The following assortment of quotes comes from Paul Farrell

 

2007-2008 bank credit meltdown — the top nine happy-talking gurus

False predictions made before the 2008 subprime credit meltdown:

‘Mad Money’ Jim Cramer: “Bye-bye bear market, say hello to the bull.”

Ken Fisher: “This year will end in the plus column … so keep buying.”

Ben Bernanke: No “serious failures among large internationally active banks.”

Goldman Sachs: “Fear priced into stocks is likely to abate as recession fears fade.”

Barney Frank: “Freddie Mac and Fannie Mae are fundamentally sound.”

Barron’s: “Home prices about to bottom.”

Worth magazine: “Emerging markets are the global investors’ safe haven.”

Bernie Madoff: “It’s virtually impossible to violate the rules.”

Kiplinger’s: “Stock investors should beat the rush to the banks.”

~~~

2000-2003 dot-com crash, a long recession — more happy-talking gurus

From Bull! 144 Statements from the Market’s Fallen Prophets, a few notable gurus spreading happy-talk:

James Glassman, author ‘Dow 36,000’: “What is dangerous is for Americans not to be in the market. We’re going to reach a point where stocks are correctly priced … not a bubble. … market is undervalued.” (October 1999)

Larry Kudlow, CNBC host “This correction will run its course until the middle of the year. … not even Greenspan can stop the Internet economy.” (February 2000)

Cramer: “SUNW probably has the best near-term outlook of any company I know.” (September 2000)

Lehman’s Jeffrey Applegate: “The bulk of the correction is behind us, so now is the time to be offensive, not defensive.” (December 2000)

Alan Greenspan: “The 3- to 5-year earnings projections of more than a thousand analysts … have generally held firm. Such expectations, should they persist, bode well for continued capital deepening and sustained growth.” (December 2000)

Suze Orman: “The QQQ, they’re a buy. They may go down, but if you dollar-cost average, where you put money every single month into them … in the long run, it’s the way to play the Nasdaq.” (January 2001)

CNBC reporter Maria Bartiromo: “The individual out there is actually not throwing money at things that they do not understand, and is actually using the news and using the information out there to make smart decisions.” (March 2001)

Goldman Sachs’s Abby Joseph Cohen: “The time to be nervous was a year ago. The S&P then was overvalued, it’s now undervalued.” (April 2001)

Lou Dobbs, CNN: “Let me make it very clear. I’m a bull, on the market, on the economy. And let me repeat, I am a bull.” (August 2001)

Kudlow: “The shock therapy of a decisive war will elevate the stock market by a couple thousand points,” with Dow 35,000 by 2010. (June 2002)

Lots of hype, very little facts, just about all of it wrong.

~~~

1929 Crash and 1930’s Depression — seven early happy-talking gurus

Go back to the Crash of ’29 and the Great Depression. Same pattern: Optimism at the top, despair at the lows.

Listen to what investors trusted around the 1929 Crash:

Irving Fisher, Yale Ph.D. in economics: “Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels … I expect to see the stock market a good deal higher within a few months.” (Oct. 17, 1929, just days before the Crash)

Goodbody market-letter in New York Times: “We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices.” (Oct. 25, 1929)

BusinessWeek: “The Wall Street crash doesn’t mean that there will be any general or serious business depression … For six years American business has been diverting a substantial part of its attention, its energies and its resources on the speculative game… Now that irrelevant, alien and hazardous adventure is over. Business has come home again, back to its job, providentially unscathed, sound in wind and limb, financially stronger than ever before.” (Nov. 2, 1929)

Harvard Economic Society: “A serious depression seems improbable … recovery of business next spring, with further improvement in the fall.” (Nov. 10, 1929)

Treasury Secretary Andrew W. Mellon: “I see nothing in the present situation that is either menacing or warrants pessimism … I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress.” (Dec. 31, 1929)

Wall Street Journal: As the Dow fell from 298 to Dow 41:“Chase National Bank says the current conditions of very easy credit and poor business have always been a buying opportunity in the past. Absolutely confident that any list of good stocks will have good gains by end of 1931 and probably show a profit by end of 1930.” (June 1930)

President Herbert Hoover: “The depression is over.” (June 1930)

 

 

Source:
Why optimism is your worst investing enemy
Paul B. Farrell
MarketWatch July 6, 2013
http://www.marketwatch.com/story/why-optimism-is-your-worst-investing-enemy-2013-07-06

Category: Cognitive Foibles, Really, really bad calls, UnGuru

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.

17 Responses to “Paul Farrell: Beware of Predictions, Optimism Bias”

  1. howardoark says:

    Hasn’t Farrell been predicting a breakdown in civilization, rampant cannibalism and that every major city in the world will be surrounded by burning pits of diesel fuel by now? Which is not to overlook his main point that forecasting is difficult, especially about the future.

  2. Willy2 says:

    Most likely is that they didn’t look at short term interest rates.

  3. carleric says:

    It just demonstrates that the “gurus” never learn or we just forget that their purpose in life is to sell you something for you don’t need at a totally unrealisitic price point. A pox on financial news.

  4. Scruffy says:

    A sample of his writing over the last few years, with quotes:

    May 2010:
    “Warning: Crash dead ahead. Sell. Get liquid. Now.”
    http://www.marketwatch.com/story/crash-is-dead-ahead-sell-get-liquid-now-2010-05-25

    Dec 2010:
    “Do not buy stocks. Not for retirement. Not in the coming decade. Don’t. Huge risks.”
    http://www.marketwatch.com/story/10-reasons-to-shun-stocks-till-banks-crash-2010-12-07

    Feb 2011:
    “Market Crash 2011: It will hit by Christmas
    Commentary: The S&P 500 is worth only 910. Get out or lose big”
    http://www.marketwatch.com/story/market-crash-2011-it-will-hit-by-christmas-2011-02-22

    Apr 2011:
    ” Folks, there’s really nothing you can do to stop the inevitable crash that is coming possibly just before the presidential election in 2012. ”
    http://www.marketwatch.com/story/2008-crash-deja-vu-well-relive-it-and-soon-2011-04-26?pagenumber=2

    July 2012:
    “In short, the happy conspiracy between the Fed and Wall Street is suicidal and will take down the rest of America with it. ”
    http://www.marketwatch.com/story/how-bernanke-will-cause-the-next-crash-before-2014-2012-07-17

    June 2013: (the only forecasters that are worth listening to are bearish)
    “Doomsday poll: 87% risk of stock crash by year-end
    Commentary: 10 predictions point to worse plunge than 2008″

    “Buffett guarantees … Schiff doubles down … Gross sees supernova … Shilling’s grand disconnect … Gundlach’s ominous third phase … Stockman’s apocalypse … InvestmentNews tick, tick, boom … Roubini’s perfect storm … Grantham’s growth gone forever … place your bets at Wall Street’s casinos … the risk’s only 87% … or is it 100%?”

    http://www.marketwatch.com/story/doomsday-poll-87-risk-of-stock-crash-by-year-end-2013-06-05

    To be fair, he does also speak to the topics you cover, but his commentary is written from a very bearish perspective, IMO. Though not quite the rampaging hordes level of bearishness.

  5. panskeptic says:

    There is nothing wrong with Farrell’s collection of quotes. They are all as he says they are.

    I often agree with the concerns Farrell expresses in his column. Unfortunately, he sometimes uses overheated rhetoric, not unknown in a flatulent financial press that regularly predicts outright Armageddon because we have Obama, Bernanke, etc. in positions of power.

    While the usual apocalypic newsletter warnings grow out of political or racial animus. Farrell’s technicolor outbursts are a residue of his original financial hobbyhorse, which he has long since abandoned.

    http://www.amazon.com/Think-Astrology-Grow-Rich-Money/dp/0963884719/

    We all do things in our youth that we regret later.

  6. I don’t understand. Either these ‘Financial Gurus” are totally stupid or unbelievable liars, knowing the truth but wanting to sucker people into their game. I believe that they really aren’t stupid, but certainly, they think you are.

    Whichever it is, the bottom line is NEVER believe ANYTHING they are saying. They are attempting to rig the game in their own best interests, not yours or mine.

    Do your own research. Never believe the headlines, especially the stats, which need to be dug into, to see the basis of the numbers they are throwing out to you and me.

  7. panskeptic says:

    The only TV anchor I remember as always confronting guests with their busted predictions was Paul Kangas on PBS’ Nightly Business Report, and they didn’t mind because no one was watching.

    There may be others I’ve missed, but most television hosts are content not to embarrass their guests.