Daily Investment Interpretations

November 1, 2008

Saturday, 2008-11-1:  Sam Stovall, the Chief Investment Strategist at Standard & Poor's, is forecasting four quarters of recession, ending with the second quarter of 2009. Given that the markets generally turn up 4 to 6 months before the economy bottoms, the stock market should start back up no later than late January, 2009. Given also that the current rally is expected to end anywhere from late November to late January, the October 10th intra-day low of 840 might mark the low point on the S&P 500 for this bear market. In the meantime, Minyanville's Kevin Depew states: "I believe the magnitude of this bear market is far greater than 2002 but is being vastly underestimated by policymakers and investors." I'm disposed to believe Kevin Depew and the other pundits who foresee a deeper, darker, longer period of economic malaise than Mr. Stovall is projecting. I've lost too much money this past year listening to business-as-usual pundits with batting averages of zero.  
    When we read the conflicting opinions of experts, we're always left with the question, "Which expert is right?" Reading conflicting experts' opinions has the effect of negating any expert advice they might give us--like reading a weather report that says, "Today will be warm and sunny, unless there's a violent thunderstorm, followed by heavy snow." The problem is: the experts don't know. Here, for example, is yesterday's column written by Nobel-Prize-winning economist Paul Krugman: When Consumers Capitulate. Which brings me to the question: what about all these ads telling us how we can make tons of money if we'll only subscribe to their news service? And that brings us to Mark Hulbert's Hulbert Financial Digest, the "Consumers Reports" for financial newsletters. If you actually follow the advice offered by these newsletters, you'll usually lose your shirt. Only two newsletters have outperformed over the long haul: John Buckingham's (formerly Al Frank's) The Prudent Speculator, and Janet Brown's No-Load Fund X. These newsletters have averaged between 16% and 19% per year (depending upon when you compute these averages) over the 28 years that Mark Hulbert has been publishing his newsletters. Several others have beaten the markets over the long haul, although not by as much as the two front-runners. Other newsletters have performed better, and even much better, over the past five years, and they may outperform from here on out, but they haven't had time to develop the long-term track records of the two frontrunners. As for the newsletters that promise huge gains in six months, these are generally snake-oil salesmen who play upon our perceptions that others who are "in the know" are doing hugely better than we are. But I would suggest that Nobel Prize-winning economists don't know with certainty what's going to happen next, and that those who talk with great assurance and who appear to have deep understanding don't know what they're talking about. If they did, they wouldn't be talking about it, and wouldn't be selling you advice. They'd be trading their own accounts, and keeping very quiet about it. "Those who know don't talk, and those who talk don't know."
    More about this later.