I went to CNBC an hour early yesterday, to have lunch with Herb Greenberg. For those of you who don’t know Herb, he is one of the great investigative business reporters, a professional skeptic who cut his teeth as a Journalist at the San Francisco Chronicle for 10 years. (Herb actually has his own "Tab" at Marketwatch — mouse over News & Commentary).

We discussed alot of different things — his newfound enjoyment of blogging, who was the Worst CEO of 2006 is (Ilia Lekach of Parlux, with Overstock’s Patrick Byrne as runner up), the run up in The stock.

One of the things Herb brought up was my Bullish call on SemiConductors in the Summer of 2004. At the time, Semis were widely despised, AMD was not being taken seriously (it was ~$11), and the Semi Holders were under $30.

Indeed, at the time, it was such an unpopular position that the WSJ ran a discussion of it in their Quite Contrary column: "Placing a Wager On the Chip Sector: Maxim Strategist Ritholtz Sees Tax-Incentives Sunset Picking Up Semiconductors: " (if no WSJ, then you can see the an excerpt of the article here).

What I particularly like about that piece was the fact it was Bullish when most people were negative on the sector. Our discussion is quite bullish on not only Asia, but on Japan — long before it became "trendy." In fact, when I got Bullish in the fall of 2002, and made many more Buy’em calls then I did Sell’ems, I got much of the same grief I am enjoying now — the same Perma-Bull criticisms of those who disagreed with me that I now hear from those who accuse me of being a Perma-Bear. Apparently, these are a different set of people who disagree with me.

Regardless, the common thread is that whenever I stake out an unpopular position, one of the ways it gets dismissed is by calling the author a Perma-XXXX.   


Have I been very Bearish this fall, even as the market ran ever higher? Absolutely, no doubt about it.

However, I simply cannot ignore the lessons of the past, and the obvious present indicators which suggest we are heading into a very significant slowdown, with all the repurcussions that will have for the consumer spending, corporate revenue and earnings, and of course, the markets.

But Perma anything? hardly . . .

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  1. emd commented on Dec 7

    possible double top in the DJIA??…. (of course i thought that around 12,200 as well)

  2. Sailorman commented on Dec 7

    I have a question: you don’t expect the housing market to experience a hard landing, but you imply the general economy will; if housing is having heartburn while the general economy is still relatively strong, what will happen to housing if the general economy has a hard landing?

  3. Barry Ritholtz commented on Dec 7

    I expect the housing market to deflate from extended levels by 35% or so (I’ll get a chart up later today).

    However, I do not expect a “crash” or a bubble popping to decimate housing the way the tech crash decimated Nasdaq, down 78% from the top.

    Even a further modest slowdown in Housing will have serious repurcussions for the economy.

    In most cycles, Housing is an “effect;” In the rpesent cycle, its been a “cause.”

  4. spencer commented on Dec 7

    The interesting thing is that great calls like this are typically greeted with skepticism– otherwise it would not be a great call.

    But the consequence is that very few people ever act on great calls like this — especially if it is a sell — so you get very little credit for it.

    Over the years I’ve probably lost more clients for being right then for being wrong.

  5. Michael C. commented on Dec 7

    possible double top in the DJIA??…. (of course i thought that around 12,200 as well)

    Yes, it’s possible. But unconfirmed unless Dow breaks under at least 12,080.

  6. Philippe RAFAT commented on Dec 7

    The status of investors is an evolving situation, there is not preset suit.Please see the hereunder blomberg comments
    Dec. 6 (Bloomberg) — Stock sales by America’s corporate chieftains exceeded purchases last month by the widest margin since 1987, suggesting they don’t share the confidence of investors who sent the Standard & Poor’s 500 Index to a six-year high.
    At this juncture are investors having more business intelligence than the founders or CEO’s of corporations? if so it is an other reason to sell the stock market.

  7. xr commented on Dec 7

    I think part of the problem is there are too many cramer types making hundreds of calls and then if one works out they go back and pick a nugget out of something they said and later proclaim “see i called this bottom”. unless you can show that you actually made the play its just so much hot air that is not actionable.
    The cramers of the world have taught us that market predictors always brag about their right comments and accidentally forget their bad calls.
    There are some even worse than cramer. Tobin Smith at changewave is one. They spam you with email about their 100% gains.But when you look at their actual portfolio here is some of what you see:DESC Distributed Energy Systems 01/18/06 $9.44 $3.70 -60.81% $6.00
    FCEL FuelCell Energy 06/28/05 $10.38 $6.62 -36.22% $12.50
    INSM Insmed 07/01/03 $3.00 $1.33 -55.67% $2.00
    NFLD Northfield Labs 03/18/04 $16.00 $13.44 -16.00% $12.50
    RNAI Sirna Therapeutics 10/13/06 $6.50 $12.63 94.31% $7.00
    XNL Xethanol Corp. 06/19/06 $8.39 $2.66 -68.30% $8.50
    I guess the moral of the story is that unless you can show that you actually beat the market trading all these calls its hard to gain respect.

  8. joe commented on Dec 7

    Barry, isn’t the difference b/w a 78% “crash” in the NASDAQ and a 35% “deflating” of housing, leverage? You can lever up stocks 2-1 (more if you use total return swaps but lets keep it to the common man) but with houses the most conservative leverage is 4-1 and many basically bought on 100% margin. Thus a 35% housing decline could be as bad or possibly worse as a 78% stock decline.

  9. BDG123 commented on Dec 7

    It’s a rare breed who doesn’t run with the pack. For that, you will always be successful. Everyone is an expert in something even if it’s babysitting. No one can be an expert in everything so those truly looking for guidance based on trust will find you.

  10. Mike M commented on Dec 7

    You’re right on Barry. I have been bearish for over a year based simply on fundamentals, but I am certainly not a perma-bear. It is very hard to be different though when talking to clients and colleagues.

  11. mike commented on Dec 7

    Non-critical thinkers find it easy to criticize, but if they’re not interested in hearing oposing views they should turn off bubblevision, or stop reading altogether. Differences are what keeps the world interesting; I also like the liquidity it provides. Keep doing what you’re doing Barry – it’s quality work.

  12. dblwyo commented on Dec 7

    Here, here, Barry. Thanks for those two points of clarification on housing. Didn’t make the point yesterday but it came across a pooh-pooing a major housing downturn (35% fits my definition therein) but rather as we’ve already reached the bottom. At the time my reaction was to filter it out as being one of the few times I didn’t consider you well grounded and disagreed.

    Combine the ‘new’ explanation of housing with your argument that chances of a recession in ’07 are 60% now makes much better sense, seems consistent, and – fortunately for my self-respect, sanity and investment planning – is pretty much inline with my own thinking.

    Now I feel so much better. Thanks. :)

  13. jmf commented on Dec 7

    one add to phillipes comment

    Executives ….in aggregate sold $63.18 of shares for every $1 they bought in November, ……. That’s the highest since at least January 1987.

    Insiders sold $8.4 billion in shares last month, ……. Buying was almost $133 million, for a sell-buy ratio of 63.18.

    That ratio surpassed a previous high of 62.76 reached in July 2005.

  14. Michael C. commented on Dec 7

    That ratio surpassed a previous high of 62.76 reached in July 2005.

    And, except for the month of Oct 05, the market has been above July 2005 levels ever since.

    As far as the January 1987 selling, the market later that year had the Oct 87 crash, recovered by Sept 88, and never looked back.

    I’ve seen this insider data emerge many times and have always found it to be a difficult if not impossible timing tool.

  15. Ralph commented on Dec 7

    Perhaps you should be called a perma contrarian :)

  16. rob commented on Dec 7

    Imo there will be an actual housing crash in many parts of florida, you would have to travel the state regularly to understand how many condos and townhouses are still going up now that every investor already has three of them.

    In my town they built luxury townhouses in an industrial part of the city directly across the street from an epa brownfield.

    Attractively priced from the $300’s.

  17. Macro Man commented on Dec 7

    Being married to one’s positions is akin to cheating on one’s spouse: dangerous and sure to cause trouble when discovered.

    Being a perma-anything is an intellectually lazy stance, as it generally forces one to reject any contrary data out of hand. Who needs facts when one has a good story?

    While I disagree with the author of this site on a number of issues, I respect his diligence and the effort that he puts into this blog. However, one small criticism I would level is the failure to address any data or news that is contrary to the underlying view.

    To wit, if the manufacturing ISM waved bye-bye to Goldilocks, why no mention of the non-manufacturing data that at least extended an invitation to come again soon? How about a piece on “what could I be missing” that has driven stock prices higher?

    In my experience we learn more by examining the datapoints which challenge our view than by cheerleading those which support it. This has the benefit of (hopefully) ensuring that the view is the RESULT of analysis, rather than the STARTING POINT of analysis.

    For those of us taking risk in financial markets every day, this is an especially important discipline.

    As an aside, I would note that two very large differences between the current market and 1987 are that a) in 1987, earning yields on stocks had been falling for several years; currently, they’ve been rising for several years, and b) in 1987, earnings yields were substantially below treasury and corporate borrowing rates, while today, the earnings yield is above the entire treasury curve and much investment grade corporate debt a well.

    Yes, earnings growth is likely to slow, but that’s a much healthier starting point than we had 19 years ago.

  18. Michael C. commented on Dec 7

    All this talk about housing crashes in places like Naples, FL…

    …so how are the local economies doing in these neighborhoods?

    That would at least give us another data point to extract how housing will effect the general economy.

  19. GS commented on Dec 7

    You are going through what every person in your position has gone through since stocks started trading in 1792. A reposting of the following quotes from Jesse Livermore reminds me that the more things change in the market, the more they stay the same.


    The Livermore Formula for Combining Time Element and Price
    By Jesse L. Livermore

    Copyright, 1940
    Published by Duell, Sloan and Pearce
    New York

    Chapter 5
    The Pivotal Point

    Page 47 – 48
    “I do not use the words “bullish” or “bearish” in defining trends of the market, because I think so many people, when they hear the words “bullish” or “bearish” spoken of marketwise immediately think that is the course the market is going to take for a very long time.”

    Well-defined trends of that kind do not occur very often — only once in about four or five years — but during that time there are many well-defined trends which last for a comparatively short time. I consequently use the words “Upward Trend” and “Downward Trend,” because they fully express what is going on at that specific time. Moreover, if you make a purchase because you think the market is going into an Upward Trend, and then a few weeks later come to the conclusion the market is heading into a Downward Trend, you will find it much easier to accept the reversal in trend than if you had a confirmed opinion that the market was definitely in a “bullish” or “bearish” stage.

    Page 54
    “Fascinating almost beyond belief, the study of Pivotal Points is, you will find, a golden field for personal research. You will derive from successful trades based on our own judgment a singular pleasure and satisfaction. You will discover that profits made in this way are immensely more gratifying than any which could possibly come from the tips or guidance of someone else. If you make your own discovery, trade your own way, exercise patience, watch for the danger signals, you will develop a proper trend in thinking.”

    Page 55
    “Few people ever make money by trading on the occasional tips or recommendations of others. Many beg for information and then don’t know how to use it.”

  20. Rob commented on Dec 7

    Imo the economy is still strong in the boom towns in Florida but then there is still a remarkable amount of building going on.

    I am seeing more stalled projects in my area where they setup to start pouring concrete three months ago and nothing has happened since.

  21. Cherry commented on Dec 7

    The “echo-boom”, the same things could have been said of the era in December 2000.

    Housing is such a slowride down, but such a slowride up.

    Some points the ride is faster down than others. The June-August ride was a much faster fall than the September-November timeframe(though October was a stinker while September and November had modest growth). The decline in starts and sales in recent month(s) is a echo of that summer decline. If the housing market has another ride down like June-August, a recession is a sure bet. Starts will fall to or below 1.000, sales will fall back to pre-2000 levels, prices will fall harder and faster.

    The industry is on edge, its current decline to “normality” has shaken it enough, a decline to classic bust would rock the whole economy and recess that “other 80%” that is holding things up probably also busting the mini-bull(compared to recent past) market. You can’t say this is a bottom because a series of bad months again will spell recession. The soft landing camp is in a PR front more than a reality based front. They are trying to will housing to stop declining. At some point they might be able to declare victory, but that point hasn’t been reached.

    2007 will be interesting year.

  22. blablabla commented on Dec 7

    mr ritholtz
    stephen roach had a interesting video dec 5 (bloomberg—>stephen roach video sydney)

  23. Barry Ritholtz commented on Dec 7

    I already had earmarked that for the weekend linkfest

  24. Phil commented on Dec 7

    In order to have a real recession,people should get disappointed. Thus, they should get some hope first: 150 000 new jobs tomorrow! The stock market will boom, people, who shorted the market jump back in.

    At a second glance you see that these jobs are n`t payed very well and starting in January or February we will head towards recession.

  25. Cherry commented on Dec 7

    Tomorrow’s job numbers are meaningless. After revision, 2000’s numbers were high to. It is January-March timeframe that is concerning.

    Matter of fact, tommorrow’s “good” job numbers may cause a selloff.

  26. toon commented on Dec 7

    Market may crash, some day, after going up another 30%. It will be down 25% from the top. Bulls still win.

    I have lots of puts but I am prepared to buy more when market goes up 30%. If it crashes from here I still win, a bit.

  27. Kendrick Statterfield commented on Dec 7

    If housing comes off -35%, and US university education is by-and-large financed off of second mortgages, and university’s tuition is going up bigtime, even as admissions and re-admissions are jammed up because of (in reality) the lousy US economy, then wouldn’t there be a rapid sharp break vs US:foreign enrollments, and wouldn’t that spread be available to some data aggregator?

    Then if there was no correlative break, that would suggest only speculative housing is coming off highs, and not primary residence, which would give families a flag to plant against realtors who sell low for commish.
    7% of -35% is better than a fat portfolio.
    In that regard, housing is like mutuals.


    Morphing the equities 3×3 matrix of small, medium, large, vs income, growth and value, wouldn’t all this predictive speculation be better served by charting housing prices the same way, for example, small (town), medium (city), large (metropolitan) area vs office space, residential housing, and mixed-use?
    The roll-up would just be an ani-gif of the individual daily charts, so you could watch over time how the matrix twinkles and glows.

    Extending that if the data was automated, a three-bar graphic superimposed over a map of the US, green-red-green, for example, would be rising office, falling residential and rising condo, with bar size as percentage.
    Very compact, easy to view in broad strokes, looking at a US map for green-on-green. The rollup would be an ani-gif US map, “popping” red and green like Christmas in New England.

  28. jjr commented on Dec 8

    Here’s my cuurent favorite Jesse Livermore quote (cross-posted at Trader Tim’s):

    p.s. Barry you might look into a copy-editor … [a lot vs. alot] [repurcussions vs. repercussions] …

    “Without faith in his own judgement no man can go very far in this game. That is about all I have learned — to study general conditions, to take a position and stick to it. I can wait without a twinge of impatience. I can see a setback without being shaken, knowing that it is only temporary. I have been short one hundred thousand shares and I have seen a big rally coming. I have figured – and figured correctly – that such a rally as I felt was inevitable, and even wholesome, would make a difference of one million dollars in my paper profits. And I nevertheless have stood pat and seen half my paper profit wiped out, without once considering the advisability of covering my shorts to put them out again in the rally. I knew that if I did I might lose my position and with it the certainty of a big killing. It is the big swing that makes the big money for you.”

  29. blam commented on Dec 8

    Being right is not the same as making money. Those who were right about the NASDAQ bubble and shorted it early, lost their shirts before it was over. They were right.

    For the average person,being right is of little consequence. If a high net worth person takes a large position in an individual stock in a brokerage account with a company that runs large mutual funds, he/she is likely to lose a lot of money because the house is running the stock from their trading desk against him.

    This is the current state of the business. The brokerage houses are cleaning out the accounts of individuals “trying to be right”.

    It is immpossible to beat a system in which packs of predators roam the markets, with intimate knowledge of their customer holdings, performing systematic pump and dumps. (see PD and RTP).

    The financial industry is a criminal enterprise. Anybody that forgets that and sticks their neck out, especially in individual securities, will be cleaned out by the ones silently looking at their cards and playing against them.

  30. matt m. commented on Dec 8

    The only “right or wrong” is your performance. Nothing else counts….that’s what makes this such a beautiful game. Consistently right….assets flow thru the door. Wrong…. you don’t run money for long. very fair game.

  31. jjr commented on Dec 8

    Barry, I’ll take the copy-editor job.

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