Smackdown: Fisher vs El-Erian
Ken Fisher channels my monkey comments to diss PIMCO’s Mohamed El-Erian and their “New Normal” thesis.
I disagree with the New Normal thesis, but for very different reasons than Fisher does. (Note: I am a fan of his book, The Wall Street Waltz). I’ll post more on this later this week, but the shorter version is: The past few decades have been aberrational, and we are returning to the old normal.
As to the markets, I still believe the same thing I first observed in 2002: This is a secular Bear market, one likely to last 10-20 years, with strong rallies and selloffs occurring on a regular cyclical basis (think 1966-82).
I assume the next Bull market will start some time in the coming decade — 2015? 2017? Based on that, they both can be partially correct — the next few years can show mediocre returns, followed by a nice surge into 2020 and beyond.
“The next decade will be as good for investors as the 1990s, said Ken Fisher, the billionaire chief executive officer of Fisher Investments Inc., dismissing notions that developed economies face below-average growth.
Fisher said the concept of a “new normal” is “idiotic,” pitting him against money managers including Mohamed El-Erian, the CEO of Pacific Investment Management Co., which coined the term to describe a world of high unemployment, more regulation, and the shrinking importance of the U.S. in the global economy.
“We are chimpanzees with no memory,” Fisher said at the Forbes Global CEO Conference in Sydney. “The next 10 years are going to be just as good as the 1990s. The problems in this current environment we think are so different, and so new and so unique. It’s the same stupid old normal we’ve always had. We’ve got a great future.”
Where I disagree with Fisher is on the Fundamentals — in the 1990s, we had a massive build out in numerous tech industries: PCs, Networks, Software, Mobile, Storage, Semiconductors, etc. These are now much more mature industries, with the hockey stick portion of growth behind us.
I am less inclined to believe that alt.energy (solar, batteries, biofuel) nano-tech, and genetics can ramp up to that level of revenue and profit.
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Source:
Ken Fisher Dubs Pimco’s New Normal Concept ‘Idiotic’
Angus Whitley and Jacob Greber
Bloomberg, Sept. 28 2010
http://noir.bloomberg.com/apps/news?pid=20601010&sid=aYM44M0dT.NE
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September 28th, 2010 at 9:23 am
From an anthropological/anatomical perspective only, I change the channel when Ken Fisher is on TV as I refuse to believe that that odd shaped skull of his is capable of espousing anything of value…..
September 28th, 2010 at 9:26 am
BR noted
I am less inclined to believe that alt.energy (solar, batteries, biofuel) nano-tech, and genetics can ramp up to that level of revenue and profit.
reply:
—————
The turn around technology will be universal cheap wi-fi using newly available spectrum. If everyone has access to cheap (much much cheaper than today) wi fi, and if it provides multi megabit speeds (10Mbit or 20Mbit+) as the norm, then things nobody can dream of will come into existence within a decade. Give everyone a $10 per household 20Mbit internet connection that is available wherever you are in the country and watch the economy grow. The cost of living will drop (No Fed that’s not deflation), the wireless providers will yelp about being forced into becoming value added vendors, and who knows what else.
September 28th, 2010 at 9:36 am
BR writes …”in the 1990s, we had a massive build out in numerous tech industries: PCs, Networks, Software, Mobile, Storage, Semiconductors, etc. These are now much more mature industries, with the hockey stick portion of growth behind us.”
And all of those new technologies started out with US based manufacturing. Dell completely US based; they even forced FoxCon manufacture in the US for their first Dell contract. Today, no Dell laptops are made in the US. Apple use to take great pride in their US manufacturing plants. Today the world’s second largest corporation, with the hottest consumer products has its products build overseas.
When, and I believe it will be when, a new technologies are invented in the US, from the very beginning these new startups will be looking to manufacture outside the US. When the startup goes looking for experienced managers, they will find managers who have experience with non-US based manufacturing plants. No longer will there be a new technology startup whose manufacturing will be US based.
September 28th, 2010 at 9:36 am
Also, the Fed has been inflating the economy for a few decades in the mistaken belief that it’s controlled inflation is good, natural, and as God intended it. Of course, it is really the root cause of the financial collapse we just suffered. Greenspan was the end of the game, not the start of problem.
To say that you need to know all there is about the last century in order to know new normal from old normal is ludicrous. All there is is Fed based inflation, the way it has become institutionalized as a necessity instead of being considered as a pernicious infection, and the way the central bank is clueless about it being the cause of the problem.
What happened 50 years ago is not important to me.
September 28th, 2010 at 9:39 am
Sounds like Ken Fisher has a few shares he’d like YOU to BUY from him, doesn’t it?
The real bull market (ie the stock market rise after inflation) will not start until the excesses of the old one will be largely wiped out. With this Fed and this Treasury, with QE1, 1.5, and soon 2.0, with the bailouts of “key industries”, with perpetual money sucking black holes named Fannie and Freddie, with real estate subsidies, etc etc, I do not think the new 10-20 year bull market is possible.
September 28th, 2010 at 9:50 am
Putting aside any personal animus one feels for Mr. Fisher, his The Wall Street Waltz written just before the 1987 crash is still one of the best learning tools out there. His recent comments are profiled in 90 visual perspectives in the book.
September 28th, 2010 at 9:52 am
“We are chimpanzees with no memory” – Ken Fisher
Unless my misanthropic monkey mind deceives me, Ken Fisher has been bullish on equities since I got into the game in 98, and been that way ever since. So why in Hades would I believe any of his calls now?
His sort of bullishness is analogous to whooping cough… simply can’t control it.
September 28th, 2010 at 10:01 am
@Matt SF: Fisher made one exquisitely timed bear call, right near the peak in 2000. I’m not sure he’s ever made any others, but that one was a doozy.
September 28th, 2010 at 10:02 am
BR – Why does it seem so difficult for professional investors to understand what you have outlined – the basic Secular Bull/Secular Bear cycle – with each one lasting between 15 and 20 years? It doesn’t take a lot of analysis to see that p/e’s expand from very low points to very high points and then contract back to very low points. And this cycle is the single biggest driver of long run equity returns and, guess what, the cycles are driven by economic fundamentals. You were too easy on Fisher. The current situation is about as far from the 1990′s as you can get. What we have is a normal Secular Bear cycle – this one just happen to be of the deflationary, high debt, low job creation variety. And we will once again see single digit Shiller/Graham p/e’s before it is over. In the meantime our monkey brains will take us on quite a roller coaster ride.
September 28th, 2010 at 10:07 am
Ken should know his chimps as I am confident he is the missing link.
September 28th, 2010 at 10:25 am
the demographics and the economy have changed way too much to expect anything of the same old. but we can definitely expect more of the immediate past to repeat over and over again.
September 28th, 2010 at 10:38 am
Freestate says: “And we will once again see single digit Shiller/Graham p/e’s before it is over.”
Agreed and one may wish to add that a mutual fund cash position far from its current all time low of 3.4% is required. Yes, I am aware that ETF’s et al have made this venue “Far less significant” and that, “It is different this time.”
With this said, a prudent investor may wish to keep a little power dry just case history repeats itself as it almost always does!
September 28th, 2010 at 10:39 am
my view
not too diff from either of you is
we had a 25 year boom 1975- 2000
mostly from disinflation and lower rates–not sustainable
now we have decades of 5-6% avg returns
i not smart enough to know what parts of that are boom or bust
but it looks better than average the next few years because we still not that far off the bottom.
unless finance so broken we have a premature petering out.
i find fisher pretty much useless on TV
if you like his book— and it had more than the above i will look if i see.
September 28th, 2010 at 10:51 am
What’s Fisher’s long-term record as a portfolio manager? Any numbers?
September 28th, 2010 at 11:01 am
@ John Rosevear
Appreciate the heads up. Good to know he made at least one.
September 28th, 2010 at 11:02 am
For the record he also predicted the 87 crash….
September 28th, 2010 at 11:09 am
http://www.pimco.com/Pages/StanDruckenmillerisLeaving.aspx
“What the U.S. economy needs to do in order to return to the “old” normal is to recreate nominal GDP growth of 5%, the majority of which likely comes from inflation. Inflation is the classic “coin shaving” technique of government since the Roman Empire. In modern parlance, you print money faster than required, pray that the private sector will spend it to generate investment and consumption, and then worry about the consequences in a later decade. Ditto for deficits and fiscal policy. It’s that prayer, however, which the financial markets are now doubting, resembling circumstances which in part are reminiscent of the lost decades in Japan since the early 1990s. If the private sector – through undue caution and braking demographic influences –refuses to take the bait, the reflationary trap will never snap shut.
Investors will likely not know whether the mouse has grabbed for the cheese for several years forward. In the meantime, they are faced with 2.5% yielding bonds and stocks staring straight into new normal real growth rates of 2% or less. There is no 8% there for pension funds. There are no stocks for the long run at 12% returns. And the most likely consequence of stimulative government policies that strain to get us there will be a declining dollar and a lower standard of living. Stan Druckenmiller is leaving, and with good reason. A future of low investment returns, and a heap of trouble for those expecting more, is what lies ahead.”
September 28th, 2010 at 12:04 pm
Not to beat a dead horse – but, hey, why not when they are a publicity seeking pseudo finance and economics expert. Here are a typical gem from Ken Fisher that show how misguided his thinking can be.
Bernard: So the trade deficit good?
Fisher: Yes. When we have a current account deficit, it means cash flow is coming to America. The current account deficit happens first. Once the money is here and gets spent, that creates the trade deficit. Current account deficits show that the world thinks it’s better to invest in America than to invest in Africa. It’s better to invest in America than to invest in Germany. Germany gets the surplus. We get the deficit. That money is actually good for America.
Bernard: So in Germany, it’s the opposite.
Fisher: Yes. A healthy surplus is not good. Let me give you a parallel. You’ve heard that Americans have a 0% savings rate. This is true if you use the government savings rate data, which is a broken index. The savings rate data do not include capital gains,
Honest to god, he said this in an actual interview. And the misunderstandings he manages to show in these few sentence is incredible. So if a guy say things like this, then anything else he EVER says deserves to be ignored.
September 28th, 2010 at 12:12 pm
Fisher is the quintescential asset gathering cheerleadah who takes a rake from other people’s money. Perhaps a notch above Ben Stein.
I took me a full two years and countless epithets to get off their mailing list.
September 28th, 2010 at 12:37 pm
The guy is way too much of a cheerleader in my book, and a self aggrandizing one at that. Is he really any kind of an analyst, or just a good salesman? He’s rich because he’s got a good marketing machine and an enormous amount of money under management. For that (and only that) I give him credit.
God help the retail investor who listens to Ken Fisher, Jeremy Seigel, or Ben Stein.
September 28th, 2010 at 12:46 pm
BR, you’re the first commentator I’ve seen make the point that the old normal was the aberration. What PIMCO calls the Great Moderation–that is, the massive disinflationary trend that drove stock prices upward from 1982 through 2000–was the New Normal in the sense of a radical departure from the past.
During that 18 year spell real returns on SPX were nearly DOUBLE the long-term historical avg of 6%-7%. US inflation fell from 13% to 1%. It was a wildly aberrational period but it set expectations for most investors today. It has fostered the “cult of equity,” whose members are currently undergoing deprogramming at the hands of Mr. Market.
That said, I think it’s not accurate to say as you do that we’re returning to the old normal. The massive deleveraging underway ain’t normal, except as a return to more normal levels of indebtedness.
September 28th, 2010 at 12:55 pm
Well let’s see how Ken fared in the old normal:
November 15, 2006 “Stocks are very undervalued,” said Kenneth Fisher
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=asOKbnUrhKCA
November 8, 2007 “I’m still very bullish on equities. ”
and he recommended Manpower “as firms have this feature where they need to take on people in a hurry, they can get them from Manpower faster than they can hire permanent full times, and therefore, this is a perfect kind of a stock to take a pop in this environment.” Source: Bloomberg transcript, sorry no link
April 30, 2008 “This is just one more indication that maybe we’re not in some terrible condition,” said Kenneth Fisher
Source: Bloomberg – sorry no link.
June 26, 2008 “…I continue to be tremendously bullish. And the fact is that I think we’ve got another leg of the bull market ahead. I think this is an easy time. I’d focus on industrials and materials.” [as we now know, the commodity market topped out about two weeks after this comment]
Source: Bloomberg interview
November 28, 2008
“Whacked by the market chaos that has made even the savviest Wall Street titans look foolish, investment sage and author Ken Fisher’s namesake money-management firm Fisher Investments has seen its assets under management dwindle to around $30 billion from $43 billion over the past year.
The firm, based in Woodside, Calif., also has slashed hundreds of jobs from its 1,250-person workforce”
Source: http://www.nypost.com/p/news/business/fisher_flounders_YHRSobiRgKnVggKb8hTCiI
As to that characterization of the new normal as being “idiotic”, all I can say is people in glass houses…….
September 28th, 2010 at 1:01 pm
[...] Ken Fisher isn’t buying into the whole “new normal” talk. (Bloomberg, Money Game, Big Picture) [...]
September 28th, 2010 at 1:33 pm
BR: I have to say that I completely disagree with your thesis that the U.S. is simply cycling through a normal secular bear market here. The Fed has ballooned it’s balance sheet by $1.5T dollars and looks like it’s getting ready to intervene further. Doesn’t that strike you as a bit out of the ordinary?
Look, things got better in Germany after the Weimar Republic and the rise and fall of Hitler but would you have told investors in Berlin in 1919 not to worry about the future because it is all part of the regular historical cycle?
Just sayin’…..
Obviously, we are all entitled to our opinions.
September 28th, 2010 at 2:01 pm
Apparently, we’re returning to the “old normal”, as in “old world”:
http://news.yahoo.com/s/ap/20100928/ap_on_bi_ge/us_census_recession_s_impact
Ah yes, the old world…where the rich were rich and called for the piss boy when they feel the need to relieve themselves:
http://www.youtube.com/watch?v=QGAgu6zI9v0
September 28th, 2010 at 2:15 pm
I don’t see where Fisher says anything about El Erian. That’s just the sloppy journalists. His comments were on the new normal concept which Pimco doesn’t own though they definitely tried to corner that market for marketing reasons I’m sure.
Also, to Patrick Neid’s point, Fisher called the 87, 90, and 2000 bear markets, and the bull markets in between. He missed the 2008 call but was basically right to be bullish since 2009 and his sector comments were nail-on-head best as I can measure for that year too.
I don’t have the Wall Street Waltz but will get. Thanks Patrick and Barry for the recommendation.
September 28th, 2010 at 4:04 pm
“I am less inclined to believe that alt.energy (solar, batteries, biofuel) nano-tech, and genetics can ramp up to that level of revenue and profit.”
Agreed. Those may be good things, maybe even necessary… but they are make-work industries, not profit generators.
September 28th, 2010 at 5:04 pm
“… we had a massive build out in numerous tech industries: PCs, Networks, Software, Mobile, Storage, Semiconductors, etc. … I am less inclined to believe that alt.energy (solar, batteries, biofuel) nano-tech, and genetics can ramp up to that level of revenue and profit.”
@ points –
1) of the list of industries that you point to as responsible for the growth since the 1990s, all of those are in one way or another derivatives of semiconductors and software.
2) nanotech and genetics are, IMHO, easily capable of fueling similar, if not greater growth, all by themselves, with alt.energy being but one derivative application of those areas, which will obsolete and replace the industries based on semiconductors and the consumption of fossil fuels. The semiconductor/electronics/computer/telecom industrial nexus combined with Big Oil seem like pretty significant profit centers to me.
But I believe that the problems of managing nanotech and genetics are of such scope as to not be achievable in any effective manner before 2025 at the soonest. And the likely downsides of such technology (“grey goo”, tailored plagues) make the extinction of all life on the planet a significant risk, especially with the ongoing ramp-up of social instabilities and advance of the lunatic fringe, as larger fractions of humanity become unable to cope with the pace of change in the world around us.
That said, WHY is it that all of the charting savants are wedded to the notion of an ever-upward general trend of the American stock economy and markets? Are there other nations that have soared to great heights, and then declined, never again to rise? Yes, the planet is littered with them. Why should we not also suffer that fate, when we have largely exhausted the vast stores of natural resources and extinguished the immigration policies that provided this nation with both raw material and intellectual fuel to drive us forward?
Looking at the current Great Recession, and the significant movements in asset classes that have coalesced with historic levels of fraud and corruption to bring us to this point, it seems to me that this current situation is AT LEAST EQUAL to the conditions that spawned the Great Depression, and might possibly be better compared with the South Sea Bubble of 1720, which produced a depression lasting for about 65 years.
The way that one invests for a future of decline vs a future of continued cycles of upward expansion and pause, are considerably different.
September 28th, 2010 at 8:58 pm
I forgot to post this gem from Feb 26, 07:
http://www.forbes.com/forbes/2007/0226/110.html
“For months now the debate has been over whether America will have a hard landing or soft landing, the answer hinging on how big 2007′s housing disaster turns out to be. Well, there won’t be any housing disaster. We won’t have a landing at all, soft or hard”.
His recommendations: buy PHM, TOL, BZH – I kid you not!
Mind you this was after New Century and Fremont melted down in the Valentine’s Day massacre of the subprime market (and Ownit went toes up two months before that). The signs of stress in the housing market were clearly there for anyone who cared to do the least amount of research.
Why is this blowhard worthy of our attention?
September 29th, 2010 at 12:09 am
Yes, always up and to the right with a couple of flat levels in between just to catch our breath…..sorry, but I’ve seen enough of the world to believe much more in bell curves than eternal up & to the right lines. When energy supply (especially oil) begins to peak, our production and investments will peak as well and we’ll begin “the long descent”. I don’t know if we are there yet, but I suspect we are darn close.
Rather than predict a “rosy” 36K Dow based on (depreciating) US$’s, I’d prefer predictions of Dow price per ounce of Gold/Silver/Barrel of Oil…..from that perspective, I suspect that flat to down may be the future trend…..
October 6th, 2010 at 3:22 am
Matt SF-
Fisher has not been bullish since 98. He called the 2000 tech peak and the following tech bubble. You are probably too young to know, but he called the market following the 87 crash and the 1990 bear market. I don’t care what anyone says… that’s some solid forecasting.
Terry
October 11th, 2010 at 1:02 am
Everyone here can agree that you can’t judge someone by just looking at a 2-3 year window of their work. Particularly when 2 of those 3 years that person was right (Fisher was bullish in 2007 and 2009. A lot of people here I’m guessing weren’t. That was a call that would have really hurt to miss.) A lot of you are criticizing Fisher for what he did in the last bear and aren’t even acknowledging what he’s done in his 30+ years of investing. I have no problem admitting that I didn’t foresee the tech bust, or at least as big of a bust as it turned out to be. Even my 60 year old mother was putting money into tech stocks in 1998 and 1999. I didn’t discourage her. That was the “New Economy” remember? Kind of like the “new normal?” Yeah right. But guess what? Fisher called that bust and nailed it hardcore. Dang. I’ll still give the guy an audience.
Roger
October 13th, 2010 at 4:31 am
Equityval – Why is this “blowhard” worthy of our attention? I decided to investigate, because I’m that kind of guy. Plus I know from experience Forbes keeps track of their columnists’ picks. So in 2007, Fisher’s stocks put altogether beat the S&P 500. Yeah. He had some doozies which you cherry pick. OK. But, everyone knows you have a diversified portfolio. So Fisher threw out some losers, but also had some big winners. Evidently more winners than losers, so he beat the market in 2007. Moving along I looked at 2008. Yep, stocks sucked, and Fisher’s picks weren’t so great, but all in he lagged the S&P by just a bit. Fair enough. Then, I looked at 2009. Um. Yeah. This is why this guy is worthy of your attention, equityval. Are you paying attention now? He freaking beat the S&P by 24%. (Seriously… see it here: http://www.forbes.com/forbes/2010/0208/finances-wall-street-stocks-bonds-portfolio-strategy.html) Son of a … I wasn’t a giant Fisher fan before I started my little exercise. In fact, I was thinking “yeah, let’s see if this guy is any good.” Then I started to check back at other years, and it was the same thing, and after a while I got kinda bored and whatever and checked my Facebook and forgot about it. But the point was clear enough in my brain. That guy is good. Way better than me. Way better than you, because if you were as good as him, you’d know he was good. Jesus Christ, people. Why is everyone ragging on him? Do you know what he does? He’s been writing in Forbes since the Civil War or whatever, and he is still that good. Consider me a convert.