Stock Market Predictions From Bad News Bears

by Silicon Valley Blogger on 2008-12-1118

Do you fall for dire stock market predictions and forecasts by bad news bears? Following, some experts share their opinions on the best places for your money when the market is bearish.

If you’re wondering where your stocks are headed next, my suggestion is that it’s best to make this analysis yourself. You can do so by using something as simple as a free stock charting and analysis tool, by checking out educational investor material, or by opting for more sophisticated services like Morningstar or other stock trading systems, which more serious investors and traders use. Such services exist to help investors make their own stock market prognostications with the use of educational materials, tutorials and tools. Or you can also find out what fellow investors and traders are saying at thriving investor communities supported by online discount brokers.

The more we learn about the stock market on our own, the less we’d be dependent on and swayed by what the talking heads have to say. For instance, I found an article on CNN that showcases the economists that are on the stock market bear bandwagon. Bad News Bears are hogging the spotlight right now and they say we ain’t seen nuthin’ yet. I think they’re adding fuel to the fire. How much should we believe them?

Here’s what some of them have to say… and what I have to say about what they have to say. But please note that I’m no financial expert, nor am I a financial adviser, and whatever opinions I share here are simply that. Opinions.

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Stock Market Predictions From Respected Bad News Bears

1. Dr. Doom aka Nouriel Roubini

He states that we are in a global recession that’s only going to get worse. 2009 will be awful, with a very weak recovery of 1% to 1.5% growth rate by 2010 and 2011, if we’re lucky. And 9% unemployment rate by 2010? His advice: Be out of the markets altogether over the next 12 months. No stocks, no commodities, no high-yield and high-grade credit. Go for cash (hello, high yield savings account), buy short and long-term government bonds. Preserve capital.
My Take: Geez, so it looks bad — so what happened to “buy low”? Obvious market timing advice here that suggests that the herd should abandon the course and instead, flee to safety. This may make sense for some retirees but the general populace?

2. Bill Gross, founder of Pimco, the bond giant

Yes, every major asset class has been hit badly — stocks, real estate, high-yield bonds, commodities. Only cash has held up (duh). He predicts single digit returns for years to come. Best investments: high-quality corporate bonds, high quality asset classes, preferred stocks of financial institutions.
My Take: Did I read that right — invest in financial institutions?

3. Robert Shiller, Yale professor

This guy is the favorite forecaster of a friend of mine. My friend is a successful real estate small investor who loves latching on to poor market cycles like a hyena on the hunt (vultures are so yesterday 😉 ). Anyway, he’s a fan of Shiller’s, who loves to throw around the “D” word (for depression). He frets that our confidence has taken a hit, but don’t we have short memories? He worries that the lower P/E ratios across the board are risky.
My Take: P/E ratios are low. Wait a sec — isn’t this a good thing? Stuff is cheaper!

4. Jim Rogers, commodities guru

I agree we’re in a “forced liquidation” mode, but this guy won’t stop harping about how commodities is where we should be since this asset class will lead the way towards recovery. He doesn’t like long-term US government bonds and thinks inflation will be back. He encourages us to stay solvent so that we can load up when we hit stock market bottom.
My Take: Wait, we’re down 50%. Isn’t NOW the right time? Aren’t we close? What are these guys waiting for? 😉

5. John Train, chairman of Montrose Advisors

I guess his 50 years of big investor experience soundly trounces my 20 year small investor experience in the markets. He says that we’ll have a severe recession but no depression (sigh of relief). Get ready for inflation, which means bonds are no good. He thinks that the markets have overreacted by pricing in depression in equities, so there’s opportunity here. He likes individual stocks of quality companies, but I’m less comfortable with this approach since I’m a lousy individual stock picker — my first stock market moves can attest to that. I also hate to spend my time monitoring single stocks.
My Take: He says we should buy when it gets *really* gloomy. So what do you call all these predictions today? A joyride?.

6. Meredith Whitney, analyst from The Oppenheimer & Co.

She complains about how potentially ineffective our government’s plans are to address economic armageddon. But she believes that lots of changes are in store for the banking industry, with banks consolidating, shrinking, dying out and going through lots of turnover. She predicts poor consumer spending till who knows when. Then of course, she hits us with “the economy will be worse than we expect”. Well, don’t we already expect the worst? I do, but I continue to be hopeful (for my sanity’s sake and the sake of my long term assets).

7. Wilbur Ross, billionaire chairman, turnaround expert

While many say that whatever the government does is useless, this guy believes that the government just has to do more. Obama should focus on unemployment to get us out of the mess by early 2010. In the meantime, if we’re worried about equities, then we should go for tax-exempt bonds yielding 6% (equivalent to 10% taxable), and TIPs (if you’re worried about inflation), whose prices are reflecting deflationary expectations.

Stock Market Advice For The Small Investor?

With all these “experts” coming out of the woodwork only to stoke the fire even further by coming up with frightening scenarios, what does it achieve? It sounds to me like the same story when the dot com era was upon us, and “experts” were saying how “this time, it’s different” and that stratospheric IPOs were justified in that new era. This time — once more — we’re facing a different extreme. But are things different enough to merit a change in our personal finance strategy?

Also, no two experts are alike when it comes to predictions, although they all agree about the obvious — that things suck. Some have said that ALL asset classes but CASH are bad places for your money. Some say that corporate BONDS are awesome, while other say government BONDS are the thing, while others say that coming INFLATION will kill off bonds except TIPS. Then of course, there’s the COMMODITIES czar saying that commodities are going to lead the way to recovery.

So everyone here agrees we’re up a nasty creek (duh) and shares their colorful predictions. Yet they suggest disparate approaches to ride the rough waters ahead. But are these really pertinent or even sensible suggestions for the small investor? Would you listen to these prognostications?

In hindsight, hardly anyone’s been consistently right about your money’s future. Nobody can ever really get it right. I noticed that something was missing here — where’s the old-fashioned advice to hedge your bets by diversifying and staying the course? I guess if you’re going to be a professional gloom and doomer with lots of money to throw around, you’re not going to be in the “diversify and hang on to your hats” crowd. You’re going to make wild, dramatic calls of Dow 4000; you’ll hedge aggressively, play concentrated positions and churn out market timing strategies. In short, I feel this advice is dangerous to (or at the very least, incompatible with) the small investor. Your take?

Copyright © 2008 The Digerati Life. All Rights Reserved.

{ 12 comments… read them below or add one }

Miss M December 12, 2008 at 6:59 am

I had the same reaction to Roubini’s advice, I read it somewhere else. Since the stock market typically leads the economy in a recovery, following him you would miss the bottom and therefore be buying high and selling low. I agree with your point about diversification, in fact the disparity in the expert’s advice should convince you that diversity is needed. No one is sure of the future, spread the risk around.

Ken Clark, CFP December 12, 2008 at 7:07 am

I’ve followed Bill Gross for years and think he is a straight-shooter. However, in the spirit of disclosure, Bill should have done a better job mentioning that:

1. He is recommending that people buy bonds, the very things he gets paid huge amounts to manage.

2. He works for a financial institution.

Still, the guy is a whiz.

Curt December 12, 2008 at 8:13 am

Peter Schiff should be #1. Peter has been more accurate for longer then any of these guys.

vilkri December 12, 2008 at 9:11 am

When the market and the economy are at a state where they are right now, nobody really knows how it will all play out. Historically there are not enough unusual episodes like the one we experience right now to draw some conclusions. Besides, when things are as dicey as they are right now, both the economy and financial markets overshoot on the downside. The questions are only how far will they overshoot and how many people will the overshoot take down.

Moneymonk December 12, 2008 at 10:54 am

“lower P/E ratios across the board are risky.”

I do agree!!!!!!!!!

Silicon Valley Blogger December 12, 2008 at 11:08 am


Would love to start a P/E ratio discussion. Lower prices can bring down P/E, making things “better value” but ONLY if earnings are maintained. Now if lower P/Es are due to lower earnings, reflecting any form of earnings growth slowdown, then YES, those lowered P/E values can be indicative of risk.

But too many people look to various valuation methods to assume that a stock is cheap. There are those who think that lower stock prices in the absolute are what makes a stock “good value”. I’ve tried to explain to many friends that stock price is NOT an indicator of value.

A low P/E can be seen as either “cheap” or “risky” depending on what it is that makes for its low measure.

fathersez December 25, 2008 at 5:37 am

At any time an expert has a 50% chance of getting it right. Someone who is right gets good press and publicity and the other 50% are forgotten. So they just say what they think.

I like the statement that you made in one of your earlier posts..something like if you don’t understand the investment, then it is not for you…. or something like that. Or was it Plonkee?


gearythedebtcouncellor January 1, 2009 at 10:14 pm

DOWN Down down! future predictions!

Goran Web Design March 28, 2009 at 3:55 am

I think that, taking the current economic climate into consideration, one should be very aware that the agendas being pushed might not necessarily be to the benefit of you, the investor, but perhaps will help to feather the nest of the guru, before the whole scheme collapses.

Investing Toolkit November 12, 2009 at 4:16 pm

This recession and the predictive calls dedicated to it have resulted in “make or break” scenarios for many financial and investment gurus who put their reputations on the line. Unfortunately, very few called out this massive blowup in our markets even though it seemed obvious that it just had to happen eventually.

Maybe it’s because we all thought that even if we were to face a credit crisis, a subprime mortgage crisis or whatever else, we’d somehow have a soft landing like we’ve had with recessions past; or maybe it’s because we placed a little too much trust upon the geniuses of Wall Street and our administration to pull us out of any impending financial armageddon that came our way. We underestimated what would happen: we thought we would remain untouched and invincible, seeing how far up we’ve come riding the relentless bull. We expected our well-oiled economy to be solid enough to withstand big shocks, especially after decades of plenty and built up confidence in our financial systems. How wrong we’ve been.

We shouldn’t forget that financial gurus and advisors are human too. Nobody has a crystal ball that can predict the future for our economy or our personal finances. We’re on our own here when it comes to our own financial situation, so the best we can do is to learn, study, pick up tips and gain as much knowledge as we can about our money. It’s up to us to disseminate the information at hand and make decisions based on what we know. And if we screw up, we know whom to blame.

yeah right June 25, 2012 at 3:53 pm

Why take advice from a financial guru? Most of them were wrong about this financial crisis!

John R. June 25, 2012 at 4:15 pm

If you’ve been a long time follower of any of these “gurus”, you’ll probably stick to their defense, even as casual viewers tune out. Unfortunately, this seems to have been the case for many investment gurus who dared stick their heads out, making a living by sharing their investment market predictions over the last decade.

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