Posts filed under “Cycles”

Reviewing — and Roasting — the Perma-Bears

There is a terrific cover story on the PermaBears in the upcoming BusinessWeek.

I spoke with the reporter about some of the bears discussed in the article on background. The March 2009 bullish call managed to keep me off the Perma-bear list, and for that, I am grateful.

The article looks at the “bearish forecasters who rose to fame in the market crash of 2008″ and who have, for the most part, “not surrendered their pessimism.” BW divides the dismal forecasters into three groups: The Grizzlies, the Bears with Less Bite, and the Domesticated.

The Grizzlies:

Nouriel Roubini
Robert Prechter
Peter Schiff
Michael Panzner
Nassim Nicholas Taleb
Marc Faber

BW looks at the track record and history of each of the Grizzlies. They really roast Roubini, Prechter and Schiff for being early (Roubini) for missing bull markets (Prechter) or making money losing bets (Schiff); They seem to have better things to say about the track records of Panzner, Taleb and Faber.

Bears with Less Bite

Gary Shilling
Stephen Roach
Meredith Whitney
David Rosenberg

Less criticism — including a nice write up of my catamaran and diving buddy Gary Shilling (whose wife is lovely) and of the cool calm approach of Think Tank contributor David Rosenberg.


Jeremy Grantham
James Grant

What can you say about the above to that is anything less than laudatory? “Even the most sophisticated people have difficulty switching world views, especially after their views have been affirmed.” BW praises these two for recognizing that, and “trying hard to change.”

One small caveat: I know most of the people on the list personally — I have broken bread with Roubini, Panzner, Taleb, Shilling and Rosenberg; I also greatly admire Faber, Grant and especially Grantham. So I have absolutely zero objectivity when it comes to evaluating these people.

Regardless, the entire article is well worth your time . . .


Time to Slip into Something Less Comfortable?
Jessica Silver-Greenberg
BusinessWeek, June 10, 2010

Category: Contrary Indicators, Cycles, Psychology

Lagging Psychology at Turning Points

Over the past few weeks, we’ve been debating the state of the economic recovery. The posts that have emphasized the shift in data towards the positive have generated a lot of pushback.

This is something that I want to discuss in general terms — I want readers to not only understand my perspective, but to grasp what typically occurs heading into recessions and recoveries, into new bull and bear markets. (Note I am speaking generally, and not referring tot he details of this cycle).

Over the next week, I will put together a broad overview of the positives and negatives of the economy, looking at the risks and opportunities presented. For now, let’s discuss the sentiment that typically accompanies oscillating phenomena,  such as markets or the economic cycle.

Today, I want to look at the big overview. Historically, the sentiment that occurs at inflection points are extremes. The are the result of the prior few years of economic/market activity. They lag the cycle — often quite significantly.


• Humans have an unfortunate tendency of to overemphasize our most recent experiences. We draw from what has just happened, rather than deduce based on what is occurring right now.

• Following that idea, the analyst community is typically too bullish at tops, too bearish at bottoms. They extrapolate from the most recent data to infinity or zero. Hence, they miss the inflection points.

• Sentiment is a justification of recent actions. Very often, equity buyers describe themselves as bullish after their purchase. The comments they make can are often an attempt to reassure themselves.

• Changing viewpoints is a gradual process. Flipping from bullish to bearish and vice versa is difficult. We remember what most recently rewarded us, and internalize that. After a period of economic expansion, we are slow to grasp the change for the worse. At the tail end of an ugly recession, we find it hard to imagine an imminent improvement.

• Investors develop the equivalent of Muscle memory. During a bull market, every dip that was bought made us money. When the cycle changes, we are slow to perceive it. Bulls become out of phase with what is taking place, buying on the way down in a bear market.

• The reverse takes place after a long Bear market. Selling rallies made us money, preserved capital during the downturn. When the sell off ends and a new bull cycle begins, the bears have a similar hard time getting back into sync with the market. Since it was so rewarding to sell into prior rallies, it becomes difficult to flip towards the positive perspective.

• Excuse making rationalizing the missed turn becomes endemic. We get conspiracy theories (the Fed is buying SPX minis!), complaints about the artifice of the market, Fed bashing, etc. They all have their roots in the missed turn. I even suspect some of the Goldman bashing (deserved tho it may be) is also partly rooted in this issue.

Consider this chart, which I first showed back in 2005 — but its worth reviewing again:



If you like these sorts of things, there are more psychology visualizations after the jump . . .

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Category: Apprenticed Investor, Cycles, Psychology

500 Year CRB Index (Annual)

I love the mere concept of this chart from Jim Bianco — the CRB Index going all the back to the year 1,450: > courtesy of Bianco Research > About now, you may be saying to yourself, “How on earth could anyone find this ancient data — and can it possibly be accurate?” The answers…Read More

Category: Commodities, Cycles, Technical Analysis

Did US Housing Have a Boom/Bust Cycle?

The NY Fed has a curious research piece out, looking at areas of Upstate New York that were “insulated” from housing price volatility. They note that many parts of the country have not experienced dramatic declines in housing prices, and upstate metropolitan areas of Buffalo, Rochester, and Syracuse even enjoyed price increases during the recession….Read More

Category: Credit, Cycles, Real Estate

Business Booms and Depressions Since 1775

Here is a fascinating piece of investing arcana — from the St. Louis Fed FRASER archives. A history of booms and busts from 1775- 1944. Emphasis is on post war economies.  As described by the paper: A study of the reaction of business activity immediately following previous wars can, in a measure, act as a…Read More

Category: Cycles, Markets

Counter-Cyclical Spending (during recessions)

One of the things I hate about a secular bull market — especially towards its rampaging tail end — is how everyone and everything gets silly. Money and champagne flows, conspicuous consumption is on full display. I recall people — literally — dancing on bars during the late 90s in NYC. To be sure, Fed…Read More

Category: Consumer Spending, Cycles, Psychology, Retail

Happy Anniversary: Top and Bottom!

By one of those oddly serendipitous coincidences, this week marks not one but two major Wall Street anniversaries: Happy Bottoms: The 12 year low was set one year ago this week. On March 6, 2009, the markets made their “Devil” bottom: The S&P500 hit 666.79, down 57.69% from October 11, 2007 high of 1576.09. The…Read More

Category: Cycles, Markets, Technical Analysis

Change in Recent Unemployment Claims Not Unusual

We’ve recently seen some noise about the “mixed” economic data. Looking at initial unemployment claims, this is not an unusual factor at this stage post-recession. >

Category: Cycles, Employment

The St. Louis Fed has made it official, at least through their lens.  The recession ended in June 2009.  As you read here first in January, late last year the St. Louis Fed discontinued the use of  recession shading (thereby signalling its end) in its graphs as of mid-2009. They have now retooled their Tracking the Recession page to…Read More

Category: Cycles, Economy, Employment, Research

How Cyclical Are Market Rallies?

Is this a coincidence or a real cycle? 82-85 days seems to be where the current rally runs out of steam, and needs to gather itself to make anew run higher. Courtesy of The Chart Store I would imagine this is a combination of many factors: Rally strength, preceding sell off, amount of cash flowing…Read More

Category: Cycles, Technical Analysis