Da Bears

With so much green on the screen these days, you would think its tough finding any bears. Justin Lahart in yesterday’s WSJ did us that favor, focusing on Merrill
‘s Richard Bernstein, J.P. Morgan Chase’s Douglas
Cliggott and Morgan Stanley’s Byron Wien — 3 well known Bears noteworthy for correctly calling 2000 — and spoke with them about the current environment:

"In 2000 when stocks hit new peaks almost daily, Merrill
& Co.’s Richard Bernstein, J.P. Morgan Chase & Co.’s Douglas
Cliggott and Morgan Stanley’s Byron Wien — all investment strategists — had
figured they were watching a worsening speculative bubble. Mr. Bernstein had
become bearish on stocks in June 1998. Mr. Cliggott and Mr. Wien, who have since
left their firms and become hedge-fund investment officers, had become negative
in February 1999.

They took a lot of flak from peers for their then-contrarian
views, but the three bears got it right, which makes their views worth hearing
out now. That is especially because these aren’t permabears, people who call for
the sky to fall every year and get it right every 10 years or so. These three
have had their bullish moments. Mr. Bernstein for a time in the mid-1990s was
telling clients they should be 100% invested in stocks.

Now all three have their doubts about the upside in stocks."

We are at a cyclical peak in earnings, mid double digit year over year for the SPX. This comes after  for 13 consecutive Qs of strong profits.

All 3 bears — Wien, Cliggott and Bernstein — believe profits are at risk in the quarter to come, and that could weigh on share-price gains and possibly push the major stock indexes lower.

Interesting article worth clipping. Reread it a year from now for laughs . . .



Blue-Chip Gains Rouse Bears
October 16, 2006; Page C1

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What's been said:

Discussions found on the web:
  1. Patrick commented on Oct 17

    Barry, you are not practicing what you preached in your excellent articles on stock market “Apprenticed Investors” (especially the article “The folly of forecasting”). You should probably go back and review them as those were some of the best articles on investing in stock markets that I’ve read.

    Let’s see here: Richard Bernstein was wrong by almost two years about the dotcom crash (Nasdaq went from 1,900 to 5,100); Cligott and Byron Wien were off by a little more than a year (Nasdaq went from 2,300 to 5,100). If you sold in 1998 and early 1999 by listening to these gurus, eventually, you would capitulate and force yourself back into the market near the peak because you saw that the market went up by more than 100% and everyone was making money except you.

    As Keynes said, “The market can be irrational longer than you or I can stay solvent”. The tape is telling us that the market is bullish.

  2. T commented on Oct 17

    Patrick, you’re basing your blame not on their call but on a hypothetical capitulation… I’d note that the NAS is still below the level it was at when they made either of those calls. It’s not fair to say you’d pull out on their word but then blame them for not listening to their call a year later.

  3. Josh commented on Oct 17

    If something is a buy and it sells off, it becomes a more attractive buy, as long as the fundamentals didn’t change.

    Patrick, if something is a sell, and it goes up, it becomes a more attractive sell…unless you drink the kool aid.

  4. Patrick commented on Oct 17

    No one knows what the market will do twelve months from now. All that we know is for the near term, what is the market likely to do. All the pundits fret about the housing bust, about high valuation, about high commodity prices. Well, commodity prices have corrected. That is extra money and tax cut for the consumer. The housing bust? well, American consumers must be idiots because they are still spending money. Look at the consumer discretionary stocks going ballistic. High valuation? Well, valuation is high compared to historical average. But there is a lot of liquidity in the market. Japan’s central bank rate is 0.25%. The Fed fund rate at 5.25% is lower than historical average. Valuation when compared with very low interest rates are not expensive.

  5. lurker commented on Oct 17

    Yes Patrick. Anyone who listens to gurus and acts on the recommendations of guys who do not publish their track records (oh, I am a strategist, not a PM) deserves whatever they get, or, in this case, don’t get. Not sure what they do at their hedge funds, maybe lunch with clients so the traders can work without distraction????!

  6. KP commented on Oct 17

    I see the market as having a lot of stored energy, I doubt it would not take much to unwind that energy in either direction(but it’s got more downside risk then up, IMHO). Given the pretty good run up over the last three years, I think a lot folks have recovered from 2000 pretty well, and should think about shifting their asset allocations a bit to limit their risk. I keep hearing the argument that one should never fight the tape….and it reminds me of Wyl E. Coyote who just keep on running until suddenly the road beneath him was gone. There is just too many negatives/positives, at the moment, and the market can only ignore them for so long.

  7. Barry Ritholtz commented on Oct 17


    Thanks for the kind words on the Apprenticed Investor series.

    Nothing in macro perspective has changed — and I also have made numerous shorter term buy and sell calls since the year began. (See these RR&A commentaries)

    If I believed in Forecasting, I would have been short since January — which I am decidedly not. Indeed, I have been selling into strength — not shorting. My portfolios are now 70% cash, 30% long.

    Make sure you distinguish between theoretical discussion of macro-Economics, and trading and/or investing;

  8. Patrick commented on Oct 17

    By the way, before the bears start screaming short the market again, today’s sell off was expected because the S&P500, Nasdaq100, and Nasdaq Composite were all at key resistance level. And we had had a very good run since July. We can probably see one or two more days of selling…But I would not be surprised that buyers will take this opportunity to scoop up stocks.

  9. Mark commented on Oct 17

    Patrick said:

    “No one knows what the market will do twelve months from now. All that we know is for the near term, what is the market likely to do.”

    REALLY? You are that good that you can make short term calls? I’ll be damned! What is the name of the fund you run?

  10. S commented on Oct 17

    And Brian Wesbury writes in today’s WSJ the market is 35% undervalued. Pick your poison.

  11. ken commented on Oct 17

    Pundits who predict the direction the ‘market’ have interesting perspectives and should be heard. But the ‘market’ doesn’t follow predictions.

    The key to successful investing is to avoid trading the ‘market’ and buy or sell the stock of individual companies instead.

    Being right on the price action of an individual stock is a hell of a lot easier than being right on the price action of the ‘market’.

  12. T commented on Oct 17

    “The housing bust? well, American consumers must be idiots because they are still spending money. Look at the consumer discretionary stocks going ballistic. ”

    Wealth effect is a lagging impact. Homeowners aren’t out there calculating their net equity every day and spending at the mall based on their gain. It takes months, if not years, for spending patterns based on household equity gains to impact personal expenditures (this is also true on the upswing.) The “shoe” drops as soon as either they expend the cash / debt capacity from their last home equity draw down, or a friend/neighbor/relative gets into trouble trying to sell a house or goes bankrupt from overextending. It’s like risk homeostasis — behavior is determined by perception, and changing perception takes time. People don’t make decisions on their Starbucks purchases based on the latest NAHB report.

  13. BDG123 commented on Oct 17

    Ditto, on the sold to you statement. So Brian Wesbury thinks the market is 35% undervalued. That would mean the R2K and Transports deserve a PE of 50 and the S&P near 30? Hmm, can he show me his historical PE chart where that isn’t defined as the post overvalued since the days of cavemen and stock trades conducted on stone tablets, sans 2000?

    I don’t mind if someone says something stupid, because we all do that often. It’s that the WSJ would actually post it. These guys that use the Fed valuation model on one specific segment, ie, the S&P 500, are just irresponsible and permanently stupid. Did cheap rates keep the market from tanking post 2000 or post 1929?

  14. ari5000 commented on Oct 17

    wow — stocks trickle up for days now…

    First downbreak is HUGE.

    Get your QIDs on. This first dip could get ugly.

  15. alexd commented on Oct 17

    I can predict the market.

    If 10 of you send me let’s say a thousand bucks apiece I can tell half of you it is going up and half of you it is going down.

    Yes I guarantee my results! I will return the money to anyone where my call is wrong!

    Then I will ask 3x as much from the remaining folks for the next year!


  16. Michael C. commented on Oct 17

    Well, if everyone was roaring to buy last Thru & Fri, they and all those that missed it should be out in droves again buying it up today.

    We’re now back at those price levels.

  17. Mark commented on Oct 17

    If this gets to 120-140 pts off the Dow THEN I will call it “huge”. Til then the Bulls will say that it met technical resistance and sold off some. They have the spin all prepared. Never mind today’s awful numbers and the continuing tech downgrades.

  18. joe commented on Oct 17

    It’s interesting that traders actually found the Sell button. It felt like they had been deciding between the Buy and Buy on Margin buttons

    Anyone see NVR’s comments re: Wash DC? Orders down 39%, price down 25% y/o/y. Yikes…

  19. Michael C. commented on Oct 17

    >>>Anyone see NVR’s comments re: Wash DC? Orders down 39%, price down 25% y/o/y. Yikes… <<< I'm still waiting for all these home builders to announce layoffs. And the uptick in unemployment from all the housing related jobs created in the last 3 years. ie. Does NVR need all those 5,400 employees if the cancellation rates are running 24-39%? Still with such a horrible report, NVR isn't down all that much. What's the thinking there?

  20. Mike commented on Oct 17

    “What’s the thinking there?”

    That is currently not requisite.

  21. Mark commented on Oct 17


    Do you idjits have a little book of these sayings that gets passed out at meetings? Is the “stopped clock” one next on the list? Perhaps the canard about forward looking earnings means the market is cheap by historical standards?

  22. MSA commented on Oct 17

    Could someone explain to me why Rich Bernstein and Doug Cliggott suggest selling financial companies next year?

    I thought that with the Fed expecting to ease interest rates next year, financial companies would gain? .

  23. CV commented on Oct 17

    “The key to successful investing is to avoid trading the ‘market’ and buy or sell the stock of individual companies instead.”

    every significant study would in fact dispute that– by far 90% plus investors would be better off buying indices and not stock picking–don’t you read the wall street journals “pro’s picks” annual returns, or Nightly Buisness Reports market monitor series?–it’s a laugh—and these guys get paid to “pick stocks”. Learn the difference beyween extrinsic risk and intrinsic risk– with individual stocks, you get both, with indics, you get “just” extrinsic risk.

    unless your Buffet, you are spewing bad advice my friend. Read some books

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