WTF Headline of the Day: “Dow 18,500? Believe It”

I got a huge kick out of this headline last night:

Dow 18,500? Believe It

Morningstar based this number on the "fair value estimates" of the index’s components. I have no idea how fair value is derived — earnings? ROI? cash flow?

Regardless, this is Morningstar’s forecast over the next 3 years; that translates to 14.8% annualized price return, excluding dividends. With divvies, returns are 17% per year.

And why I was so amused? Well, first off its precariously close to exactly half of the infamous Dow 36,000 book by Glassman & Hassett we all know and love so much. Could the timing of that book have been any better, published as it was on October 1, 1999?

Second, I find that high degree of certainty in the headline, well, cute. It ignores the basic reality of forecasts, that no one knows what the future will bring. And that is always amusing to me . . .

Dow 18,500? Believe It 
Jeffrey Ptak, CFA, CPA
Morningstar, Tuesday February 12, 7:00 am ET

Apprenticed Investor: The Folly of Forecasting
Barry Ritholtz, 06/07/05 – 01:05 PM EDT

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  1. Steelduck commented on Feb 13

    I have been reluctant to post personal forecasts as nobody cares to know what other investors do unless they have a clearly established credibility.

    Having said that, I can’t resist to venture into sharing what my statistical model has been spouting for a week now:

    Namely that there is a 75% chance of an imminent collapse (-20%) of the equity market in the coming days (1 to 10 days).

    Incidentally, I have a Bach. Science degree in applied maths & stats, I have been working on this model for over a decade, and no I don’t smoke ganja. (now maybe I should). This is the first time in 15 year this “crash” signal shows up.

    Has anyone gotten the same kind of signal lately?

  2. Ross commented on Feb 13

    Dow 18,000 in three years? That’s pre split I take it.

    Gotta call my diesel dealer. Need to top off my tanks before it goes for $6 a gallon.

  3. lurker commented on Feb 13

    Barry–the critical think to remember is that the media does not trade, it sells copy and tries to buy attention. If Morningstar were a hedge fund would you send them your life’s savings??? I didn’t think so.
    Be careful posting crash calls, someone might read them…

  4. Chief Tomahawk commented on Feb 13


    Any long-time viewer of the “Kudlow & Co.” show knows Larry has had a man-crush on Australian prime minister John Howard. Australia has had it’s own housing boom & now bust… yesterday they had elections, and here’s how Australians voted:

    “Meanwhile, Mr Howard’s Liberal-National coalition faces a huge task to rebuild its parties’ fortunes after what correspondents described as a humiliating defeat.

    Former political journalist Maxine McKew is close to unseating Mr Howard in the Sydney constituency he has represented for 33 years.

    Voters in Bennelong have elected Mr Howard in 13 consecutive elections.

    If unseated, he would be the first sitting prime minister to lose his seat for 78 years.”

    Not just out as prime minister, but possibly out of his parliamentary seat he has held for 33 years as well. My guess is Larry will be a little glum today.

    P.S. I have two market top indicators:

    1) The recession began when Larry Kudlow removed public comments from his blog.


    2) Dennis Kneal’s hiring. Had the Fox Business Network come into existence with the mission to “be more business friendly”, Dennis Neale never gets a job at bubblevision. Clearly CNBC felt they had to get a wild-eyed perma bull on air as much as possible to meet the Fox challenge, ergo Dennis Kneale!

  5. SINGER commented on Feb 13

    Get on some Price is Right isht and do a post:

    “DOW 18,501 – Believe it” this way if its over 18,500 : you win!!!!

  6. Ross commented on Feb 13

    Excellent article by Paul Kasriel about the rich poor debate from Cox and Alm. Per usual, Prof. Kasriel hits the mark once again. Kudos to Barry’s post as well.

    It is posted on

  7. Chief Tomahawk commented on Feb 13

    Sorry. I left out that Howrds’ party lost a whole lot of seats in parliament.

    Critical election issues: The economy, environment and war in Iraq

  8. Ross commented on Feb 13

    Steelduck, you gotta quit reading Roubini son.

    Is it steelduck as in quack, or when I duck, I want steel over my head?

  9. cinefoz commented on Feb 13

    Damn. Retail Sales didn’t fall off a cliff. Well, maybe tomorrow some bad news will be announced and many here will feel smug again. Futures are rising. Well, the day’s still young. And the end of the world could be announced tomorrow if you wish REAL HARD. Maybe parsing the retail numbers will reveal true gloom. Go for it.

    After all, technical indicators say bad news is inevitable. Any day now. And it will last forever. And you can’t argue with math or anything that comes out of a computer.

    Think of the bright side. Mortgage applications were down a little after rising for several weeks. At least they’re getting with the program.

    Gotta go hide under the bed now.

  10. The Financial Philosopher commented on Feb 13


    You are wise to label media noise for what it is — amusement.

    I’ll add to lurker’s point: Any source of information that is in the business to sell advertising does not have the reader’s best interest in mind…

  11. Stuart commented on Feb 13

    Retail sales were flat excluding gasoline and autos, up .3% including them and auto sales component is already questioned as extremely suspect given the announcements made to date by the auto cos as to their sales being materially down. Steve Liesman is the David Lareah of CNBC. It’s a certainty given his pumping of these figures that his job is to spin spin spin anything and everything. Even though gasoline sales was the main reason for the slight increase, he’s pushing the theory that it doesn’t matter, as long as the consumer is spending it’s a good sign that they have money. Hackanomics master he be. Inexcusable and obliterates CNBC’s credibility as an objective news outlet.

  12. Paul Griffith commented on Feb 13

    Dow18500 is where stocks need to go to outperform inflation, nevermind taxes.

  13. cinefoz commented on Feb 13

    I know. People are using their gift cards just for food and all they are buying are cereal and beans. They’re stocking up because they know that will by considered the good stuff real soon now. That’s why retail numbers are up. It’s all just desperation.

  14. s0mebody commented on Feb 13

    I wouldn’t call the retail sales good.

    Gas Stations +23.5% yoy
    Food Stores +6.7%
    Health care stores +3.5%
    Nonstore retailers +12.4%

    Furniture -4.3%
    Electronics -1.9%
    Building Materials -5.8%
    Department Stores -4.5%

  15. Florida commented on Feb 13

    I finally got around to reading The Black Swan–just finished it this weekend, in fact. So I’ve got Taleb on the brain and when I read this post, it put me into Jim Mora mode: “FORECASTS!?!?”

  16. larytet commented on Feb 13

    Linked 5 years chart of TLT
    does not it look like a major top ?

    and 15 years for $TYX
    Jan 22 does not it look like blow off bottom ?

  17. Stuart commented on Feb 13

    Ya but the pump worked, it got the futures up, and these days that’s all that matters it seems. Gotta lead the sheep.

  18. cinefoz commented on Feb 13


    I agree. The only correct forecasts are the ones that predict gloom and doom. The others are crapola.

  19. cinefoz commented on Feb 13

    Yen at 108.14, Go Carry Trade! God bless the Japanese. Liquidity cometh. Would this be a black swan?

  20. Ross commented on Feb 13

    Gotta lay off putting de denatured ethanol in my morning V8 juice! Last post, I promise.

    Looks like cinefoz is going to load his dinghy again today.

    I read Roubini’s 12 steps via John Mauldin. It is truely scary and from a guy for whom I have a lot of respect. It got me thinking that we need to begin exchanging depression recipes. Not as in recipes for a depression but what we will eat if we have a depression. I’ll go first. This is from my Dad when he was in high school in 1937.

    At lunch time, he and his younger brother would go into an eatery in town and order two large glasses of hot water and a 3 cent tea bag. He would let the water cool a bit and drink 3 or 4 ounces. He would then pocket the tea bag to take home to his Mom.

    Of course ketchup, salt, pepper and saltines were always on the table. He would put ketchup, salt, pepper and a few crunched up crackers into the glass and stir. Voila, a glass of warm tomato soup!

    Now that’s depressing. True story.

  21. Florida commented on Feb 13

    The only correct forecasts are the ones that predict gloom and doom.

    Where you getting that from, homey?

  22. super-anon commented on Feb 13

    Weren’t these the guys who had a 4 star rating on New Century Financial last year?

  23. cinefoz commented on Feb 13

    On a more serious note, could someone tell me about ‘short covering’? What sets it off? What makes a group of shorts collectively decide to bail out of a rising market? What are the dynamics and psychology of a market when short covering happens? Barry, this would make a good educational posting. I would assume psychology is the driver, so that would control the dynamic.

  24. michael schumacher commented on Feb 13

    To add to Chief’s two things here is one more:

    UBS highlighted a new structuring technique for Alt-A hybrid deals, which involves carving out ultra high-quality bonds out of the super senior triple-A classes and calling them super duper senior bonds.

    I guess you can still shine a turd.

    Super Duper Senior Bonds brought to you by Big Gay Al….

    Stuart- don’t bother…cinefiz would rather let a story get in his way of any facts like actually drilling down the report.


  25. Stuart commented on Feb 13

    -The Tosser (dealer) is the sleight of hand man who mixes the cards and takes the bets
    -The Shills are accomplices who pose as punters making bets, to give real punters the impression that the game can be beaten
    -The Lookout watches for cops (police) and signals their approach so that the game can be “folded up” quickly
    -The Muscle Man takes care of anyone who decides to complain
    -The Roper seeks out likely punters and encourages them to join the game

    Every interview on CNBC or Bloomberg, think of these 5 players.

  26. mhm commented on Feb 13

    To whom it may concern:

    “He who knows, does not speak. He who speaks, does not know.” Lau-tzu

  27. Stuart commented on Feb 13

    Depression risk might force U.S. to buy assets
    Tue Feb 12, 2008 4:19pm EST

    By John Parry

    NEW YORK (Reuters) – Fear that a hobbled banking sector may set off another Great Depression could force the U.S. government and Federal Reserve to take the unprecedented step of buying a broad range of assets, including stocks, according to one of the most bearish market analysts.

    That extreme scenario, which would aim to stave off deflation and stabilize the economy, is evolving as the base case for Bernard Connolly, global strategist at Banque AIG in London.

    Avoiding a depression is, unfortunately, going to have to involve either a large, quasi-permanent increase in the budget deficit — preferably tax cuts — or restoring overvaluation of equity prices,” Connolly said on Monday.

    If conventional monetary policy is not enough to produce that result, the government may have to buy equities, financed by the Fed,” Connolly said.

    Legal changes would be needed to give the Federal Reserve and the U.S. government the authority to buy stocks. Currently the Federal Reserve can buy only debt issued by the Treasury, as well as U.S. agency debentures and mortgage-backed securities.”

  28. techy commented on Feb 13


    everywhere i read, retails sales is being touted as positive.

    is it possible consumer is not going to die? or its just that he does not give up his spending habits so easy?

    the tape is saying, nobody is sure..

  29. Don commented on Feb 13


    Your dad’s tomato soup recipe sounds the same as the one I used at college during those go-go years of stagflation.

    But really, that sort of thing couldn’t happen again here, could it?

    It is the Great Moderation. Goldilock’s porridge is just right. Fake money yields real growth, no?

    It may be time to return to the dirt. Subsistence farming ain’t glamorous, but it beats nothing.

    btw, it’s freaking snowing (very lightly) in Alabama today. Maybe summer is yet a few days off….

  30. Stuart commented on Feb 13

    “everywhere i read, retails sales is being touted as positive”

    That is in itself one of THE stories of the past year worth diving into to. Undaunted media spin.

    Report was weak, propped up by gas sales and unbelievably skeptical positive auto sales.

  31. michael schumacher commented on Feb 13

    I suppose retail sales are great if you have to spend more of a declining currency for the basic elements of consumption….ala food and fuel. But we can’t count those if we look at inflation. Fucking stupid….

    Witness Wal-Marts next earnings report…it will be a celebration of higher food costs but it will be spun to the point of a boner inducing event for the Dow.

    Futures are ALWAYS UP regardless of the news……

    There’s always Hope…….for more artificially created events…….tomorrows should be a dosey…


  32. mikkel commented on Feb 13

    Steelduck, how in the world can you statistically model for events that are so rare? That’s a serious question, I am curious to see why you say that.

    Not that you’re necessarily wrong (although 1-10 days doesn’t give you much of a time window!) because who knows what will happen when the first counter-party fails.

  33. kk commented on Feb 13

    DOW 18500 in three years doesn’t seem outlandish to me. 14.5% compunded return over the next 3 years, plus a 2.2% dividend yield. The article points out that stocks are at their cheapest levels since Sept. ’02. I agree. I am a buyer at these levels. I am adding to my funds, and establishing a few new equity positions on some beaten down financials, tech and retail.

    IMO this market has many similarities with RTC, 1990, 1994 bond meltdown, along with 1998 panic.

    I am a long term investor, I do not trade, and I am not leveraged.

  34. Johnny Vee commented on Feb 13

    Apparently, consumers can pay more for gas, food and doctors when they stop paying mortgages. Great news.

  35. michael schumacher commented on Feb 13


    As housing AND construction was responsible for the last few years of returns in the market where or what is going to drive this appreciation???

    “stock are cheap” is a statement not a strategy


  36. mikkel commented on Feb 13

    All the predictions either way really depends on whether or not we are in a new secular trend or not. If 2000-03 was just a cyclical bear market and we are entering another one, then sure 18k or whatever isn’t unreasonable in 3-5 years. If 2000 was the start of a new secular trend….well, Dow 7000 is more likely (as a bottom that we hope holds).

    Personally I’m in the latter camp because I think that there is a systemic debt crisis that rivals that of the one that caused Great Depression. And I think the debt crisis arose because of the constraints that energy have on production (that and we haven’t effectively utilized computational power in many fields because they are dominated by giants). I don’t think we’ll be out of the clear until we have some amazingly cheap power and that is at least 15-20 years away. But that is a philosophical argument, not a statistical or data driven one.

  37. Estragon commented on Feb 13


    Obviously, the retail report was better than expected… equities spiked on the news.

    Funny how so little of the reportage of it notes that the numbers are nominal though.

  38. SPECTRE of Deflation commented on Feb 13

    I have something better than that 18,000 DOW. We are melting down as a country, but the good news we won’t have steroid use in baseball. To say that as an American I am disgusted by such a trivial use of our resources would be a huge understatement.

    Barry, can you call CNBC, and ask them to report some frigging business news?

  39. Estragon commented on Feb 13

    Speaking of CR, there’s an interesting piece about the impact of the housing mess on renters. Of note

    “In the short term, the housing bust has probably helped push rents up in many areas”

    Apart from the impact this might have on spending by renters, it may also have implications for the near term direction of core cpi.

  40. Stuart commented on Feb 13

    CNBC should comment on this.

    Muni Auction Bond Failures Lead to Turmoil, High Rates
    A story on Bloomberg highlights the seize up in the muni bond auction market, which is forcing issuers to pay as much as 20% in interest to roll short-term debt.

    The bonds are auctioned every seven, 28 or 35 days. If the auctions don’t attract enough bidders, the municipalities must pay rates specified in their offering agreement, which can be punitive.

    The failures result because neither investors nor dealers want to wind up holding paper that is downgraded due to bond insurer downgrades. Weirdly, if the rating agencies re-rated the monolines rather than holding the sword of Damocles of a rate reduction over them, this uncertainly would be eliminated.

    From Bloomberg:

    Rates on $100 million of bonds sold by the Port Authority of New York and New Jersey, with bidding run by Goldman, soared to 20 percent yesterday from 4.3 percent a week ago, according to data compiled by Bloomberg. Presbyterian Healthcare in Albuquerque and New York state’s Metropolitan Transportation Authority also experienced failures, officials said….

    “It’s the beginning of the end for the auction-rate market,” said Matt Fabian, a senior analyst with Concord, Massachusetts-based Municipal Market Advisors. “Banks have stopped supporting the market.”…

    Local governments are obliged to pay the high rates until either the auctions start attracting more buyers or they arrange to convert the bonds to some other form of debt. Bankers and borrowers have been working on conversion plans for several weeks.

    The 20 percent rate for the $100 million of Port Authority auction bonds will cost it $388,889 until the next weekly auction, up from $83,611 last week. Interest on the bonds is subject to federal income tax….

    A Citibank-run auction for the New York state’s Dormitory Authority failed yesterday, resulting in an interest rate of 6.26 percent, up from 3.12 percent a week earlier, according to Bloomberg data. Following the auction miss, the interest rate was set at twice one-month Libor, the London interbank offered rate for wholesale bank deposits, according to the official statement for the bonds….
    Bidding by dealers is essential to the smooth functioning of auction securities and banks are now wary of loading their balance sheets with the bonds, said Alex Roever, a JPMorgan Chase & Co. fixed income analyst.

    “This market has been under a tremendous amount of stress,” Roever said. “Without the dealers providing an active secondary bid, it’s very hard for these transactions to clear.”

    The soured auctions in recent weeks are the first since September, when about $6 billion of auction debt failed on investor concerns that bond insurers may lose their AAA ratings, Roever said in a Feb. 8 report. The latest wave began as recently as Jan. 22, when auctions run by Lehman Brothers Holdings Inc. for Georgetown University and Nevada Power failed

  41. SPECTRE of Deflation commented on Feb 13

    These are the headlines for today. I don’t care if someone got a shot in their arse. We are turning into a joke of a country. Welcome to new Rome.

    Wed Feb 13 2008
    Houses in Bubble Regions Remain Wildly Overpriced (
    In Miami the fraud goes on (
    Former industrial US Rust Belt cities fight glut of abandoned houses (
    Rent vs. Buy Myths That Ruined the Housing Market (
    Understanding the Pyramid Scheme We Call Housing (
    We’ve borrowed more than we can afford (
    Third of recent buyers owe more than house’s value (
    Mortgage Crisis Spreads Past Subprime Loans (
    Foreclosures Hurt Housing Market Further (
    Data show foreclosures make up half of houses sold in Calif (
    US Announces Plan to Delay Foreclosures (
    US banks join mortgage help plan (
    Plunging house values mean falling taxes (
    California may not forgive taxes due on canceled debt (
    Economists’ Tea Leaves Point to Recession (
    Bad Bets and Accounting Flaws Bring Staggering Losses (
    Federal Reserve Plans To Drop Cash From Helicopters (
    Builders Demand More Gov’t Nookie For Their Cash (

  42. michael schumacher commented on Feb 13

    The quote of the day in the article that Stuart provided:

    “Local governments are obliged to pay the high rates until either the auctions start attracting more buyers or they arrange to convert the bonds to some other form of debt.”

    How long do you think this is going to go on for?

    “some other form of debt”

    Sounds like someone was reading about UBS and the SUPER DUPER BONDS.

    Big Gay Al to the rescue…..

    “it’s soooooo thuper”


  43. Ritchie commented on Feb 13

    DOW 18,000! You only have to believe. As some Bushed admin aide said:

    You are in what we call the reality-based community, which is people who believe that solutions emerge from your judicious study of discernible reality. That’s not the way the world really works anymore. We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality — judiciously, as you will — we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors… and you, all of you, will be left to just study what we do.

  44. Steelduck commented on Feb 13

    @ mikkel,
    I cant discuss the model in detail but
    Pearson product-moment correlation coefficient allows you to extract look-alike market periods. As of last friday, 1929 and 1987 showed up on the short list of the top 1% most correlated periods with jan-feb 2008. I am interested in knowing if these 2 periods also appeared on anyone’s radar screen…

  45. hal commented on Feb 13

    interesting comments once again:

    our society has fallen to the depths of used car salesmen–even bringing in the roger clemens factor.

    last nite at sams club my wife complained about prices–eggs, she said, were double what they were last year and since we all touch the same info we know where that discusion would go.

    but the question is (as I watch gold and silver make new daily highs) how have your portfolios done with all this correct info.

    I trust you are all in the black this year as going counter to bubblevision is profitable (which alone is reason enough to watch bubblevision)

    Dennis Kneale is something else.

  46. kk commented on Feb 13

    MS, “stocks are cheap” is my view, based on MY research, which takes into account PRICE vs. cash flows, earnings (discounted for current slowdown) dividend yield, fed model (why aren’t we talking about a treasury bubble) in the context of a long term holding period. In the past, my best investments have been made in periods like the present.

    I have been an investor during recessions before, and I have seen the opportunities that were presented through a bear market. The purchases that I make today may not pan out for the next year, and I am OK with that, as my financial plan does not rely on the next 12 month period. I am positioning myself today for the next 3-5 years, not the next CNBC “trading call”.

    I am not leveraged, and have the ability to add to my portfolio on a systematic basis.

  47. kk commented on Feb 13

    MS, “stocks are cheap” is my view, based on MY research, which takes into account PRICE vs. cash flows, earnings (discounted for current slowdown) dividend yield, fed model (why aren’t we talking about a treasury bubble) in the context of a long term holding period. In the past, my best investments have been made in periods like the present.

    I have been an investor during recessions before, and I have seen the opportunities that were presented through a bear market. The purchases that I make today may not pan out for the next year, and I am OK with that, as my financial plan does not rely on the next 12 month period. I am positioning myself today for the next 3-5 years, not the next CNBC “trading call”.

    I am not leveraged, and have the ability to add to my portfolio on a systematic basis.

  48. michael schumacher commented on Feb 13


    wonderful news for you however that doesn’t do anything to address the original question. You SEEM to be educated about this whole thing but provide no analysis as to why it is going to improve.

    I’ll pose it for you again in case you missed it..

    “As housing AND construction was responsible for the last few years of returns in the market where or what is going to drive this appreciation???”

  49. badhaikuguy commented on Feb 13


    to answer your question about short covering (not necessarily in order of importance):

    Trading Systems and Methods – Perry Kaufman
    Encyclopedia of Chart Patterns – Thomas Bulkowski
    Technical Analysis for the Trading Professional – Constance Brown
    The Master Swing Trader – Alan Farley
    New Thinking in Technical Analysis – Rick Bensignor, Editor
    The Encyclopedia of Trading Strategies – Katz & McCormick
    New Market Timing Techniques – Tom DeMark
    The New Science of Technical Analysis – Tom DeMark
    Technical Analysis From A to Z – Steven Achelis
    Trading for a Living – Dr. Alexander Elder
    The Secrets of Economic Indicators – Bernard Baumohl

    And that’s just the short list.

    Hope this helps

  50. kckid816 commented on Feb 13

    “No Top-Down, No Short Cuts
    Notice what’s absent from the approach we’ve taken: a top-down macroeconomic overlay of any kind. For instance, we’re not guesstimating the short-term direction and level of interest rates, the trajectory of the dollar, the size of the trade deficit, and so forth. Nor are we shortcutting our way to a forecast by, say, ginning up an aggregate earnings growth projection or trying to handicap where earnings multiples and yields are likely to settle in three years. Methods like these are notoriously imprecise. So, we don’t use them.

    Instead, we’ve built our forecast one company at a time by rolling up the fair value estimates that our analysts have placed on the Dow’s components. When our analysts estimate a firm’s intrinsic worth, they’re forecasting cash flows over a very long time horizon. Therefore, while we’re mindful of how the economy could impact a firm’s results in the near term, it doesn’t govern our outlook. In short, we think that a business’ value is a function of the cash it’s likely to generate over many years, not the next few quarters or so”

    He’s basically saying our projections are based upon what we say these companies are worth. Wow, all I can say is wow. Let’s just completely ignore everything that’s going on in the world and say that the companies are going to have these great cash flows over the next three years. Nevermind that a recession or depression could affect them. Nevermind that we are ignoring interest rates and everything else that could affect Cost of Equity which is what they are using for “fair value”.

  51. michael schumacher commented on Feb 13

    The last paragraph of kckid816 has special meaning for you KK.

    It should….


  52. Justin T commented on Feb 13

    there are so many dire stories out there in the financial world that are not being reported by the main-stream media. From an article I just read in “The Economist,” it appears that local banks holding commercial property mortgages between 50-150 banks holding up to a couple of billion dollars each. The real problem they go on to suggest is in the credit withheld from the greater economy. When will the general market stop trading on technicals and start trading on fundamentals? I’m tired of analysts coming on cnbc suggesting that valuations are cheap here. What is cheap is their analysis – projected earnings, are subjective.

  53. Matt M. commented on Feb 13


    I couldn’t help noticing in another post that you are a big PPT and invisble hand on the market guy. Watch out for those dark shadows and whispered voices!

  54. michael schumacher commented on Feb 13


    Since none of the free-market fools cry out for socialism at each down tick and cheer each rigged report from the commerce department that bullies that market up on low volume (yet again).

    Nevermind the cry to bail out the bulls with billions of “stimulus” in the forms of Repo’s , T.A.F. and rebate checks. No that has nothing to do with “voices”….

  55. Matt M. commented on Feb 13

    MS…..there you are….right on time! By the way, I couldn’t care less if there is a Fed nor do I pay any attention to any reports. Trade what’s in front of you on both sides of the market and don’t fall in love with your brilliant analysis because it will prevent you from making money. The terms bull and bear are for pikers.

  56. RR commented on Feb 13

    i got a particularly good chuckle from this post. my respect for M-star’s work in this regard good best be measured in nanogivashits.

    in the article you linked to was the sub-headline

    No Top-Down, No Short Cuts

    to which it immediately occured to me to add No Accurate Forecasts

  57. kk commented on Feb 13

    MS, IMO current prices in the stocks that I have recently purchased more than reflect (margin of safety) the bad news. I don’t expect for the consumer to reach the levels they had in the housing boom for quite a while, because my companies will be quite profitable even in a worsening economy. On the other hand, extrapolating the current horrible economic news as the new paradigm is just as dangerous to one’s financial health. I am of a view (and have the scars to prove it) that you pay a high price for a rosey consensus.

  58. mhm commented on Feb 13

    MS, I was not poking at you this time…

    But anyway, what you thought was the System Repo came into existence as TAF. So from now on leave the Repo instrument alone and concentrate on TAFs (and the negative fractional reserve).

  59. Michael commented on Feb 13

    Awesome! I love playing this game. Dow takes out 2002 lows by the fall of 2010. Believe it!

  60. cinefoz commented on Feb 13


    Thanks, but it’s my fault that I probably didn’t make myself clear. I don’t understand the psychology and related dynamics of short covering and how it makes the market rise out of control.

    To me, short covering is the opposite of longs who panic. I assume there is recognition that the bet was wrong and the hope it will right itself by going back down. Then fear sets in. Others must feel like that because the market melts up in a short panic … or so it seems to me.

    The above is only guesswork. Is there a reference that covers the psychology of short covering panics individually and as they apply to a mass panic? I’m half interested in what goes on in someone’s head, and half interested in how their actions build on each other and cause major market rises.

    When Pisani occasionally describes a sharp run up as ‘short covering’, I am just wondering what is actually happening on a personal and on a mass hysteria level. What kind of transaction levels are required to cause a melt-up? Do they usually reverse a little the next day? Are these people only naked shorts or do all short sellers participate in the ‘panic’?

    Thanks for answering, though.

  61. mikkel commented on Feb 13


    I obviously don’t know what you’re doing, or what timescales you’re looking at, but I seriously doubt that the data you are comparing is normally distributed, let alone a random variable (if you’re only looking at the last few months)so I’m not sure that R means anything. Even if it was, I don’t think things are easily explained by linear correlations.

  62. Aussie Guy commented on Feb 13

    “yesterday they had elections”

    Chief Tomohawk, you are an idiot.

    Look at the date on that article.

    We voted in NOVEMBER!

  63. getting older commented on Feb 13

    I’m just curious why people feel the need to make predictions, when they are less accurate than flipping a coin? Even more strangely, why do people feel the need to believe someone else’s prediction?

  64. MDDwave commented on Feb 14

    Using the “forecast” function in Excel, a simple exponential regression on the DJIA monthly close since October 1928 forecasts the DJIA would be at 18500 on February 2016 (give or take a few years). The effective exponential interest rate would be 6.1%.

    One near term issue with the regression is that the curve indicates that the DJIA should be 8950 now!

  65. ef commented on Feb 14

    14.8, that’s almost that magic Beardstown Ladies number to double your money in 5 years.

    “Provided that the firm hauls in cash at the pace we’ve forecast,…”

    Morningstar makes money whether they are right or not :-) We’ve got it backwards. We should focus on good companies that provide valuable needed services and products,that put people to work, and the market is an after affect.

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