Is there a more reliable fade than Donald Luskin?

Exactly one year ago this week (May 4, 2012), Luskin exhorted WSJ readers to dump equities because The 2013 Fiscal Cliff Could Crush Stocks. “Do the math on dividend taxes” he advised, warning that dividend yields would be lower, and stock prices would be considerably lower — “maybe by 30%.”

Um, no.

Over the ensuing year, we have seen a torrent of dividend increases. This was both in anticipation of, and since the implementation, of the dividend tax rate going up.

And equities? Since May 2012, the S&P500 is up about 17%, while the Dow climbed 13%, tacking on over 1,500 points. Both indices are in record territory.

So much for a 30% collapse caused by rising dividend tax rates.

This is not the first time The Donald has been so completely and utterly wrong. In November 2007, he told us there were 11 Reasons to Buy Stocks Now. That was a  month after the market peak, and the start of a nauseating 18 month slide in equities. If you followed Luskin’s advice, it took you 6 years to merely get back to break even. (He liked Citigroup then, which has since fallen 90%).

In a 2008 Washington Post column, Quit Doling Out That Bad-Economy Line, he explained how things were just peachy in the economy. Those fools warning about derivatives and subprime and the recession know nothings. It was — literally — the day before the collapse of Lehman, AIG, Fannie May et. al. He failed to see we were 10 months into a recession and in the midst of a 57% market collapse. Oh, well, C’est la vie.

If you suspect this guy is a money loser, just wait til you see his next call: In March 6 2009, in Even Worse Than the Great Depression, he said we were halfway through the Selloff. Hilariously wrong — the market hit bottom that very day, tagging 666 — launching into a 139% rally.

The next year (May 10th, 2010), Luskin advised readers to “become cautious” on Equities, while telling them “where I have my bets placed. Gold. Buy Gold.” Stocks Slide — It’s About Time. After rallying and collapsing, GLD is up about $20 since then (about 14%). The S&P500, flash crash and all, gained 43% — as the Spyders tacked on $50 since then.

Is it any wonder Luskin’s mutual fund closed after disastrous losses in 2001?

I suspect Luskin has fallen prey to a classic cognitive error — he has allowed his personal politics to influence his market analysis. He is mostly bullish when a Republican is in the White House and mostly bearish when a Democrat occupies that office. As I have shown in the Brain on Stocks presentation, allowing politics from either side of the partisan aisle to drive portfolios is a recipe for disaster.

These consistent forecasting errors makes me wonder if something else is at play; might it be the opposite at work? I wonder if its more accurate to hypothesize that his market analyses — and I use those terms loosely — work in the service of his politics? That makes much more sense, as I cannot imagine who would pay this stumblebum to manages their assets on a professional basis. If he is giving the same advice to clients that he gives to his readers, he won’t keep them very long. One simply cannot stay in business of asset management for very long with a track record like his.

Is it any wonder Money Magazine went under? If its readers followed Luskin’s advice, they could no longer afford the $5 need to buy a copy.

The lesson for investors is clear: Avoid those who are “ministers without portfolios.” Those commentators who are on the sidelines, not responsible for client assets — and don’t have to answer for their radical under-performance — may have priorities and agendas besides investing.

As an investor, your first priority should be managing risk and deploying capital — not pushing some ideological agenda. Keeping your own politics out of your investing — and avoiding those who fail to do the same — will do wonders for your returns.

 

 

 

Source:
The 2013 Fiscal Cliff Could Crush Stocks
Do the math on dividend taxes. Yields lower, stock prices lower—maybe by 30%.
Donald Luskin
WSJ, May 4, 2012
http://online.wsj.com/article/SB10001424052702304743704577381851218376744.html

Category: Investing, Politics, Psychology, Really, really bad calls

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.

38 Responses to “Oh, No! 2013 Fiscal Cliff Could Crush Stocks!”

  1. BennyProfane says:

    What are his predictions for this year? (well, besides that silly fiscal cliff thing) Sounds like a good one to bet the other side.

  2. [...] Don Luskin: Politically-compromised economic charlatanism by day, money-losing market commentary by night.  (TBP) [...]

    • Slap says:

      Some history for BP readers…

      Back in the early 1980s, Don Luskin was an options market-maker on the Pacific Options Exchange. He wasn’t very good at it and was regularly used by the local trading crowd as a fade then. If he bought, we sold and vice-versa.

      Most of us viewed him as faux-intellect and slightly arrogant person, but felt his usefulness as a contra-inidcator was valuable enough to endure his personality.

      I guess he’s not yet lost his touch!

  3. Bob is still unemployed   says:

    …Keeping your own politics out of your investing — and avoiding those who fail to do the same…

    Good advice always.

    However, the inverse is also true — keep your investing out of your politics.

    I’ve talked with people who said things similar to Mr. Luskin, but with a differing intent – they are using the potential of investing problems (real or imagined) in an attempt to influence my political opinion. Those Chicken Littles are saying, in effect, if you do not get the current politicians out of power, then your investment returns are going to suffer.

  4. I beg to differ

    You made money with my calls over the past 10 years while you lost money with his. I suspect that is because I am in the asset management business — any public appearances is in furtherance of that business.

    Luskin is not — he pursues fame not to attract asset management clients, but for some other reason. Hence, his market calls are incidental.

    As to John, If you noticed, he tacked into more political junk — and as such has become much more scarce around here.

    I have no idea what CXO’s methodology is — but they do sell a newsletter . . .

    • Joe says:

      I kinda miss Mauldin. Yeah, he pushes a ideological/political viewpoint. Yeah, lately he’s tacked on more political stuff. But he seems personable, presents very well, on the whole the stuff does does not reek of black helicopters, and I firmly believe getting as wide a view point as possible while staying firmly attached to reality in the center and contemplating more loosely what MIGHT be at the extremes. And ultimately the investor need to learn to evaluate the content and not the wrapping. Not everything written with yellow crayons on brown paper shopping bags is worthless nor will following a erudite, personable, connected to gazillionaires writer necessarily make you one too. You need to follow the results as well as the writer. Mauldin’s work is excellent to learn to evaluate in that regard.

      RE: blogging
      At this time and place, I would have a hard time working with someone who did not spend an appreciable amount of time onna web. Once you are seriously there, (as I was in a different time and place in the 90′s) it is very hard not to give everyone an accurate and extended insight into your head, especially given a multiyear presence on the web. Secondly, the ethical and non psycho/sociopathic blogger gets in hock to his self image on the web. You get a look at who the individual thinks he is and how serious he is about being that person. That enforces self discipline, the best kind. Lastly, people have limits. If you are holding down a job and creating enough output to the web to show that you are thinking something beyond a fixed ideological and rote position, and doing it convincingly, that is probably in large part what there is. If there are things ready for prime time in the House of Fusion, it’ll be out there soon. There may be a time difference if you are a prime client or a blog reader, but you’ll hear it. And if it is not ready for prime time, it prolly is not ready for you either.
      The down side to blogging is the risk of losing sight of the object of the exercise. But with it is only another reason on top of many why performance evaluation of any advisor is absolutely critical.

      And yeah, I do have my own blog. The COFGBLOG

  5. bonalibro says:

    A serious grammar edit needed, Barry, particularly in the last few paragraphs. It’s as riddled as Bonnie and Clyde.

  6. econimonium says:

    For me I read commentary from both sides, and I think it’s important to do so unless I find the person just worthless over time (like Maudlin, I don’t read much of his commentary as I find it pretty skewed and useless now). I think you can’t get a real feel for anything unless you read the spectrum and understand, from a numbers perspective, why you either think some people are right or why you think they are wrong. If someone is saying “stocks will crater” I’d like to understand the mechanics how how the person reached that decision and if it makes sense to me. I find this blog to link to all sorts of articles, but we also can get an inkling of where the guy behind it stands.

    I think there is probably some validity to having a political perspective, but I’m not sure most people can do that dispassionately enough to be of use in investing situations. It’s always emotional and that’s a clear issue. I think I also read these tea leaves for the larger economic business perspective also, as that helps me make better business decisions as well as investing decisions. But I agree with you…if you let you political ideology run your thought, you’re going to fail on several levels as you begin to force facts and numbers to meet your ideological view. Or worse you start saying things like “this method of calculating GDP/unemployment is wrong, here’s the real number”. In truth the actual headline numbers aren’t the story. The story is in the calculus. But that’s hard, you know? ;)

  7. wally says:

    Good responses in the comments this morning!
    Your readers aren’t sycophants either.

  8. SkepticalOx says:

    @MattP

    I don’t think that’s a fair comparison. BR has “skin in the game” in that he runs an asset management business (which I’m guessing is where he makes most of his money). If he constantly spouts bad advice, his business will be negatively affected. TBP also more often talks about processes, behavioral biases, and for the most part, seems agnostic to politically-driven investing “advice”.

    It peeves me to no end that these media outlets still pay these pundits who have been wrong over and over a place to voice their nonsense.

    • Matt P. says:

      @SkepticalOx It is absolutely fair. Luskin is in the opinion business. He has financial clients that pay him for his macro opinion. So even in a more direct fashion “If he constantly spouts bad advice, his business will be negatively affected” as you say. As to the “skin in the game” line, have you heard the phrase “talking your book?” If anything, public opinions via the media and social media from those running money should be especially worrisome it seems to me. Now let’s flip the coin on its head. With all due respect to Barry (again a wonderful blog), who the hell wants to pay someone fees to “allegedly” add value to their portfolio when they seem to spend their entire day adding great content to a blog and appearing on yahoo or TV? How much time is left for digging into companies, deep economic metrics, etc.? Do you think the James Simons (one of the few who it really seems has added alpha) and the folks at Renaissance are doing that? Methinks not.

      • You may have the financial relationship backwards.

        It looks more and more like he has clients who pay him to spout THEIR financial opinions — he is a paid agnotologist pushing some thinktank’s political agenda into the economic / financial sphere.

        I cannot imagine anyone pays him for what appears to be uniformly awful advice.

      • Matt P. says:

        Do you have any actual evidence of that Barry? Interesting take and very clever so I will give you style pointns.

        “I cannot imagine anyone pays him for what appears to be uniformly awful advice.”

        As I said, all these pundits make huge mistakes because no one knows the future (hey I am speaking to you Meredith Whitney). You can keep bashing him but the fact remains in the study I linked to and WHICH YOU AVOID he has done pretty well and better than many more famous people in the same type of setting. That appears to be a fact.

  9. libertarian says:

    His article was under the assumption that the dumb asses in Congress couldn’t get anything worked out.

  10. MarcG says:

    Barry/Editor: Take another look at the last sentence of the second last paragraph:

    “Your first priority should “not” be managing risk and deploying capital — not pushing some ideological agenda. “

    • morning_star says:

      I agree and was going to comment but you beat me to it. Clearly it should read “As an investor, your first priority should be managing risk and deploying capital….”
      Remove the “not”.

  11. JEL125 says:

    I was bored so I emailed Donald with the subject line – “I think you should stick to weather forecasting. How do you still have a job?” and copy and paste the article.

    He replied to

    Read what I actually wrote. I was warning about a worst-case dividend rate that didn’t happen, in part because I warned about it. You should take care in trusting the versions of reality served up by people like Fatholtz. Thanks for writing, asshole.

    • GeorgeBurnsWasRight says:

      I see from Jel125′s post that Luskin is also modest and thinks his column had a significant influence on US tax policy. What an ego!

  12. spartan2000 says:

    For a guy who insists on fact based analysis, it seems rather disingenuous to leave out the first part of the sentence regarding the market forecast.

    “…unless current law is amended before year-end, the stock market has to fall by at least 30%.”

    I am no fan of Luskin and agree that many of his calls have been horrid. However, in this case at least, the “unless current law is amended” (which is was) is critical to the analysis. To omit it is to mislead your readers.

    • This is the precise quote from the WSJ headline: “Do the math on dividend taxes. Yields lower, stock prices lower—maybe by 30%.”

      The dividend tax rate did go up as he warned.

      I am not sure what your beef is.

  13. Liquidity Trader says:

    You may have forgotten his blog was called “The Consipracy to keep you poor and stupid” — but he changed it after people figured out that was what his writing made them — poor & stupid

  14. More Stupidity says:

    Housing, Job Data Signal Recovery, Not Recession (JULY 25, 2008)
    http://www.smartmoney.com/invest/stocks/housing-job-data-signal-recovery-not-recession-23547/

    On Thursday I met with a Fed official who may be one of the two or three smartest people in an organization that is chock full of smart people. He agreed with me that the news wasn’t objectively bad. But he couldn’t make himself believe that it wasn’t going to turn bad really bad tomorrow, or the next day, or the day after.

    But why should it? We’ve been in a housing depression for two and a half years now. We’ve been in a credit crisis for a full year.

    Where’s the bad news? Where’s the recession? Show me the money! Or in this case, the lack of money.

  15. RW says:

    Well I thought the sequester would have a more immediate impact on the markets than it did but readily admitted the mistake and closed the position(s) so not much harm done. But that’s not Luskin’s rep, at least in public.

    The moves necessary to gain AUM are not necessarily the moves necessary to successfully deploy AUM in portfolio. The success of the latter can augment the former of course (good PR) but otherwise there is no necessary relationship; see Bernie Madoff. I am not sufficiently interested in Luskin to investigate his success at portfolio management but, based on what I have seen of his writing, his market analysis is spotty — roughly as good as random chance would produce from what I can tell — and his macroeconomic analysis is poor (worse than random chance would produce).

    Krugman recently wrote on the issue of ideologically infected analysis WRT a column by Clive Crook

    Not Everything Is Political

    …Crook demands that I engage respectfully with reasonable people on the other side, but somehow fails to offer even one example of such a person. Not long ago Crook was offering Paul Ryan as an exemplar of serious, honest conservatism, while I was shrilly declaring Ryan a con man. But I suspect that even Crook now admits, at least to himself, that Ryan is indeed a con man. …

    …in practice it turns out that many conservatives are unwilling to concede that Keynesian macro has any validity to it, or that you can sometimes run the printing presses without unleashing runaway inflation, because they fear that any such admission would open the doors to much wider government intervention. But that’s exactly my point! They’re letting their views about how the world works be dictated by their vision of the kind of society they want; they’re politicizing their economic analysis. And that’s why they keep getting everything wrong.

    …The bottom line is that although I have political views — and wear them on my sleeve! — I’m not so postmodern as to believe that all truth is political. Some economic doctrines work, others don’t.

    This seems obvious but in practice it is surprisingly easy to conflate fact(s) with desire particularly if you “bind” a particular set of facts to a specific desire (or fear). Luskin my just be playing to a specific audience for whom those desires (or fears) have resonance but, given his business, that is not necessarily a bad thing unless it costs money and opportunity.

  16. More Stupidity says:

    Don Luskin’s OpenFund (OPENX) with $9.9 million in assets and its sibling $1.1 million IPO & New Era fund, both hit hard by the Nasdaq Composite’s plunge over the past year, closed Thursday.

    The aggressive and tech-heavy growth funds, run by a team of managers at San Francisco-based MetaMarkets.com, will liquidate their positions and return shareholders’ money, according to a posting on the firm’s Web site. Co-founder Don Luskin said the firm was “basically done” selling its holdings by midday Thursday. MetaMarkets.com also hired investment bank Allen & Co. to seek a buyer for the firm.

    The OpenFund, launched on Aug. 31, 1999, amid tech-sector froth, just before the mercurial sector buckled, and the fund lost more than half its value over the past year.

    The IPO & New Era fund, launched Sept. 11, 2000, is down more than 56% since its inception.

    -The Street.com

  17. Joe says:

    Actually Luskin’s ability to be wrong in a widely varied varied set of circumstances makes him somewhat more benign as a Pied Piper and very valuable as an educational asset. When you look at all the perma and ideologically oriented guys out there, you can see that a neophyte to investing can enter into a situation where it can be very difficult to learn something. Any sustained market move tells you relatively quickly that the perma’s on one side are clueless, but it may take a lot of time and a lot of loss to learn that the perma’s on the other side are just having their turn now and will be exposed as equally clueless in the future. Likewise, with the ideologically driven, Broken clock and all that. Those with a excellent presentation can also be particularly dangerous. If you lean their way, you just WANT that superlatively reasoned and beautifully presentation to be right. If it’s not, how can you trust your intelligence, judgement or anything, when their stuff makes so much sense that it HAS to be right?

    There are things that just have to exist because they are the perfect educational material, like the Steadman Funds and the Heartland Advisors Muni Bond Funds. I consider Luskin in that category. I just wish that this stuff was all academic. The thought that there are real and substantial losses of someones life savings and family’s future integral with the story takes a lot of the humor out of it…

  18. VennData says:

    So listing a bunch of Left/Center names gets you equivalency to BR’s detailed analysis? Last time I looked Cramer was a market perform and AJ Cohen is still employed at a top WS firm.

    Typical angry right winger whose missed the rally and will support whatever to get stock prices back down “to where they should be” You clowns are going to be the subject of study and analysis for decades: how your irrational Right Wing nuttiness made you miss the rally of the century.

    When you concoct sophistry like this, that may work around the cracker barrel of your soft-minded associates, out in.the real world we are laughing at you Matt P.

    Keep up the entertaining Foxtionalization of reality you are funny.

    • Matt P. says:

      @VennData wrote: “So listing a bunch of Left/Center names gets you equivalency to BR’s detailed analysis?” and then went on an irrational rant about nothingness.

      Hey buddy I didn’t list names based on politics I listed them based on being well known (well except Grantham. He I called out becuase he seems to bang the green drum often. He is also a very good active manager which is a rarity). More importantly, I provide a link to a firm that ranked these alleged “gurus.” A link to a study with a methodology. It doesn’t get me equivalency with BR’s original post…it is far superior. His post is just a collection of articles. I could go back and do the same to him. I think in early 2011 he was a bit bearish for instance.

      This isn’t a left/right thing…it is a hypocritical thing. For instance, I think Maudlin who I picked on is fairly conservative.

      • VennData says:

        The names you listed did not any analysis on anything close to an equivalency to BR. Your guru’s link shows one bad call, but BR’s is a lengthy following of Luskin’s being wrong at a half dozen turning points. Luskin is in a league of his own.

      • Matt P. says:

        VennData I am typing very slowly so you can understand this. I linked to a report that tracked these “gurus” and their publicly available calls (meaning op-eds, articles, etc) over a 7 year period. They tracked a couple dozen of them.

        * SNIP *

        ~~~

        BR: The guy ran a fund that crashed and burned, losing nearly all of the clients monies — in 2001, with 2 years left in that bear market.

        Whatever CXO’s methodology is, do you believe it is superior to his actual track record of running money? Whatever your business is, what matters more, some 3rd party website’s methodology of tracking forecast OR THE GUYS ACTUAL PERFORMANCE?

  19. spartan2000 says:

    There is more to an article than the headline. Specifically this…

    “After year-end, under current law, the top dividend tax rate will rise to 43.4% from 15%.”

    and this (which I previously quoted):

    “…unless current law is amended before year-end, the stock market has to fall by at least 30%.”

    You are correct that the dividend rate did rise, but only for some and around half as much as it was slated to rise. It seems a 43.4% dividend tax rate could have indeed caused a slump in the market. But we will never know, because it didn’t happen.

    Thanks for the reply. And again, this isn’t coming from a Luskin apologist. Just seems some needed context was missing from the Fiscal Cliff example.

    • Nobody seriously believed that divvie taxes were going to 43% — thats some disingenuous bullshit in the original piece. Why put that in there? It serves to confirms my suspicion he has another agenda other than investing.

      Next, just look at the totality of ALL his market calls and commentary on investing — individual calls & as a a body of work — its simply been awful.

  20. Pantmaker says:

    This is great food for thought. I’m still looking for the PBS/NPR of investment and economic analysis. No axe to grind, no book to talk, no partner websites to promote…a needle in a haystack.

  21. dvdpenn says:

    Wow, what a stroll down memory lane this thread has been! I totally forgot about MetaMarkets.com and Don “Stupidest Man Alive” Luskin! (that’s a Brad DeLong reference BTW)