ ideas to music lyrics lately, I’m pleased you didn’t try your hand at adapting something like Kenny Loggins’ “Highway to the Danger Zone”. ;-)

  15. Lariat1 says:

    I think I witnessed a “batten down the hatches” move yesterday. Quite a large expenditure was put off to the fall, if at all this year. And this expenditure was supposedly set to go in next two weeks. beware the roller coaster.

  16. constantnormal says:

    Isn’t a surge in the population of bears a contrarian indicator?

    Not that I’m a raving bull, but the fundamental perversity of markets would seem to be served by this.

  17. constantnormal says:

    @BR — I take it that you are still looking for opportunities for shorting …. found any yet?

    Seems like you are not looking very hard if you have not.

  18. constantnormal says:

    Short-term, intermediate-term, long-term, end-of-the-day … all things (long or short) come to he who wait for the appropriate moment.

  19. wunsacon says:

    How does Russell know? Besides his technical analysis, there are these unresolved fundamental problems:
    - Banks still insolvent.
    - Over the past 50 years, Americans went from spending out of their incomes, to spending out of their savings, and then to spending their *credit* (cash-out refi). There’s nothing to spend after that! *
    - $43 trillion in CDS. What are the reserves on that? Counterparties, hello?
    - So much US debt was re-financed for short durations in the past few years. (How does that usually work out for people??)
    - US public worker salaries are unsustainable.
    - Our “environmental reserves” (unpolluted sea, sky, food, water) are growing thinner. Manufacturing (including food production) will become incrementally more expensive.
    - Expensive energy.
    - Good-paying private sector jobs continuing to go offshore. (That’s the tax base!)
    - Gulf economy destroyed. And destroyed “bad…not like before”. (-Gene Hackman, Unforgiven)

    * To “default” or “technical default” — that is the question:
    Whether ’tis nobler in the mind to suffer
    The slings and arrows of outrageous inflation
    Or to take arms against a sea of debt
    And by opposing end them?

  20. wunsacon says:

    Hey, Dennis the Menace, we can at least be right twice a day, right? We’re due, baby. We’re due!

  21. The Curmudgeon says:

    “Richard Russell’s, “you won’t recognize the US by the end of year” is the prediction I fear the most.”

    Actually for me, this is the most hopeful thing I’ve heard coming out of the prognosticators. I hope he’s correct. Because the path we have been on since at least late 2008, when we effectively nationalized about 2/3rds of the economy is not sustainable. There’ll be pain, but gain without pain is sin.

  22. call me ahab says:


    there comes a time when folks know the game is up-

    so you can’t look at everything if it is a contrary indicator-

    for instance- would the time to go long the ruble be when the Soviet tanks were descending on Moscow-

    contrary indicator and all

  23. wunsacon says:

    >> Because the path we have been on since at least late 2008, when we effectively nationalized about 2/3rds of the economy is not sustainable.

    “…since at least [our 1980's Keynesianism]…”

    Fixed that for you.

  24. constantnormal says:

    “you won’t recognize the US by the end of year” doesn’t worry me so much, as this is an election year, and the bumbling collection of imbeciles that is the Bananamerican Congress couldn’t pass significant legislation between the Nov elections and Dec 31 if their lives depended on it.

    2011, however, is a quite different matter.

    Be afraid. Be VERY afraid.

  25. AHodge says:

    Moodies? you Can still hope the congress SEC do the right thing even if unlikely?
    AIG? hear there are hair curling books coming out.
    only as hedges or w puts. AIG will scream on great news.

  26. Greg0658 says:

    Who Made Who?
    I put them in order of real power .. really (least 1st)
    “every man family community state country industry corportation government for themselves”

    sell all corporation positions and who owns them if they don’t collapse – they themselves … and then the army around them

    once in – in for good … the corp structure is built for a purpose … roundnround

  27. The Curmudgeon says:

    “…since at least [our 1980's Keynesianism]…”

    fair enough. Either way, it’s not sustainable. Nationalizing the residential mortgage market (Fannie and Freddie) is the one that really pushed us (and me) over the edge. Call it whatever you wish, but the federal government is the only game in the residential mortgage town. 90% of all mortgages written today are funded by either Freddie, Fannie, or Ginnie. And we’re into them for well over $150 billion, with no end in sight, and the potential liability, according to the recently-lifted ceiling, is infinity. And this is only one industry. We’re into GMAC by about $20 billion. The list goes on.

    We’ll soon have the economy of the old Soviet Union. At least we haven’t any walls to sustain…oh, nevermind.

  28. Doctor A says:

    Regarding GOLD …

    Multiplying gold prices by 10, the chart since 2000 looks a lot like the chart of the Dow in the 1990s. See this chart with monthly gold prices through the end of February:


    After topping out in 2000, we had a bear market in equities until March 2003. Although the two charts recently diverged (or maybe I should use a multiplier of 11 for gold, instead of 10), will gold top out soon and head down the next few years?

  29. - US public worker salaries are unsustainable.

    Because GS and their buddies refuse to pay their fair share in taxes? Because taxes, which are a necessary part of an organized society, have been thoroughly demonized by the political class?

  30. constantnormal says:


    not arguing (at least not on the direction or end result), but the thing that strikes me about this entire economic cataclysm has been the “slow-motion” nature of it, with truly immense movements in capital occurring over months and years. Granted, there are the occasional moments of excitement (like the slide down the stairs in 2008-2009, and the “flash crash” experiment by the program traders (I do not subscribe to the notion that it was an “accident”, but see it as more of an “experiment”, for purposes of calibration, to be repeated at another time when they are better prepared to reap the bonanza that comes from killing the whale)), but overall, this entire episode, from the dot-com collapse onward, has been characterized by movements (bear and bull alike) that are longer than the hysterical norms. I attribute this to the “psychological inertia and momentum” of moving astronomical sums of money.

    Sure, the physical electronic movement can happen in microseconds, but the psychological adjustment necessary for truly ginormous market movements, that takes time. It’s going to be quite some time before the Bananamerican sheeple abandon notions like living on credit, or treating debt as something real and substantial instead of imaginary and vaporous. Any thoughts of debt walkaways have to disappear, and they are still in their ascendency.

    The 0.1% that are accumulating all the wealth need for those attitudes to be firmly in place before they can begin to loan us back the money they have taken, at rates that are a far cry from those that Gentle Ben is using.

  31. Thor says:

    Constant – Very wise words. I’m with you, I think these events will unfold at a slower pace than many expect. That’s probably for the best, it takes people quite awhile to rid themselves of bad financial habits they spent two decades picking up.

  32. Mark Down says:

    When Black Friday comes
    I’ll stand by the door
    And catch the gray men when they dive from the 14th. floor

  33. Evoo Kermartin says:

    constantnormal said:

    the thing that strikes me about this entire economic cataclysm has been the “slow-motion” nature of it

    I was thinking this myself just the other day. I think we may have a warped sense of the speed of historical developments these days. I believe there is a logic to the progression of things. We just have to be tuned in to the correct frequency to follow the action in its proper context.

  34. Mannwich says:

    @constant: Couldn’t agree more. Heading towards the day of reckoning but happening in slow motion. It’s going to be long, painful and drawn out. This will allow the elite to make off with anything and everything that’s not bolted down before the masses figure it out.

  35. The Curmudgeon says:

    The reason why this is a slow slide down is because that’s what the metab0lic rates of aging and dying organisms do–they gradually decline until death.

    The really BIG Big Picture of these financial system shudders and shakes is demography. Europe is growing old and dying. The US, ex-immigration, is too. So too, is Japan, which is why its economy will never sustainably grow again until it reverses its demographic decline.

    We high-minded students of the financial and economic worlds often forget that economies are nothing more than aggregations of individual human organisms, which, like all other biological phenomenae have regular cycles of growth, maturity, aging and decline. In aggregate, the US is mature and aging. Europe and Japan are aging and dying.

  36. basquebob says:

    “The really BIG Big Picture of these financial system shudders and shakes is demography. Europe is growing old and dying. The US, ex-immigration, is too. So too, is Japan, which is why its economy will never sustainably grow again until it reverses its demographic decline.”

    reeks of ….., yeah the world is changing not dying but to you it’s all dying because I guess they are not your “kind” of people. Get a grip. Things are changing.

  37. The Curmudgeon says:


    Did I say the world is not changing? No, I said certain of its populations are aging and dying out, which is itself change. Nature abhors a vacuum, and as the societies of which the West is most concerned die out, it is a given that new ones will arise to take their place. The Moors were finally expelled from Spain in the 1400′s. It wouldn’t surprise me to see them triumphantly return.

    You need to get a grip. I was simply making an observation, applying demographic facts to formulate probable economic outcomes in the economies everyone seems so concerned about–the US, Europe and Japan. Everything else you read into what I said was a creation of your own imagination.

  38. Thor says:

    Curm – High birthrates do not necessarily equate with economic success. Africa or Mexico are good examples of this. China’s birthrate is also very low and I wouldn’t be surprised if India’s eventually goes negative as well.

  39. dvdpenn says:

    O’Neill’s suggestion this morning on Bloomberg that the U.S. might be the next Greece was a great late tell for me. I’m still in the “re-test the lows and up we go” camp – at least in the U.S. markets.

  40. AHodge says:

    actually you chartist nobal prize winners, the dow did not end up fallin 992. all those trades were broken remember? just no one recalcs.

  41. The Curmudgeon says:

    Yes, Thor, but birthrates below replacement, or population declines, are highly correlated with stagnant or declining economic systems. A high birth rate might not ensure your economy grows, but failing to replace people as they die out will ensure that it does not sustainably grow. Ex. A–Japan.

  42. deltaverde says:

    Is it time for another 1929-1931 vs. 2008-2010 overlay graph yet? Seems like a little X axis scaling could make for a pretty good matchup.

  43. basquebob says:

    @TC with all due respect, you are doing it in a tone that sounds cataclysmic, as if the U.S. is coming apart or to its end, as if it is the end for a certain kind of people and your bias comes across clearly. Perhaps you should consider that it is not the way I read it but the way you express it. BTW, most of the Moors never left Spain, some of them did but most of them stayed behind and integrated. And if they come back, what?

    Things are changing, economic models are changing and some economic models are proving to be a dismal failures. Some of what is happening in markets are nothing but tantrums because some are daring to change or even put in new rules and some players don’t like them. It’s not the first time it happens.

  44. ashpelham2 says:

    Ditto deltaverde. I was thinking that there has got to be some market overlay similarities by now.

    My only holdout on declaring this a repeat of the 1930′s in terms of market performance is how heavily involved government has been this time around. They were slow to react way back then, so this time should read differently. Another thing is the question concerning where growth will come from now. There are clear indicators that show America didn’t meaningfully grow again until the WW2 buildup, then the baby boom generation took it from there after returning from war. What will drive that growth this time? Perhaps the war will be declared against burning fossil fuels? A new buildup at home, rather than abroad, towards sustainable, regenerative energy sources? It’s exciting to think about, and honestly, I can’t think of anything else that can give us large scale, non financial market growth.

    Al Gore already invented the internet. :D

  45. The Curmudgeon says:


    Pray do tell, what are my biases? You speak as if you know. Do you think I am biased against Moors? (that was just an example, by the way, allowing you to extrapolate what the Moors of the 15th century returning to Spain would mean today. I don’t recall that I said it would be a bad thing).

    I really don’t need a lecture about change, though. Can you not see that change is what these posts are about?

    I don’t really care one way or another about whether the US or Japan or Europe ages and dies out. I’m just saying that the native populations of all these places, and some others, are doing just that, and that it has implications for whether these states can grow their way out of their fiscal troubles, or whether they’ll be reneging on promises they made to their people. My guess is the latter. It would take a huge influx of immigrants to change the demographic tides, and even if that happens, it would be unlikely the new arrivals would be overly interested in carrying through on promises made by others.

    If all this is too cataclysmic for your head to wrap around, my apologies. But do be aware–you speak of as if I am scared of change, yet you chide me for implying the US or other states will fail. Little hint–that’s change, just perhaps not the kind you’d like to see. The US has been around about 250 years. There is no guarantee that it will last another 250, or even another 25. Indeed, change is the only constant, and perhaps that’s what you fear, and why you think I am biased.

  46. Thor says:

    Curm – True, but projecting current demographic trends into the future is unwise I think. I’m not saying I disagree with your statement, but I think we are as unlikely to continue the current demographic trend indefinitely as we did the boomer generation . . .

  47. nickthap says:

    So if the market doesn’t crash tomorrow, May 19th (as raol pal has predicted here: http://www.businessinsider.com/global-macros-raoul-pal-heres-why-a-crash-is-coming-in-two-days-to-two-weeks-2010-5), will he still be considered a heavy-weight smart guy? Probably.

  48. basquebob says:

    @TC, chill out, I am not the one predicting cataclysm. And if you read what I am saying, take a breath, I think change is great. I am rooting for change. You are the one predicting dark scenarios of slow painful deaths, not me.

    When you say “it would be unlikely the new arrivals would be overly interested in carrying through on promises made by others”, what do you mean?

  49. The Curmudgeon says:

    “When you say “it would be unlikely the new arrivals would be overly interested in carrying through on promises made by others”, what do you mean?”

    Do you think ten million new immigrants to Germany (which would then comprise about 15% of the population) from Northern Africa and Arabia (assuming such a thing could and would happen) would be interested in paying for month-long vacations for a bunch of middle-aged Germans? Yet something like that is what would be necessary for the Germans to keep the promises they have made to themselves. There is no way they can do it as things exist now, and this is true for all the developed world, the US included.

    Either promises will be broken, or the burden of keeping the promises will have to fall on a new population cohort. It’s in the nature of the obligations. A good example is the Ponzi scheme of Social Security in the US. It will topple over when there are fewer workers than there are people trying to draw resources from it.

    You read into my observations dark scenarios of slow painful death, but that is not what I describe. I describe the very natural process of aging and dying that is a part of the lives of all organisms, humans and human organizations, the same. I point these things out because they are mostly ignored, but have huge ramifications for social and economic policies going forward, and are in fact having a very real impact in the Eurozone even today.

  50. DeDude says:

    “We’ll soon have the economy of the old Soviet Union”

    Well at least we will have that ;-)

    If we had allowed F&F to fail we would not have had a mortgages anywhere and there would not have been any economy left. If anything has been revealed in the past few years it is the inefficiencies and frailness of private markets; making government oversight and intervention mandatory.

  51. call me ahab says:


    give up on basquebob-

    he is a buffoon obviously-

    everything is racist in his mind even if you are just stating the obvious

  52. call me ahab says:


    so . . . no more mortgages by local banks and credit unions to anyone- at all- ever?

    WTF is wrong w/ you exactly?

  53. ahab,

    keep it simple. DeDude=~DeLeusional

  54. basquebob says:

    @TC I am sincerely not trying to cast aspersions or engage you in a pissing contest. I do however strongly disagree with some of your POVs.

    “Be afraid. Be VERY afraid.” was your admonishment not mine. Am I over reading it? I don’t see how.

    “Europe is growing old and dying. The US, ex-immigration, is too.”. “ex-immigration”? How is one to interpret that other than you don’t have a good concept of immigrants or that you believe immigrants don’t contribute positively to the system. Or, this always having been a country of immigrants, the new classes of immigrants are somehow bad or inferior? Honestly, I am not trying to cast aspersions but such a statement is worthy of explanation. In my experience, most immigrants move to other places because they aspire to do better and a better life that their new adopted place has to offer. They don’t usually emigrate because they want to change the place they are going to. In the the process they accept and respect the customs and rules of their new adopted countries and contribute to it. I’ve never seen an immigrant worker tell accounting, not that they could, — don’t take SS or Medicare out of my paycheck because I don’t want to pay for the retirement of that old fart that was here before me. I don’t argue what will or will not happen, I don’t pretend to have a working crystal ball.

    @ahab, thanks for calling me a buffoon, it says a lot more about you than me. I guess some people are to fragile to have their world views questioned and I could care less if you are a racist or not.

  55. DeDude says:

    ahab, MEH; if you think banks and credit unions would be able to give out mortgages without a secondary market to sell them to, then y’all are truly delusional. Remember -they are insolvent, its just that FDIC cannot afford to take them down. How many mortgages that cannot be sold to F&F have your bank given out lately? Fact is, without F&F there is no housing market except cash.

  56. The Curmudgeon says:

    ““Be afraid. Be VERY afraid.” was your admonishment not mine.”

    Dude, I didn’t say that. I never have said that. You read that into what I wrote. While I can appreciate the existential creation of your own reality, please don’t blame me for it.

    Neither did I place a value on immigration. I value a reasonable discussion and debate, but I’m not sure with whom it is you are conversing.

    @DeDude. You are correct. W/out FF&G (Fannie, Freddie and Ginnie Mae), there would be no residential mortgage market. The question is how long it can continue. Is the residential mortgage industry permanently nationalized? If it is, the myriad subsidies it receives will one day cause a reckoning on the US balance sheet.

  57. basquebob says:

    @TC Sorry, you are right “the be afraid” quote wasn’t you it was constantnormal that said it that. My apologies.

    “Europe is growing old and dying. The US, ex-immigration, is too.” Is yours. So it means nothing. O.K. I’ll take your word for it.

  58. DeDude says:


    I hope it is permanently nationalized. Like national security, the highway system and health care, it is way to important to be left to the disorganization and incompetency of private companies and market forces. We just need to make sure that those entities get back to the old healthy business model, where they did not allow people to get a loan for a home they could not afford. Their problems began when they were turned into private companies who had great concerns about market share, profit and CEO bonuses. If they provide inexpensive sensible mortgages to people who can afford them, then they will not have any negative influence on the US balance sheet. Eventually irresponsible private companies will get back in the game and offer bad products to stupid people; a consumer protection agency will have to deal with that.