Media Appearance: CNBC’s Squawk on the Street (1/10/08)

Squawk_on_the_street_440x230b

This morning, I am on CNBC’s  Squawk on the Street, at 10;40am.

Today’s appearance is courtesy of our winning forecast in the WSJ 2007 contest, which was described as "eerily close" to the final tally.

As I have said many times, these contests come down to mostly dumb luck, that forecast is folly, and as wildly off as I was in 2006, I was that wildly on in 2007. We do them for fun, and never ever ever make investments based upon them.

With those weasely caveats in place, here are our forecast for 2008:

2007 Close                             2008 Mid Year            2008 Final

DJIA: 
13265                      11,900                       12,800

S&P 500: 1468                    1275                         1350

NASDAQ: 2652                    2275                         2400

Russell 2000:  766               580                           639

10-year yield: 4.03              3.75                          4.10

Favorite sectors are Health Care, Consumer Staples (Food & Tobacco), Engineering/Infrastructure, Utilities, Miners (especially Gold). We still like Oil and Agriculture, but the easy money has already been made. We are looking to buy into Technology, but from appreciably lower levels than present.

I will leave you with this slightly randy limerick, courtesy of one curmudgeonly troll:

The forecaster is a gentle man
With neither sword nor pistol
He walks along most daintily
Because his balls are crystal

~~~

2007 Forecasts after the jump

2007 Forecasts

DJIA: 13250;
S&P 500:
1475
Nasdaq:
2650;
Russell 2000: 825
10-year yield: 3.95%

2007 Actual

DJIA:  13264.82
S&P 500: 1468.36
Nasdaq: 2652.28
Russell 2000:  766.03
10-year yield: 4.03 %

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What's been said:

Discussions found on the web:
  1. Vermont Trader.. commented on Jan 10

    Barry, i disagree with your mid year forecast and sector picks. I think commodity prices will start to come down and the market will rally. Money will come out of commodities and into stocks. The price of money (interest rates) which is the biggest commodity of all will drop this year. The lows of the first half of the year are probably already in.

    I am positioned as follows.

    Long
    financial and retail stocks trading at multi year lows such as CFC, ETFC, MBI, many small cap retailers such as BONT, . protein companies like DF and TSN. transports UPS, FDX

    Convertable bonds – there are some great deals here. Why buy C when you can buy a convertable at 9%? Why buy GM when you can buy a convert at 10%?

    Short

    oil, industrial commodities, the british pound vs. dollar.

    neutral

    banks (i’ll buy converts), homebuilders, tech, brokers, energy stocks

    If oil starts to roll over the technical traders will take it down hard and that will be very positive.

    I think you should examine your views here and try to be a little more contrarian. You have been right on for a while but now your views are becoming the consensus. That should raise red flags for you…

  2. cinefoz commented on Jan 10

    With regards to the S&P, you appear to be predicting a reciprocal ‘bubble’. In other words, the asset bubble of the past 15 months or so will trigger an event of similar size, but negative to the long term mean.

    I’ve wondered about that, too. The proof will be, in my opinion, around S&P 1360. If it does not go up with conviction, and if there is no reason for it to rise, then you might be right.

    Personally, I believe the historical upward drift in the stock market is a reflection long term increases in investment funds on a macro level. What you describe would only happen if the economy contracts, the money supply falls dramatically, people stop buying in general, massive layoff become real instead of mostly fantasy, and the market panics to the point of paralysis.

    Gas prices are a tax on the economy that reduces disposable income. This might cause the shift you are predicting.

    On the other hand, foreign capital is entering the US and this investment might provide an offset to the need for capital requirements of businesses run by dumbass screaming finance babies.

  3. LAWMAN commented on Jan 10

    Vermont Trader: Your contrarian picks are fine, but I think you are too early on them. Especially the financials and the market as a whole. The lows won’t come until one of the big players declares BK.

    I think the market as a whole still needs to flush out the denial before the lows come. There still is no blood on the streets…too many people still think that .gov is going to dig us out of this one.

  4. scorpio commented on Jan 10

    nice work, Barry. amazed CNBC let you deliver. every money manager/prognosticator should have last year’s predictions/results pinned to their chests as they spout off. i too think 1250 the linchpin, perhaps not the pivot. the economy looking like 2002 but we’re still up 90% from the lows. market has to get serious here and start putting in some serious declines. while it may rally again from that 50% retracement, i think the FRB will get serious after the election and raise rates to slow this global inflation they unleashed. then down again.

  5. barley commented on Jan 10

    I am less optimistic for 2008, than you. On a macro level, considerable wage pressures from the service sector, but not labour as the trend has been multi-year contracts at low pay-raise levels, this will be inflationary.

    I also do not see residential/commercial construction improving until 2011. The current housing mess is creating net-negative wealth and the subsequent psychology will unfold in 2008.

    The amount (%) and the type of paper the Fed has taken in trade of cold hard cash scares the begeezzes out of me.

    The credit cycle is done but I have not seen the unwind of leveraged positions. Kinda like air hockey – the pucks floats as long as everybody plays.

    I am anxious to see the Q4 and Q1(08)balance sheets for the financials. My gut is telling me a few folks will be tippy.

    The current thinking is that all will be well in the US because of the health of the rest of the world. I find this perverse. India’s growth was/is fueled by EU and US demand. China’s growth was/is fueled by EU, UK, and US demand.

    Since I am now 93% cash at the moment (the first time since 1986) I dont really care where the DOW might be as 2008 closes but I would be interested in a few things at 9600ish.

    Enjoy your writing.

  6. Peggy commented on Jan 10

    This market has been so volatile all year, I blame it on the options traders. Seems to me it will continue to yo yo.

    Home prices need to come down. They have been rising too much too fast.

    Peggy

  7. michael schumacher commented on Jan 10

    yet again…..more hot air to the rescue. This is disgusting……

    make it a little less obvious

    Ciao
    MS

  8. kio commented on Jan 10

    Predicted S&P 500 returns for 2008.

    So, our prediction for 2007 was accurate enough considering uncertainty in corresponding population (9-year-olds) measurements. Figure 1 below displays annual returns – measured and predicted. For December 2007, predicted value was in the range 1440-1450. Actual level was 1467. We do not re-calibrate our model for this final value and present monthly SP 500 levels for 2008, as obtained in August 2007 (see our post on calibration issue). We will likely re-calibrate the model in 2009, when a new fall comes.
    Relevant (annual) returns, which are fixed to 6% before October 2008, are also in Figure 1 –
    http://www.futuresboard.com/?ab=board&forum=1&board=2&thread=3616

    Table 1 presents monthly returns and corresponding close levels of S&P 500.
    Month Close Return
    Jan 1503. 0.024
    Feb 1523. 0.013
    Mar 1491. -0.021
    Apr 1505. 0.010
    May 1570. 0.041
    Jun 1621. 0.031
    Jul 1537 -0.052
    Aug 1568. 0.020
    Sep 1643 0.047
    Oct 1621. -0.012
    Nov 1820 0.122
    Dec 1770 -0.027

    Notice an upward move in May, June, and November. Since population data are not too much reliable, one can expect actual start of the jump to the level of 1800 in October, 2008. But November 2008 should the month of surprise.
    Figure 2 provides a general view on cumulative returns starting from 198. Predicted cumulative return gives several next years with elevated annual returns.

    Details in:
    Ivan O. Kitov, Oleg I. Kitov
    Exact prediction of SP 500 returns
    http://mpra.ub.uni-muenchen.de/6056/1/MPRA_paper_6056.pdf

  9. Pat Gorup commented on Jan 10

    Why would anyone buy a gold miner instead of the metal itself and take outright posession? Also, why is it that money managers/analysts consistently refer to gold specifically and not precious metals in general? When other countries start cutting their benchmark rates the dollar will begin to firm and oil prices will pull back. Gold is specifically linked to the fate of both the dollar and oil. Silver has thrived between 2002-2007 because of our economy and in the future will benefit as a hedge against inflation.

  10. PJ commented on Jan 10

    Nice forecasting and financial writing, but know that a limerick has 5 lines, not 4.

  11. danf commented on Jan 11

    Why would anyone buy a gold miner instead of the metal itself and take outright possession?
    ——
    The maximum Long Term Capital Gain tax rate for collectibles (including precious metals) is 28%.

    The maximum LTCG tax rate for stock is 15%.

    So you may get taxed more on gold.

  12. blam commented on Jan 12

    Only a 10 percent sag into the annual low ? Seems too low, I wouldn’t be surprised by S&P at 1100. Hope your right.

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