Media Appearance: Kudlow & Company (8/28/07)


Tonite, its the regular show with Larry back from vacation. My pal Herb Greenberg of Marketwatch is on, as is Keith Wirtz of Fifth Third Bancorp.

Special appearance tonite: Dennis TOP TICK Kneale.

You may recall that the last time Dennis and I were on together, he pounded his chest about how right his uber-bullish calls were — on July 17, 2007. Two days later, the market topped and rolled over. Yes, thats correct, Dennis Kneal’s hubris-filled chest pounding PRECISELY nailed the market’s recent top.

As I noted the very next day:

"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."

The Dennis Kneale Correction Top !

Don’t take my word on it — here is a chart:

The moral of the story: NEVER MAKE THE TRADING GODS ANGRY !

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  1. Sammy20 commented on Aug 28

    You should have Kudlow post that chart tonight.

    Kudlow, Kneal, Luskin, Pisani etc etc etc…all the arrogance of these guys and their refusal to listen to or god forbid even understand the other side of the argument was bound to come back and bite them.

    They consider rational people permabears…it is a shame they are so blinded by massive dollar devaluation and credit expansion run wild.

    You should do as they do to you and laugh at any suggestion they have of being “bullish” in this market.

  2. anonimouse commented on Aug 28

    Meanwhile Donny-one-note Luskin keeps popping up on Kudlow teling us to buy, buy, buy.

  3. Old Ari commented on Aug 28

    “A gentleman is known,
    By the company he keeps,
    And the pig got up,
    And slowly walked away.”

  4. BettinaZ commented on Aug 28

    LOL– thanks, Barry. I needed a good laugh.

  5. Broker A commented on Aug 28

    Indeed, the trading Gods don’t like hubris.

    Off to punch the mustache off a random bear.

  6. shoeless commented on Aug 28

    Kudlow was on about an hour ago ranting about the removal of the uptick rule and the momentum traders who take advantage of it to short the market in the last hour of trading. By his argument, there should also be a downtick rule for buying stocks so that momentum traders don’t drive markets higher and higher in that last hour of trading. What a tool!

    He rambles on and on about the free-market economy out of one side of his mouth while looking for handouts from the FOMC and others from the other side of his mouth. If our free market economy is in such fine shape, as he and Luskin both were arguing yesterday, why, pray tell, does the Fed need to lower rates. Oh, that’s right, because stocks are only up 3-odd percent this year. Lions, tigers and bears, oh no!

  7. anderl commented on Aug 28


    I’d like to personally thank you BR for putting up your prediction back when for a Dow 7400 was it? That must have pissed off a Market God somewhere because he ran the markets with verve against your prediction. LOL.

    All that predictions prove are that people are foolish enough to do so.

  8. Eclectic commented on Aug 28

    Hey!… Bwana!

    You gotta quit the facial expressions like you’re tryin’ to figure out who farted.

    It’s demeaning to us Picsters.

  9. KP commented on Aug 28

    mmmm, crow, does a body good.

  10. Chief Tomahawk commented on Aug 28

    That was some opening. Larry was nice and calm and polite until it got about 10 minutes in …

    Then Larry realized he’s got two bears on the broadcast & an analyst in Shiller with a gigoplex of negative housing stats and sure enough … eruption!

    “Herb: you and Ritholtz want them to eat cake! CAKE!!!!!”

  11. VennData commented on Aug 28

    So Bush’s tax cuts stopped working over the last few weeks? How about all his government spending? That stop too?

    Larry Kudlow was complaining about how people are buying government bonds instead of loaning to business tonite, well, Bush is the one who made so much of it available.

    No rate cuts until the ‘borrowers’ and ‘leveragers’ are fully hemorrhaged and if you want government to “do” something… get the government to make investments more transparent so we know who’s got what at the touch of a button, not these phony self-pricing, mark-to-model frauds. That would cure the Commercial paper problem Larry’s complaining about.

  12. Sammy20 commented on Aug 28

    Wow, Kneal might want to consider a break from television, one really shouldn’t let their bosses know how foolish and uninformed one really is. That guy is a joke…who cares what GS’s exposure is…hahaha.

    Way to bitch-slap that dunce Barry!

  13. Uncle Jeffy commented on Aug 28

    Anyone know the over/under on the level the Dow hits where Cramer does another meltdown on CNBC?

  14. edhopper commented on Aug 28

    So Barry, now that Kneale has conceded that you move the market, what should I buy?

    BTW I actually agree with Kudlow about the uptick rule, a broken clock and all that I guess.

  15. Owner Earnings commented on Aug 28

    You could hear it in Herb’s voice that he was actually upset tonight! How about this concept…what about all the responsable people and short sellers that have been waiting for times like these? They don’t need a bailout. Ever.

  16. David commented on Aug 28

    Hi-great blog.

    I saw you on Kudlow, you did a good job.

    Kudlow acts like a bully, and Cramer acts like a clown. Do they have any monetary friends?
    “He that wants money, means, and content is without three good friends.” ~William Shakespeare

    P.S. So far, Bernanke and Co. are doing fine. In the field of monetary policy Bernanke is right on the mark.

  17. LP commented on Aug 28

    Good job…both you and Herb…however, you need to cut those clowns off every time they speak…

  18. Groty commented on Aug 28

    The last couple of times I’ve caught you on Kudlow, you’ve done that “tie wiggle thing”.

    Carol Burnett’s signature mannerism was to tug her ear when she said goodnight.

    Ritholtz has the tie wiggle.

  19. Josh commented on Aug 28

    Kudlow and his free market capitalism or socialism to do whatever it takes to keep America growing.

    On a side note, Mitt Romney sounded good.

  20. jake commented on Aug 28

    romney will say whatever you want to hear,he’s a bigger flip flopper than kerry….romney caved in to the socialists on healthcare in mass….he never raised taxes in mass but raised every fee in mass 100%……he’ll say and do whatever it takes to get elected.trouble is the rest of the republican field are jokes with the exception ron paul

  21. ECONOMISTA NON GRATA commented on Aug 28


    I caught you on K & Co. tonight for the first time… Considering what I read in your post about what happened the last time, I must say that you really showed a great deal of class. I really think that you are a great representative for us bears and we are proud of you. You demonstrated “compassionate bearishness”. The fact is, that that’s what we’re all about.

    We feel the permabull’s pain….. Don’t we….? ;-)

    Sort of, I guess…..


  22. chad commented on Aug 28

    is this blog just one voluminous cover letter for alan abelson’s job?

  23. Winston Munn commented on Aug 28

    What ever happened to the “good old days” when all news was good news and regardless the markets kept plowing higher? How long ago was that now….6 months?

    It is odd that although I have been in the bearish camp for quite some time, I feel no joy in what is happening….and a certain apprehension over what further may come.

    This is not a correction but the beginning of the bear – and I fear he may growl more loudly and ferociously than ever I could have imagined.

  24. Eclectic commented on Aug 28


    No joy here either… just a profound worry that rampant and reckless bullishness (willfulness as I’ve defined it) may have pushed us to a place that a mere correction in asset prices might not cure.


    Had trading curbs not been put in place at approximately 10 minutes prior to the close (I think?), what is your considered opinion as to how far the Dow would’ve closed down today?

  25. Winston Munn commented on Aug 29


    This may be The Minsky Manifesto – a global proclamation that the time has come for Ponzi to pay the piper.

  26. Eclectic commented on Aug 29

    Winston and everyone:

    What are your estimates out of 100 average U.S. citizens, how many of them understand the nature and potential magnitude of this liquidity crisis?

  27. m3 commented on Aug 29

    What are your estimates out of 100 average U.S. citizens, how many of them understand the nature and potential magnitude of this liquidity crisis?

    re: the nature of the problem.

    it’s probably higher than you might think.
    maybe 30-40%.
    i think most people do realize something is seriously screwed up.
    but they probably can’t quite put their finger on it. or they think that problem is a short term deal that can be weathered.

    but between their rising credit card rates, credit card defaults, foreclosures, higher mortgage rates, watching jim cramer meltdown on CNBC, and plunging stock prices, i think people catch the general drift about drying up liquidity.

    re: the magnitude.

    maybe 10%. if that.
    that’s what scares me. i think people believe this is just a speed bump.

  28. MarkM commented on Aug 29

    FTSE reverses mid-session? Hmm. Some leaked news?

  29. Eclectic commented on Aug 29



    Of the general public??

    Get out!… Are you serious?

    You mean 30-40 p-e-o-p-l-e out of every 100 average citizens understands we had a liquidity crisis?

    I’ll tell you what do… Try this… Start asking, just randomly asking, people in a way that would allow you to determine if they had a clue. Then come back and tell me 30-40% again.

    My guess?… between 2% and 5% ever knew there was (and maybe still is) a liquidity crisis… and I’m probably way overestimating average humanity with a 5% top range… and probably less than 1/10th of 1% (probably less than 1 person in 10,000) had any remote idea of the potential seriousness or magnitude of the problem. That’s probably still true, even now.

    Understand this… you read, review, study and interpret financial information. That alone puts you in only maybe 1-5% of the general population.

  30. ECONOMISTA NON GRATA commented on Aug 29

    Mr. Munn:

    You are correct sir… I like to call this the “Insolvency Bubble”. And that’s why the Fed is stuck where they are… I have a great deal of empathy for BB, none for HP. Everyone talks about the FF target rate having been too low for too long at 1%, when in fact it was too low for too long at 5.25%. It is politically impossible, but the right move on the Fed’s part right now would be to raise the target rate to 7.50 – 9.50%. We need to put thiis behind us as fast as possble. If the Fed were to do a full court press we could have a Darwinian scenario, it would be painfull but it would be quick. Let the strong survive so they can breed. Of course, it’s not going to happen. BB would be sent to Gitmo if he even suggested such a move…

    “This is not a correction but the beginning of the bear – and I fear he may growl more loudly and ferociously than ever I could have imagined.”

    As it stands, your fears are justified.

    Best regards,


  31. Eclectic commented on Aug 29

    m3, you kill me… really… you kill me!

    Have you looked at the TV line-up lately?

    You kiiilllll mmeeeeee!

  32. Dave C. commented on Aug 29

    The first 10 minutes made me angry. Between Bears making a bear market and the idea that the big government is now the answer to what appears to be nothing. What does a slash in the fund rate do? It does *NOT* allow consumers to refinance because not being able to afford the teaser and the balloon of the reset doesn’t mean that you’ll qualify for a traditional mortgage or that there will be affordability at a fixed rate for the consumer. I’m nauseous at the terms used like “deflationary” when the very idea of affordability and the massive inflation in prices has to revert to the mean – it’s not a crisis – it’s a reallocation of risk, funding, and asset classes that afford transparency, good return, and soundness. Minor corrections and shifts in the market are just that — minor. I’m possitive that if the Fed didn’t touch the overnight rate that the market would eventually mark to market their books and credit would flow – eventually. Oh bother — why is the government the bad guy when it puts in “punitive” regulation like SOX or truth in lending but is only savior of a “crisis;” that really is cake and eat it to.. If Kudlow had his way I’m sure we’d have US child labor, planes that flew through the “invisible hand” and free-market regulation of drugs and food.


    Let’s be clear to the fantasy-makers. Inflation is a real killer and everything I’ve seen from housing, education, medical, and insurance coupled with no real wage increase (with record unemployment? who suspended the laws of economics?!) means I am fundamentally worse off today then in 1999 when I made half as much.

    The fed is the lender of last resort and keeps markets liquid, not the keeper of all things economic. Kudlow is simply wrong.

  33. SPECTRE of Deflation commented on Aug 29

    Barry, here’s a good rant from Martin Wolfe of FT. Can you e-mail this to ole’ Larry so that he gets a clue?

    From Wolf:

    Sometimes a picture is worth a thousand words. The one last Wednesday showing Christopher Dodd, chairman of the US senate’s banking committee, flanked by Hank Paulson, Treasury secretary, and Ben Bernanke, governor of the Federal Reserve, was such a picture. This showed Mr Bernanke as a performer in a political circus….The Fed has its orders: save Main Street and rescue Wall Street….

    Policymakers must distinguish two objectives: the first is macroeconomic stability; the second is a sound financial system. These are not the same thing. Policymakers must not only distinguish these objectives, but be seen to do so. The Federal Reserve failed to do this when it issued statements, on prospects for the economy and on emergency lending, on August 17. This unavoidably – and undesirably – confused the two goals.

    The statement on the economy was also premature. Everybody knows that the Fed’s job is to stabilise the economy and prevent deflation. Everybody knows, too, that the Fed will investigate the economic implications of the crisis in the credit markets at the next meeting of the open market committee. If prospects seem significantly worse, the Fed will, presumably, cut rates. But now a cut looks pre-announced. Monetary policy should not be made “on the hoof” in this way, except in the direst of circumstances.

    This brings one to the second objective: ensuring the functioning of the financial system. The question is how to help the system without encouraging even more bad behaviour. This is such an important question because the system has been so crisis-prone, as Larry Summers points out (“This is where Fannie and Freddie step in”, August 27). I think of the underlying game as “seek the sucker”: sucker number one is persuaded to borrow too much; sucker number two is sold the debt created by lending to sucker number one; sucker number three is the taxpayer who rescues the players who became rich from lending to sucker number one and selling to sucker number two.

    The most recent game is a particularly creative one. This time the geniuses seem to have created a “lemons crisis”, after the celebrated paper by the Nobel laureate George Akerloff*. Consider the market in used cars. Suppose buyers cannot tell the difference between good cars and bad ones (lemons). They will then offer only an average price for cars. Sellers will withdraw any good cars from the market. This may continue until the market disappears entirely.

    What is driving this is “asymmetric information”: buyers believe sellers know more about the quality of what they are selling than they themselves do. This seems to be precisely what has now happened to trading in certain classes of security. The crisis is focused in markets in structured credits and associated derivatives. The cause seems to be rampant uncertainty. Investors have learnt from what happened to US subprime mortgages that these securities may be “weapons of financial mass destruction”, as Warren Buffett warned. With the suckers fled, the markets have frozen. The people who created this kind of stuff distrust both the instruments and their counterparties. This, in turn, has led to the panic purchases of US Treasury bills shown in the chart.

    Yet the difficulty is not a lack of general liquidity. Central banks have provided it freely. Some would argue that, in the case of the Fed, with its half a percentage point cut in the discount rate, provision has been too cheap and, in the case of the European Central Bank, provision has been too free. Nor is this a general crisis in lending. Credit spreads have not exploded for corporate or emerging market debt. They have merely become less unreasonable. Market volatility has increased, but not to extraordinary levels.

    This then is a crisis in the market for financial lemons. So what should the authorities do about that? My answer is “nothing”. They should, of course, stand ready to provide liquidity to the market, at a penal rate (since insurance should never be free), and also to adjust interest rates to overall macroeconomic conditions. But they should not promote the survival of a market in lemons.

    This is why I disagree with the suggestion by Willem Buiter and Anne Sibert, in the FT’s economists’ forum, that central banks should now become market-makers of last resort. Central banks could do this only if someone regulated not just the soundness of financial institutions (as now) but also the properties of all the products these institutions invent. Otherwise, the central banks might be forced to buy what they do not understand. They would, instead, be offering a commitment to be buyers of last resort in a market for lemons, thereby subsidising the creation of a market in junk. If central banks were to regulate products, however, they would be running the financial institutions. Ours would become a quasi-nationalised financial system.

    Now suppose central banks did, instead, refuse to intervene in the afflicted markets. What would happen? Sellers must turn lemons into apples, pears, strawberries and all the rest. In other words, they must demonstrate the precise properties of what they are trying to offload. Where they cannot do this, they may have to hold securities to maturity. Meanwhile, vulture funds would invest in obtaining requisite knowledge. Losses will also have to be written off. How much of the market in securitised lending would survive this shake-out, I have no idea. But I do not care either. That is for the players to decide, after they realise the consequences of getting it wrong.

    Burned children fear the fire. If some of the biggest and most powerful institutions in the world have been playing with fire, they need to feel the burns. It is not the central banks’ job to rescue them by creating a market in the incomprehensible. It is their job to preserve the banking system and the health of the economy. Neither seems now to be in grave danger.

    Decisions made in panic are almost always bad ones. Stick to principles and let the masters of the financial system sort themselves out. They are paid enough to do so, after all.

  34. Winston Munn commented on Aug 29

    Eclectic wrote:

    “Winston and everyone:

    What are your estimates out of 100 average U.S. citizens, how many of them understand the nature and potential magnitude of this liquidity crisis?”

    Maybe 0.25 out of a hundred…maybe.

  35. michael schumacher commented on Aug 29

    about 1 in 10 tops.

    My wife is taking a finance class for her license and the instructor had to be made aware that the Fed lowered the discount rate.

    AS they say those who can’t teach….


  36. Greg0658 commented on Aug 29

    Ya think 1 in a 1000 can make a difference?

    and the 999 in a 1000 have to follow, consuming, playing this game the best they can, to feed their family?

  37. Uncle Jeffy commented on Aug 29

    I teach a Principles of Economics class (part-time) and trust me, by the time they walk out of my class at the end of the semester they’re aware of what’s going on. But I always ask them to keep a close eye on how many of their friends, relatives, co-workers, etc. are actually aware of current financial events like the liquidity crisis, and in general we conclude that fewer than 1 person in 10 knows what’s going on.

  38. m3 commented on Aug 29

    30%? why not?

    there was a poll that said something like 60% of people believe we are headed to a recession.

    if 60% think we are headed to a recession, is it that hard to imagine half of them think the mortgage crisis, problems with credit cards/debt, mortgage resets and the like have an effect on them or the economy?

    do i think 30% will claim the crisis is due to CDO^4, SIVs, the breakdown in the ABCP market, and start pointing to charts of the ABX indices? of course not.

    but many of these people are on the ropes. if you look at the credit card reports, people are paying their BILLS with credit cards. their home prices are falling to the floor. they are up to their eyeballs in debt.

    roubini said that we have a growing insolvency problem, and the american consumer is the most insolvent economic agent there is.

    i think americans know they are broke. it’s pretty obvious at this point.

    they may not admit it, or understand it.(i put that number at 10%, at best, FWIW) but i don’t think they are as dumb as some believe.

    people know that something is wrong, but few are aware of the magnitude.

  39. sn commented on Aug 29

    “…and probably less than 1/10th of 1% (probably less than 1 person in 10,000) had any remote idea of the potential seriousness or magnitude of the problem. That’s probably still true, even now.”

    If I were to guess, that would be about my guess too. A small bit of anecdotal evidence: All of my colleagues are PhDs (psychologists, anthropologists, mathematicians, economists (health, labor)) and almost all of my family are physicians (surgeons, radiologists, family). Each member of both groups prides him/herself on being intelligent, sophisticated, and knowledgeable about the world. While each individual knows of the existence of the stock market, few of them would be able to explain to me the difference between a bull market and a bear market. This lack of knowledge extends to other financial domains. Most do not know what pension benefits they will be entitled to, whether their plan is defined benefit or defined contribution, or in some cases whether they are contributing to a plan or not. Among the MDs, none of them have ever had a mortgage (they put 100% downpayments on their properties) or have borrowed money for any purpose. Therefore, they would not be able to give even a ballpark estimate of what interest rates might be.

    To think that these academics and physicians have any inkling that there might be a liquidity problem is laughable. Admittedly, I’ve identified a couple of pretty extreme groups here, but if educated individuals can exhibit such a lack of financial knowledge, I can imagine that would be true for the general population in spades.

  40. Northern Observer commented on Aug 29

    Posted by: SPECTRE of Deflation | Aug 29, 2007 9:00:34 AM

    Great comment from Matin Wolfe. Thanks for posting that.

  41. Bill aka NO DooDahs! commented on Aug 29

    Kinda like your last comment on my blog marked the absolute bottom of the current correction, missed it by maybe one hour, on August 16th?


    BR: On your post “Correction Watch” my precise quote was: “Then you should be a big buyer.”

    No arrogance, no ego, just a simple declarative statement as to what action was appropriate based on your post.

    I find it astonishing that you find the above comment to be remotely similar to the chest pounding “I was right! Arrghh!” hubris of Dennis Neale . . .

    I must admit, I don’t get you . . .

  42. Honey, I am home! commented on Aug 29

    “Dennis Kneal’s hubris-filled chest pounding PRECISELY nailed the market’s recent top.”

    But on August 28, 2007 he was very pessimistic and scared. Did he nail the bottom too?

    Edward Hyman (# 1 Economist on Wall Street) Is Bullish on US Stocks

    For each of the past 22 years, Edward S. Hyman has been rated the number one economist on Wall Street by Institutional Investors.

    Sees Fed Rate @ 4%

    ISI’s Hyman Says Fed Will Lower Rates to 4 Percent

    You can be on the same side as Hyman and Bernanke; or you can go short and bet on “global credit crunch” with the bears.

    I am choosing the winners side, Hyman and Bernanke.

    Which side do you choose, the winners or the bears?

  43. Winston Munn commented on Aug 29

    This commentary from Jim Sinclair nails the problem.

    “The hope for every central bank is that the real problem can be kept from public view. The truth is the public, even professionals in Wall Street, have no clue what the problem is. They know it has something to do with derivatives, but none realize it is a more than $20 trillion dollar mountain of unfunded, unregulated paper that has just been discovered to not have a market and therefore any real value.”

    This event is not about liquidity – it is about debt and solvency. And it spans the globe.

  44. Eclectic commented on Aug 30

    m3 – You made your case well. I can buy the notion that 30% might generalize that something’s got to give… maybe a recession coming, maybe unemployment, maybe lots of BK, etc. (I’m not claiming any of those – I’m not sure which direction the economy will take – I’m not a bull, not a bear — I’m Ec-lectic of course)

    But, those are polling issues, like when Caesar would ask for the thumbs up or thumbs down, or when MSNBC wants to know if a respondent wants to: 1)-wind his watch, or 2)- scratch his butt. People don’t intellectualize over their answers… they just respond. The gladiator gets the fork or he gets to get drunk and chase women.

    What I’m talking about is that for a few hours ranging up to, say, a day or so, within the last 10 days, there was a real possibility that you might go to the bank or credit union and not be able to get money… or not get it from a cash machine… or not have your credit card verified on-site… or not be able to make your payroll… or not be able to withdraw money from your mm mutual fund… or negotiate commercial paper *at all*, not just the hedged type and not just the CDOs, exponential morphs of mongrelized CDOs, derivatives-dependent MBOs, or any of the other forms of bastardized hocus pocus, but merely the old typical usual stuff that corporations, big and small, float in for their working capital existence e-v-e-r-y day.

    That was the percentage I was asking about as to whether they’d realized the magnitude of the risk. Was that what you figured represents 30% of the common USA man?

    Now, Paulson would tell you we’d have never gotten there… and the media would generally tell you the same thing… and the Fed would make the obligatory soothing statements, and if necessary the White House would have too. But, for a few hours at least, the situation was heading to what I described at a very rapid pace. And that’s what Cramer had his melt-down about because he was sensing that crisis from all his contacts that live in the commercial paper world that the average man has no real conception about.
    sn – Thanks and you’re a good observer. My discussions with people, though likely much more extensive than yours, haven’t been as exclusively in the professional crust as yours, but I’m waiting to find even o-n-e individual that understood what I described above.

    It’s like Elwood P. Dowd trying to explain Harvey:

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