The Dennis Kneale Correction !

Last night on Kudlow, I was excorciated by Forbes editor Dennis Kneale for being too Bearish on the U.S. economy — 1,400 Dow points ago.

I defended myself ably. At the same time as I was pointing out the ongoing weakness in the US economy back in March — observations that have since been borne out by the data — I also noted our investment posture. We have been long a number of sectors for quite some time, and on these prior shows I have mentioned we like, and continue to like, Energy, Materials, Agricultural, Farm equipment, and especially like the multi-nationals Large Caps that derive much of their revenue and profits from overseas.

I find these shouting matches distasteful — they are the intellectual equivalent of Saturday morning cartoons — but that’s the nature of the TV beast. What was particularly perturbing about Dennis’ chest pounding was that he was essentially wrong in declaring economic victory. The Macro facts have clearly borne out my arguments that the economy is decelerating, the consumer is slowing, NFP is worsening, and retail is starting to hurt (Food inflation aside). Further, not only has Corporate CapEx spending not appeared as promised by the likes of Dennis and others, but today we see the Fed ratcheting GDP forecasts down a notch for 2007/08.

Because the Dow has run 1400 since that show does not mean that the economic argument is wrong. Indeed, all it does is confirm our thesis that the prime market drivers are not a hot US expansion, but rather overseas growth, relatively low historical interest rates, lots of leverage and plenty of liquidity.

It is inevitable that when a scribbler who does not manage money for a living begins to pound his chest about calls he made — economic calls that have so far proven to be incorrect — we are seeing a warning sign. When the crowing has been emboldened by  a 1,400 point market run, all it means is that we were overdue for some sort of correction.

Thus, we rename today’s whackage — suitably minor in its scope — the Dennis Kneale correction. 

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Discussions found on the web:
  1. Barry Ritholtz commented on Jul 18

    BTW, I find Dennis to be a generally good guy and, although he is usually an uber bull, he hasn’t in the past overtly crowed about it.

    For his sake, he better hope we put in a new high — otherwise, we will have to changew the name of this to the Dennis Kneale top!

  2. Larry K commented on Jul 18

    I was surprised you let go without comment that sloppy televised kiss he planted right in the middle of Rupert Murdoch’s ass.

    Is he angling for a job at Fox, or at the new WSJ?

  3. Sven commented on Jul 18

    Uhhh, mini-correction maybe?

    Care to update your semiconductor remarks BR (I’m not trying to be snide). Everybody on TV yesterday was pushing Semis, but it doesn’t look like people have been too pleased with the results.

  4. Bubbles commented on Jul 18

    Oh Barry, don’t let Denny get you down he obviously does not know how markets work.

    I didn’t see the show because, well over a year ago my tv was stolen and since I really don’t watch anything other than football, I decided not to replace it. If I want to catch any games I just walk over to one of the many sports books in my fine town and catch it there on the BIG screen. Nothing like getting served your favorite beverage by some hottie while watching your bet go up in smoke, I mean your team get pummeled.

    Sorry for getting off topic, anyways keep your chin up!

  5. ECONOMISTA NON GRATA commented on Jul 18

    “excorciated” ? Or did you mean excoriated…? To censure strongly; denounce.

    There are those who will only measure the economy based on stock market performance… After all what’s good for the stock market is good for the country.. Right?

    I noticed that today there was heavy Yen arbs trading as has been the case over the last few sessions… I’m starting to get really concerned about this carry it’s really been unusually heavy, especially so beacuse it appears to be so focused on equities. If this continues at this rate, it’s going to leave very little room for error….

    AS it relates to the debate, you’re standing on very solid ground and as far as I’m concerned one should not beat their breasts. It’s bad manners here and in China…

    Best regards,


  6. JWC commented on Jul 18

    That kind of shouting match is the reason I don’t watch those kinds of shows… ever. Besides, I can’t stand Kudlow, even to watch you. Now if you could be on the morning show with the pretty redhead… well then I would watch.

  7. bwana commented on Jul 18


    I saw the show and thought the guy who looked like Elvis Costello was an idiot. Just because the market is up does not mean the economy is still in good shape. You are right, and one of the few who are aware of the problems facing the market and the economy. Kudlow should let people finish a sentence and stop the shouting match. The blog is great, everyday.


  8. peter from oz commented on Jul 18

    its all part of the shtick i know
    but you’re wasting your time with these guys
    there’s real money to be lost here unless you focus on the market 100%
    rgds pcm

  9. KP commented on Jul 18

    CNBC is the price you pay for exposure.

  10. tt commented on Jul 18

    Dennis is a dolt…… he took a cheap shot

  11. GerryL commented on Jul 18

    I think the reason Dennis seemed like he was on a cartoon is because he is a regular on a Saturday morning cartoon called Forbes on Fox.

  12. Donny commented on Jul 18


    I really wish you would have defended yourself a little more aggressively.

    How can you call a top or bottom to an irrational economy which is driven by leverage, liquidity, and consumer debt. It’s kind like asking what a crazy man may say next.

  13. Mike G commented on Jul 18

    Financial TV is a clown-show full of right-wing blowhards who accuse you of being an unpatriotic Al Qaeda-loving traitor if you dare to speak any opinion other than that the US economy is super-duper bulletproof bullish and booming forever.

    The DJIA doesn’t “hate America” every time it drops twenty points, and it’s not an occasion for bombastic flag-waving if it goes up twenty points.

    People who can’t get their ego and nationalism out of the markets are soon parted from their money.

  14. Bill aka NO DooDahs! commented on Jul 18

    Well, seeing as how you used economic data to be be bearish on U.S. markets for several years in a row, now, it seems that you might need to either (1) rethink your analysis of how economics impacts the stock market, or (2) stick to technical analysis.

    BR: Bill — you seem to be unable to distinguish between being bearish on the US economy, yet still maintaining a market position that is nearly fully invested and more than 90% long.

    Its not very complicated, so I cannot figure out why its giving you such a hard time. The rest of the globe is growing much more rapidly than the U.S. We like and have liked Energy, Materials, Agricultural, Farm equipment, and especially the multi-nationals Large Caps.

    what is so complicated about this?

  15. Steve commented on Jul 18

    The best point that you can ever make- “If you are so right, why do you not manage $ for a living?” I suspect he will overdose on humble pie soon.

  16. j commented on Jul 18

    Although you are a trader, your economic view is more strategic. Try exposing yourself less frequently on such a jumped up venue, and the result will be more satisfying, and human capital friendly.

  17. Isaac commented on Jul 18

    The way I see it, it’s all about relative performance and opportunity cost. For the last few years, the only G-8 country that has underperformed the US has been Japan. If only we could get paid in Reais or Euros…

  18. dblwyo commented on Jul 18

    Bravo Zulu Barry – thought you conducted yourself with dignity and restraint though with LarrytheK urging the feeding frenzy you didn’t get any chance at making your points.

    Glad you summarized them here – maybe you ought to consider and short, concise weekly or so summary of the situation as a touchpoint for those of in need of such.

    One area of (quibble perhaps ?) – while foreign growth is definitely back and we may be seeing the first time in two+ decades where the US is not the sole engine of world growth it’s not clear to me that sufficient profits are being made to underpin things from foreign sources. Cisco for example is doing wonderfully well, extraordinarily well, abroad but it’s not a major part of it’s income as yet. A transition underway and they aren’t unique.

    A really interesting line of inquiry would be to ask just what contribution foreign sales are making to US profits and growth.

    Which is not to say in the search for explanations that believe in the technical timeframe isn’t helping out stock prices.

  19. Nathan Kowalski commented on Jul 18

    It was painful to watch K&C the other night b/c the idiots got too much airtime.
    You have been dead right about the economy Barry and I agree whole-heartedly with your worries.
    Unfortunately I believe the “Dennis Kneale Top” has been set, especially with the financials (save maybe Citi after they fire Chuck Prince).
    Keep up the great work and always keep your “variant perspective”.

  20. Eclectic commented on Jul 18

    You know, Barringgo, the thing I like the most about you?

    You are so full of crap as a Christmas goose. Hahaha

  21. Winston Munn commented on Jul 18

    I wonder if Bernanke has turned to the bloggers for his data? He might have read this from Russ Winter:

    “From WSJ:

    The Labor Department’s payroll survey has missed up to 139,000 construction layoffs, a new analysis of underlying payroll data has concluded. The new report released Monday by Macroeconomic Advisers LLC, based on data supplied by payroll processor Automatic Data Processing Inc., could explain in part why construction employment hasn’t slumped as much as actual homebuilding.

    Of course we wouldn’t expect the Labor Dept to have even half ass reporting ability given all the undocumented workers on these construction sites. This of course necessitates a little additional intuitive research from the minuscule non dead fish analytic community. Gee, Dr. Watson, did anyone think to look at remittances back to Mexico to account for the rest of these job losses? Those were down 5.5% year over year in May.”

    The question in my mind is will the rest of the world be able to decouple from the U.S. slowdown and/or recession?

  22. Werner Merthens commented on Jul 18


    Don’t get too upset about it. Despite what everybody else says about Larry Kudlow and even though I disagree with a lot of his views, he seems quite the gentleman to me and may give you an opportunity to set things straight in due time.

    Besides do not to worked up about some ‘Schmierfink’ from the print media.
    The markets are not about being right. The ones who insist on being right will forfeit all of their money to Mr. Market.

    The markets are more generous to the ones that can go with the flow and you seem to be doing quite well in there.

  23. Tom C., Stamford,Ct. commented on Jul 18

    This is ‘THEBIGPICTURE’ right? There’s more to investing than trying to score political points vis a vis your perceived condition of the U.S. economy. The world’s gotten smaller and the idiocy coming out of Washington, D.C. doesn’t mean as much as it used to. The folks in Congress can threaten to do all kinds of silly things regarding taxes, socialized medicine, over-regulation and protectionism while the only people they’ll hurt are folks with pension plans who can’t seem to save enough after paying their state,local and federal taxes. You guys need to get over yourselves and focus on investing rather than your ideological predispositions.

  24. Shakespeare commented on Jul 18

    me thinks me lady doth protest too much

    the indices are overloaded with oil stocks.
    With all of the oil stocks cooking higher daily, the indices are pulled up along with them. take the oil stocks out of the indices and they are flat.

    nice job barry. I like your stock allocation. I would only buy hard assets and oil. have you considered mining stocks?

  25. m3 commented on Jul 18

    uh, barry has been right about the economy all along…

    growth has been in a steady down trend for about a year now.

    inflation is *still* a problem as the fed currently admits.

    housing is also a mess, as predicted…

    3 out of 4 ain’t a bad batting average.

  26. Broker A commented on Jul 18


    It would have been nice to see you pistol whip that guy, live on tv.

    You still carry a 357 right?

  27. Bob A commented on Jul 19

    Just say no to Larry Kudlow.

  28. Juan commented on Jul 19


    with the rise to dominance of the transnational firm, it has – other than on accounting basis – become increasingly difficult to assign nationality to profits.

    transnat xyz, and others, trys to minimize its global tax bill by, e.g., income shifting among subsidiaries.

    few years ago, a financial facts (ireland) article noted:

    ‘We cannot tell how much of the increased income in tax havens comes from corporate shifting of profits from high-tax foreign countries and how much, if any, from the United States. But given the huge increases in profits in low-tax countries, the greater incentive for income shifting (because of lower foreign tax rates), and the widely recognized means for income shifting (such as the aggressive use of cost-sharing arrangements), it would be foolish to assume anything other that the US Treasury has many billions of dollars on the line.’

  29. Kevin Depew commented on Jul 19

    I watched and thought you did well, as usual, Barry. As you know, there is actually very little correlation between “the economy” (whatever that is) and the “stock market” – which is a difficult thing for us (us being human beings with a deep-seated need to make causal connections) to understand. It doesn’t help that, in addition to desperately searching for causality, we are conditioned to believe that “strong” economic conditions somehow produce strong companies which translate into strong stock investments. Unfortunately, this is hardly the case – if only it was that easy! – and is among the reasons that very good companies do not automatically translate into very good stocks, and why more than a few poorly run and weak fundamental companies sometimes make excellent stocks.

  30. Fred commented on Jul 19

    Kevin Depew makes some good points…yet I would add the following — to be successful in the stock market you not only have to get the macros correct (Barry has) — you must also be able to take the pulse of market sentiment (the perception/psychology of investors).

    So reading the macros correctly without correctly reading the psychology make investing a frustrating endeavor. So bad companies can make good stocks (and visa versa).

    This country has a serious negative psychology on many fronts lately (who can blame them?). This negativity is clouding the investment judgement of many trader/investors.

  31. Sri commented on Jul 19


    Let’s accept the fact that you have been dead wrong on the US markets for the last 1400 points. That’s nature of the forcasting business.

    Now you are trying to justify yourself by saying, “I have been correct on the US economy”. That doesn’t win you any brownies with market. You know it, that’s the nature of the market beast.

    You say, “Because the Dow has run 1400 since that show does not mean that the economic argument is wrong.” But this doesn’t matter to the market YET. Nobody knows when it is going to matter.

    You also say, “We have been long a number of sectors for quite some time, and on these prior shows I have mentioned we like, and continue to like, Energy, Materials, Agricultural, Farm equipment, and especially like the multi-nationals Large Caps that derive much of their revenue and profits from overseas.” Could you post the links the prior articles/shows where you have been bullish on so many of these sectors you mentioned? Most of this blog is tilted with bearish arguments. I haven’t seen any articles giving credence to the bullish side on this blog. The ratio of bearish to bullish articles is 100 to 1.

    I like your economic insight and analysis but your market forcasting hasn’t come to fruitation yet.

  32. Bill aka NO DooDahs! commented on Jul 19

    He generally saves the positive “buy this” stuff for the *paying* customers.

  33. John F. commented on Jul 19


    If you try to predict the level of the Dow in this quaint unit of measure called the US dollar, you’re making the game too hard: commodity prices and foreign-derived earnings are going to smoke you as the dollar falls. Don’t take any crap from Kudlow or people who wear dorky glasses!

  34. Dirk van Dijk commented on Jul 19

    Just because the U.S. economy is a bit on the weak side, that doesnt mean the market cant go up. Equities are a better bet than fixed income when the earnings yeild is 6.3% and the 10 yr t-note is 5.1%. Real estate is clearly not the place to be so peopel have to invest somewhere, and of the big 3, equities look best. However, overseas equities look better thaqn US equities. Within US equities, those that are quasi foreign (ie have large overseas ops, or are driven by globally determined commodity prices) are better than more domestic oriented stocks. Ultamately stock prices are driven by EPS and interest rates. EPS is going up as much because of fewer shares out as higher net income.

    Shakspeare, the market is NOT overly dominated by energy companies. The energy sector is apx 10% of the mkt cap of the S&P 500 but will provide 13% of the total earnings. Tech is the most over represented sector in the market, with over 15% of the mkt cap and 10% of the total earnings. By the way, Energy probably has a better growth profile over the next decade than tech does as a sector. Financials are also “under represented” in the market even though it is far and away the biggest at over 20% of the mkt cap, but has over 25% of the total earnings. However, financials are facing some fairly serious headwinds right now.

  35. Rich Berger commented on Jul 20


    When was the last time you were bullish on (a) the US economy and (b) the US equity markets?


    BR: Economy: Very bearish since late 2005 — the recovery was driven primarily by a 1% fed funds rate, and asset inflation (especially real estate)

    Markets: I flipped bullish in October 2002. And through the next few years, we reiterated a strategic bullish posture in March and May 2003.
    Tactically, we have flipped bullish and bearish repeatedly over the ensuing years.

    We always have a number of sectors we are bullish on — and as far as the managed accounts go, we have maintained a fairly fully invested posture most of this run. (Last week, we peeled a little cash off — but not a whole lot.)

    Some of that fully invested posture is a function of the quantitative model that drives sector/stock selection, but alot of it is client driven — if you sell stocks too early, you get a lot of “Why I am paying you 1% to sit in cash?” from the managed accounts.

  36. DK commented on Oct 10

    well bear-E–the dennis kneale top seems to have been topped yet again. whatcha say now babe? i caught all these comments only later. let’s keep in mind i truly admire and respect you–and fully agree that you’re the real deal, while i’m just a jouro who listens to what other people tell him.

    still, comma–market is lookin’ kinda good ain’t it? come over to the bright side, my friend. dk

  37. S Benard commented on Nov 9

    Dennis Kneale doesn’t know ANYTHING about business. He has ONLY a bachelor’s degree in JOURNALISM, not business. He doesn’t have any degree or expertise in business or economics. Ever since he started on CNBC, I have sent them repeated warnings that if he continues, I will move to Bloomberg TV or Fox Business Network. I’m sick of watching a bozo that was offered a job just because he’s experienced in journalism, but knows nothing of business or economics. Does CNBC really expect to have credibility with a guy that has NO background, experience, or education in the field he purports to cover? Time to switch to a different business channel, in my opinion.

  38. doeeyes commented on Nov 12

    WTF S. Bernard. Who are you really?

    Not only does DK have a HUGE cock, he’s covered business for 25 years. You’re an idiot.

  39. Bob commented on Apr 1

    Dennis Kneale is one of the most uninformed and useless commentators on TV today. He regularily embarrasses himself by being unprepared and unknowledgeable on economics et al.
    In my humble opinion:
    Dennis Kneale Sucks!!!!!

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