Race to Call the Bottom

My friend Peter Boockvar has a nice quote in this morning’s NYT article,
Forecasters Race to Call the Bottom to the Market.

The article discusses various extreme forecasts of the past: Bears like Owen Lamont (Dow 1,000), Nouriel Roubini, Peter Schiff, and Bulls such as Kevin A. Hassett and James K. Glassman (Dow 36,000), and even Elaine Garzarelli (she’s now a permabull, but in 1987, forecasted a crash).

Boockvar’s discussion of markets was mistook for a forecast of Dow 5,000, and caused some interesting mayhem around the office: 

"More than a few eyebrows were raised last week when news flew across trading desks that Peter Boockvar, who tracks equities at Miller Tabak, was predicting the Dow would crater to 5,000 by next year, a 40 percent decline from the current level.

Among the shocked: Mr. Boockvar himself. “It was mischaracterized!” he said in a telephone interview on Friday, adding that he had no idea if the Dow would sink to 5,000.

“Based on my calculations, I said we can go from 5,000 to 7,000,” he said. “No one’s smart enough to answer the question as to where we’ll be a year from now. I think it’s silly to pick a number, that’s why I picked a wide range.”

It had been an exasperating 24 hours for Mr. Boockvar. “I had to deal with it half my day yesterday,” he said."

Been there, done that. I understand Peter’s exasperation. You get grief from people who believe that the media drives the markets (its the opposite) and from people who wont even contemplate an ordinary cyclical sell off.

The Times article adds: "Even in normal times, forecasters have a strong incentive to make extreme predictions, which is why those “Dow 1,000!” reports persist. “It’s eye-popping. It’s relevant. It seems exciting.”

Here’s the funny thing: There is a degree of truth in that, but not in the way they imply in the Times article. The Cult of the Bear articles at the Street.com, with the infamous Dow 6,800 call, generated a disproportionate amount of publicity. Some people looked at it as a good career move. It probably worked out that way, but that was never the intention.

I mentioned this a long time ago, but I’ll repeat it here again: I was really utterly surprised by the fierce reaction to the Dow 6,800 forecast.
I have always thought of forecasts as laughable. The track record of
economists and strategists is notoriously poor, no one ever
consistently gets the year out forecasts correct several years in a row
— its just totally random. I had warned readers away from them many
times prior (see The Folly of Forecasting). So I was genuinely shocked anyone took that call remotely seriously.

I can relate to Boockvar’s agita. I had written back then: "The slow-motion slowdown. It starts with the consumer, who after years of spending, finally tires. Soon, it infects corporate revenue and profits. Slowly, it cascades its way across different sectors: housing, durable goods, discretionary spending, entertainment. Eventually, the decay spooks the markets."

That was the main point, but it was widely ignored in favor of focusing on the downside number. I can easily imagine what Peter was going thorugh. The pushback to the cult series was so bizarre to me. And the troll comments in 2007, especially at the peak of the market, are unbelievably amusing to read today. The current crop of anonymous trolls regarding the recent BUY EM call, are similarly laughable. There’s an interesting discussion that looks at the anonymous troll at Wired: Twitter, Flickr, Facebook Make Blogs Look So 2004.

Hey Pete — welcome to my world!

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Sources:
Forecasters Race to Call the Bottom to the Market
MICHAEL M. GRYNBAUM
NYT, October 26, 2008   
http://www.nytimes.com/2008/10/27/business/27markets.html

Twitter, Flickr, Facebook Make Blogs Look So 2004
Paul Boutin   
Wired, 10.20.08
http://www.wired.com/entertainment/theweb/magazine/16-11/st_essa

Apprenticed Investor: The Folly of Forecasting
The Street.com, 06/07/05 – 01:05 PM EDT
http://www.thestreet.com/_tscana/comment/barryritholtz/10226887.html

Cult of the Bear
The Street.com, Part 1 01/05/06 – 07:18 AM EST   
http://www.thestreet.com/markets/marketfeatures/10260096.html