Media Appearance: Kudlow & Company (12/18/06)


I’ve been avoiding doing much tube lately (until we have our announcement in 2007) — but at Larry’s request, I am back in the studio tonite, at 5:00 – 5:25pm.

The topics will include the wild Bullishness on Wall Street, the declining Transports, Large Caps beginning to stir, and some of the less believable economic news releases (i.e., CPI and Retail Sales)

Guests include the David Reilly of Rydex, John Rutledge — with special appearance with former independent counsel Ken Starr, now Pepperdine University Law School dean.

A few random thoughts about these items:

Everyone is Bullish! 

My colleage James Altucher called for Dow 16,000 next year; Don Hays last week is looking for a 27% Gain in SPX in 2007; Cody’s Get Real column essentially says ignore everything else, only the rally matters;

So notes Bloomberg, in an article:  Stock Strategists Raise Alarms With Call for Rally

"The last time Wall Street unanimously predicted an advance
for the S&P 500, in 2001, preceded a 33 percent slump over the
next two years . . .

The lack of dissent among strategists has caught the
attention of some investors. Since the current bull market began
in October 2002, at least two strategists every year have
estimated declines for the S&P 500 in their annual forecasts."

Firm             Strategist             Forecast*
Banc of America  Thomas McManus         1465
Bear Stearns     Francois Trahan        1550
Citigroup        Tobias Levkovich       1600
Deutsche Bank    Binky Chadha           1540
Goldman Sachs    Abby Cohen             1550
JPMorgan Chase   A. Chakrabortti        1440
Merrill Lynch    R. Bernstein           1570
Morgan Stanley   Henry McVey            1525
Prudential       Edward Keon            1630
Strategas        Jason Trennert         1600
UBS              David Bianco           1500
Wachovia         Rod Smyth              1500
Average                                 1539

* Year end or 12-month forecast


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What's been said:

Discussions found on the web:
  1. bk commented on Dec 18

    Dow 16,000? SPX up 27%??? They must be smoking something really good over at!

    Doesn’t anyone on Wall Street understand how much consumer spending will drop with a decline in the housing market? Although I personally think we are in for a big drop, it will only take a small drop to kill HELOC activity and force lots of RE-related layoffs – a few of which are happening now.

    Count me in the crowd that just ‘doesn’t get’ this market.

  2. Donaldo commented on Dec 18

    Yeah count me too among the skeptics. I’m surprised that this rally has gone
    so far. It’s unbelievable that people think the market will be up that much
    in 2007. They may turn out to be right, but what is their argument? That
    everybody is stupid and thus will keep on buying? Well, we’ll see. Gun to head,
    I’d bet the market will be lower in 2007.

    Barry, it’d be nice if you gave advance notice of your media appearances (too late to set my

  3. Francois commented on Dec 18

    27% gain in the SPX for 2007?

    Gee! That smells like a parabolic advance doesn’t it?

    Remind me again what happens after a parabolic advance?

    Alrighty then! Trading shall be long and strong with DOOM puts aplenty as protection should do the trick.

    2007 should be quite entertaining.


  4. Jordan commented on Dec 18

    Dow 100,000 million and the price of water goes to $500/a pint, a sandwhich costs $1000 and gas is 300/gallon.

    Pay attention to money supply and M3- that looks like its going to go parabolic. Any correction in the stock market will be followed by Uncle Ben spiking M3 to re-prop the markets.

  5. Eclectic commented on Dec 18

    Way’da go, Fearless Leader!!

    You stand tall! Great Sit-N-Spin tonight!

    Bein’ wrong for logical reasons doesn’t mean you have to then sacrifice a first-born child as a toss-in. You’re dead right in my opinion.

    And, anybody that thinks SarBox ought to be done away with, in the face of the revelations of all the option backdating, huge amounts of which were accomplished IN THE VERY FACE of SarBox, is just being silly.

  6. angryinch commented on Dec 18

    The market may go up 30% next year. It may go down 20%. It might be flat. Who knows. I don’t know and neither do these fine gentlemen.

    But there is one thing that unites all of them: they are all heavily positioned long right now. So they are essentially talking their book.

    Hays is always 90-100% long. The rest of them hedge from time to time, but a 30% rally in 2007 would benefit them greatly while a selloff would punish them. So they need to talk bullish to convince themselves and others of the correctness of their investment postures.

    Sure, they talk a good game about funnymentals and so forth. But i recall that everyone was bullish about the market and funnymentals going into 2001 as well, not to mention 1987 and 1973, and so forth.

    The market will do what it does. Follow the prices. Don’t put too much weight on folks whose are talking their book.

    You really expect a guy like Hays, who’s 100% invested in stocks, to say, “Gee, next year looks like a crapshoot.” Of course not. He’s going to say, “2007 looks like a barnburner.” Of course, he predicted 20-30%+ gains for 2004, 2005 and 2006 as well. As did Ken Fisher. To their credit, they got the direction right, but failed on the amplitude.

    Guys like Hays, who are 100% invested, need to talk bull. Why? Because if you’re 100% invested, you have nothing left to invest. So you need others to come on board. Otherwise the market can’t go up.

    Guess we’ll find out soon enough whether this “money on the sidelines” will join the party or whether there are too many folks, like Hays, who are 100% invested at the wrong time.

  7. Eclectic commented on Dec 18

    Option backdating is THEFT, pure and simple.

  8. Bill a.k.a. NO DooDahs commented on Dec 18

    Oh, I get a kick out of Barry getting on Kudlow to say “everybody’s bullish!” The Bloomers consensus of 12 only calls for an 8% gain, which is below the historical average, and even though all twelve called for some gain, two of them placed it at less than 3% for the year, and only one had the temerity to predict an above-average year (14.4%). Median, mean, and modal annual returns on the market index are all pretty much 12% and 15%+ returns happen about 4 years out of ten. The Bloomers group of 12 isn’t especially bullish in my opinion …

  9. Steve commented on Dec 18

    There’s one of those that really sticks out. Long time bear Richard Berstein is projecting S&P 1575. Wow! That one might be a bit significant from a contrary point of view. When did he turn bullish?

  10. muckdog commented on Dec 18

    While there are signs of rampant bullishness from investment personalities, I think there is still some fear and skittishness by retail investors. Wouldn’t a final blow off top in the market include participation by those folks?

    Not to say we won’t have a correction here or there and maybe soon, but a full blown bear market?

  11. Barry Ritholtz commented on Dec 18

    Lots of skittishness from retail — they were burned in equities in 2000, some rotated into Real Estate, others were in bonds, lots were simply indexed, and plenty simply stayed away.

    But historically, the psychological damages crashes cause takes more than just 5 years to repair — look at the post 1929 period, or Japan in post 1989. In some cases, it took generations (although I am not sure that will be the case here).

  12. jjr commented on Dec 18

    Barry, why were you talking about Sarbanes-Oxley and hedge funds? Kudlow could have picked much better topics. He wasted my time with that crizap.

    I’m taking this opportunity to reprise my post from Friday with a few edits.

    The best contrarian signal going right now is that former market bears have started making bullish calls for 2007. Take that cracker Bernstein from Merrill.

    Is the seemingly meaningless banter of CNBC anchors about the GE mothership and children’s college a bullish indicator? The giddiness, the manufactured meaningless milestones … bullish or bearish? How about all these calls we’re getting on the S&P in ’07 for 1500, 1600, 1700? That’s bullish? Or is it bearish?

    How about all the insane momentum chasing that’s been taking place in marginal issues? Bullish or Bearish? EFUT? Give me a break. What about the rumors in MAMA that Mark Cuban had to publicly refute? Once again, is this activity in the worst market dreck bullish or bearish? One-day reversals … wouldn’t be sign of toppiness, would they?

    I’m going out on a short limb and predicting a rather unsurprising sell-off no later than January 2. Harken back to January 2005 and tell me what happened once the tax year rolled over? A lot of postponed gains were taken. Why should it be any different this time. Nobody who is up for the year wants to book another profitable trade and increase their tax burden. This song has played before. There’s a decided lack of selling pressure for this reason. Buying pressure from the alpha seeker fund managers and traders who need to chase performance and meet or beat their peer’s numbers, this will end Jan 2.

    It’s not just the housing market that is a problem, although the bulls seem keenly interested in fixating on just that one indicator. We also have the continuing inverted yield curve, and the weakening US dollar. It’s the giddiness in the markets. It’s the slowdowns in manufacturing and trucking. If you care to hang your hat on lagging indicators like employment and retail spending, well then no worries. The preponderance of the evidence suggests that Goldilocks is dilly-dallying while the three bears loom ever large.

  13. Gary commented on Dec 18

    “At major market tops the whole world seems to be long” Victor Sperandeo

  14. MarkM commented on Dec 19

    “Median, mean, and modal annual returns on the market index are all pretty much 12%…”

    WHAT? You will have to show me the sample for THAT dataset.

  15. Bill a.k.a. NO DooDahs! commented on Dec 19

    MarkM. Download S&P 500 from 1950 to present, daily data, from Yahoo. Perform a column of calculations of annual returns, starting each day and measuring a year from that day. Then use the statistical functions in your spreadsheet program. Proof is left to the student. WHAT? Do some analysis yourself, you might be surprised …

    jjr. 1500 is bearish; 1600 is neutral; 1700 is bullish. A 1500 call for year-end assumes that money markets will likely outperform equities, and that is bearish IMO.

  16. blam commented on Dec 19

    Short term the market is losing momentum but I don’t hink it’s quite ready to sell off big.

    Watch for short term bear trap ahead. Too much confidence that the money gods continue on the side of the speculators.

  17. jjr commented on Dec 19

    Bill NoDooDahs, the S&P closed yesterday at 1422 and change. You’ll have to do a better job of explaining to me how 1500 is bearish. 1400 is bearish, as is 1300 and 1200. At best you could argue that 1500 is neutral, 1600 is bullish, and 1700 is wildly bullish.

    Put me firmly in the camp that is looking for lower lows in 2007 than 2006. I wouldn’t be surprised by S&P pulling near to 1200 in 2007. Not saying it’ll close out the year there, but I believe it’s not such a wild-assed point to sell off to.

  18. Bill a.k.a. NO DooDahs commented on Dec 19

    blam: if I told you that equities would return 1500-1422 = 78, which is 78/1422 = 5.5%, does that sound like a bull call? Frickin’ money markets make near that with no risk.

    Get the picture?

    Who’s gonna buy equities with that kind of return?

    1500 = bearish.

  19. MarkM commented on Dec 19

    “Download S&P 500 from 1950 to present, daily data, from Yahoo.”

    Okey-dokey. That’ll be a rigorous look at historical market returns. In my book, that is called CHERRY-PICKING the data, which is why I asked you the question.

    I’ve done the work doo-dahs and why we disagree is evident in your answer. 12% average from here on out eh? SOLD TO YOU!

  20. jjr commented on Dec 19

    Bill you seem to be suffering from some sort of bias. I’m not entirely clear what it is. But, you’ve made my point quite well.

    S&P 1500 = neutral.

    1. You’re leaving out dividend yield of S&P.

    2. Why should anyone expect that any index returns more than risk-free 5.5%?

    p.s. Every single one of my short positions down at this time. That’s by no means neutral.

  21. Bill a.k.a. NO DooDahs commented on Dec 19

    Mark, you can do the same calculation with 106 years of the Dow, or any significant i.e. multi-decade stretch, and the appreciation will always come out 10-13%. It’s the norm.

    jjr, we ALL have biases. If you include dividends, you have to include them in the historical averages. So +7.5% compared to an average of 12-15%, assuming a (currently low) 2% yield. It is still below average. It still assumes little risk premium.

    Why should people assume? I don’t know that, but I do know that historically, equities have typically outperformed “risk-free” investments, year over year and especially over multiple years. One should EXPECT returns over “risk-free” if one chooses to allocate funds to risk. If one EXPECTS risk returns close to risk free, one is a fool to take risk.

  22. MarkM commented on Dec 19

    “Mark, you can do the same calculation with 106 years of the Dow, or any significant i.e. multi-decade stretch, and the appreciation will always come out 10-13%. It’s the norm.”


  23. F commented on Dec 19

    Your calculations are on crack. The average annual appreciation of the S&P500 over the last 50 years is almost exactly 7%, not counting dividends (and since these forecasts also do not count dividends, lets do the apples to apples comparison).

  24. F commented on Dec 19

    Just to be try to get your numbers, I found that the average annual appreciation (ex-dividends) from the low in 1974 to the high in 2000 is 12.7%, but that’s some pretty extreme cherry picking.

  25. Bill a.k.a. NO DooDahs commented on Dec 19

    Download the spreadsheet.

    Now, add a column to the right of the closes. Take the Dec 18, 2006 and divide by the Dec 19, 2005, subtracting 1. You should get a 12.9% gain. This will check your formula. Copy this formula down the spreadsheet all the way to Jan 4, 1951.

    Now you have a column with annual gains from 1950 to present. The average is 9.1%. Median is 9.5%. That’s over 56 years, and doesn’t include dividends, which are about 1.8% now and typically are over 2%.

    Given that the index is priced in dollars, and there was no floating currency exchange before March of 1974, I never use returns pre-’74 because monetary policy influences the stock market, and monetary policy changed then; call that cherry-picking if you will. I like using data starting in 1980 because it gives me good weekly data files from the St. Louis Fed database to use for comparison; again, call that cherry-picking if you will.

    If you take the annual returns, starting from every entry day from Jan 1980 to Dec 19 2005, you will get an average 10.8% and median 11.2%. The index in Jan 180 was 105.76. Going from there to 1422.48 in 16.95 years is 10.1% annualized, not including dividends.

    I haven’t done the calculations with the Dow or Naz, I find them irrelevant to me.

    Mark, suffice it to say, I’m buying from you, man. Thanks for selling to me! How are your returns this year? Better than Barry’s?

    As of month-end November, my YTD was +23.9 and my rolling 12 month was +26.5, no options or future, just stocks. I’ve been on the right side of the rally.


  26. MarkM commented on Dec 19


    We’ve already established that you cherry pick your data. Now you are at it again with your one year returns. No one cares!(or should).

    My impression of people that come on this board bragging of this or that means that basically, they don’t know sh*t.

    Yes, you are creaming me this year man. Hats off to you! Whoo-hoo! But like your disdain for the Dow or the Naz, I find it equally irrelevant, and, if you had some modicum of sense about it, would you.

    Good luck to you DooDah.

  27. F commented on Dec 19


    I’ve done exactly as you say. The mean annual gain is in fact 9.1% since 1950. The annualized gain since 1950 is 8.1%. Neither of these is 10-15%. I’ve already explained how cherrypicking gets you to 12.7%.

  28. F commented on Dec 19


    The discrepancy between mean and annualized gains is easily explained by the fact that any given annual percentage decrease is more catastrophic and less likely than the same annual percentage increase (for instance, try 200%). In other words, a 20% gain in one year is wiped out by a 16.6% loss the next.

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