Interesting that most of these guys are still in the market, despite predicting terrible times ahead.
Money moves 5 doomsayers are making now
Prophets of gloom look to profit from Fed, corporate actions
By Wallace Witkowski, MarketWatch
Unemployed men wait outside a soup kitchen in Chicago in February 1931.
SAN FRANCISCO (MarketWatch) — They are sentries at the stock market’s wall of worry, warning investors to prepare for another epic crash for debt-laden economies.
But with U.S. equity markets on a tear since early October, hitting levels not touched in several years, most of Wall Street isn’t seeing much cause for alarm.
The gains extend beyond stocks. Gold (CNS:GCJ2) may be off its September 2011 high of $1,907 an ounce, but is still in the respectable mid $1,600s, and oil (NMN:CLK2) remains above $100 a barrel. Meanwhile, yields on both the 10-year Treasury note (ICAPSD:10_YEAR) and the 30-year bond (ICAPSD:30_YEAR) are around a percentage point lower from a year ago, boosting bond values.
Also, the greenback is rising. The U.S. Dollar Index (NYE:DXY) , a measure of the dollar against six other major currencies, is up sharply over the past 12 months.
It’s enough to make a confirmed pessimist downright gloomy.
After all, what’s a doomsayer to do when it seems everything — even Europe — is rallying? Do you stand your ground in cash, or join the crowd and closely eye the exit?
Party like it’s 2007
Of the five prominent market skeptics interviewed for this article, four are reluctantly going along for the ride.
The consensus among this group is that the rally is not sustainable — just another big party before an even bigger hangover. They see stock prices as being artificially inflated by Federal Reserve policies of quantitative easing and low interest rates, and that to put out the fires in Europe, the European Central Bank has gotten in on the act.
But, these strategists say, while these monetary drugs are palliative to markets, they require bigger doses for progressively dwindling results and will eventually fail.
Also, they believe the market’s valuation is stretched beyond what the fundamentals justify. Government policies are encouraging leveraged institutional investors and hedge funds to go long on stocks, they maintain, while cash-flush companies buy back outstanding shares from cash-strapped individual investors.
Individual investors, not incidentally, are engulfed by debt, the doomsayers point out. As they see it, consumers struggling to unwind debt are getting squeezed by higher food and energy costs. Accordingly, they’ll have even less disposable income to sustain corporate profits, the pessimists say. And one outcome these forecasters can all agree on is that the stage is being set for a big, ugly global stock-market crash.
Five shades of gray
1. Peter Schiff
Peter Schiff, chief executive of Euro Pacific Capital, said the worst investment now is bonds, because it’s the one asset that hasn’t been crushed. The second-worst option is cash, because the Fed insists that inflation is not a threat, he said.
Peter Schiff
Schiff is known for having called the 2007 financial crisis, and has been a vocal critic of artificially low interest rates set by the Fed.
Among stocks, Schiff said he’s focusing on multinationals and exporters, areas that have some insulation to a U.S. economy that he believes is heading for a crisis.
Earlier in the month, Euro Pacific’s asset management arm launched its EP Strategic U.S. Equity Fund (MFD:EPUSX) , which focuses on U.S. businesses that stand to benefit from increasing sales in overseas markets.
Schiff said the Fed can be in denial about inflation for only so long, and eventually will have to raise interest rates.
“They’ll keep [rates] low until the market forces them,” Schiff said. “It’s like trying to hide it when you’re pregnant, you can only do it for so long.”
He added: “If we get to 2014 and we don’t have a crisis, the Fed will keep rates low but at some point it won’t matter because we won’t have any money because we’ll be paying $30 for a carton of milk.”
2. Harry Dent Jr.
Harry Dent Jr., who heads research and forecasting firm HS Dent, said the recovery in the economy and markets is “artificial” in that it’s being fueled by quantitative easing measures in the U.S. and Europe.
Harry Dent
Dent notes that asset classes are rising in tandem, when normally stocks and bonds have an inverse relationship. If the economy is indeed recovering, then it shouldn’t require the Fed’s help, he said.
In fact, Dent contended, the Fed isn’t about to take the economy off life-support because that would put some $42 trillion in private U.S. debt at risk.
Dent uses demographics to inform his economic and market forecasts. He’s known for a prediction in the 1980s that Japan’s economic slowdown would last more than a decade, based on population trends, and cautions that the U.S. is setting itself up for a similar economic malaise.
Aging baby boomers are no longer fueling U.S. economic growth, he said, and younger generations can’t keep the momentum going.
“The government and most economists are in denial when the largest generation is spending less and paying down their debt,” Dent said.
If you have to be in the stock market, Dent suggests hedging stocks with the CBOE Volatility Index (MDE:VIX) . The best way to play a bubble is to realize it’s a bubble and be ready to get out quickly, he said.
For the U.S. market, Dent said he expects a near-term selloff followed by a summertime rally due to another round of quantitative easing that could last until the presidential election. After that, Dent sees a market peak in 2013 or 2014 and then another crash.
3. A. Gary Shilling
Economic consultant A. Gary Shilling said stocks are vulnerable because the U.S. consumer is worn out, and that puts businesses, and the broader economy, on a weak footing.
A. Gary Shilling
Shilling has long predicted that Fed measures to stimulate the economy will fall short and believes that the global economy is in a long period of deleveraging marked by anemic growth.
“If the consumer pulls back, there’s nothing else in the economy that can sustain growth, and if the consumer retrenches we have a recession,” Shilling said.
Corporate profits are not driving earnings and stocks, Shilling said — corporate cutbacks are. Indeed, he added, U.S. businesses are in a tricky spot where they can no longer rely on cost cutting to boost the bottom line.
“U.S. businesses have been doing this since 2000 and you’ve had consumers willing to borrow to support it, but that’s not the case anymore,” he said. “We no longer have a cushion of people willing to borrow to support corporate profits.”
Now, businesses need to hire more people to increase productivity, he said. The only problem with that is that hiring slices into profits.
For stock investors, Shilling recommends a focus on companies that pay a high dividend, particularly in utilities and consumer staples. He also favors North American energy stocks with natural-gas pipeline assets.
Outside of equities, Shilling likes long-term Treasurys for their potential appreciation rather than yield, and the U.S. dollar against the euro and the yen.
4. Charles Biderman
Charles Biderman, who heads TrimTabs Investment Research, said he’s bullish on stocks given that the Fed’s cheap money is levitating prices. But, he added, at some point stocks are going to drop.
Charles Biderman
Biderman, who approaches stock prices as a function of liquidity instead of fundamental value, expects the U.S. market to slow considerably in the second half of the year, and that the Fed will try to stimulate investment with QE3.
A day will come, Biderman said, when the Fed will pull the plug on cheap money. Then he sees the Dow tumbling to financial crisis lows in the 6,000 range. For clues, watch what companies are doing with their cash, he said.
“If buybacks slow,” he said, “that would be the time to start getting out.”
Biderman manages the AdvisorShares TrimTabs Float Shrink ETF (NAR:TTFS) . The top five holdings in the $8.3 million fund include mattress maker Tempur-Pedic International Inc. (NYSE:TPX) , industrial adhesive and coating maker Nordson Corp. (NASDAQ:NDSN) , motor home and bus manufacturer Thor Industries Inc. (NYSE:THO) , Home Depot Inc. (NYSE:HD) , and hotel chain Wyndham Worldwide Corp. (NYSE:WYN) . By sector, the ETF is overweight on consumer cyclical, health-care and technology stocks.
5. Robert Prechter
Robert Prechter
Robert Prechter, head of market forecasting firm Elliot Wave International and the most bearish of the five strategists, said investors should shun every asset class that’s popular now, including stocks, commodities, precious metals and bonds.
Prechter maintains there are parallels between today’s U.S. economy and the Great Depression. This time, a deflationary spiral threatens the nation’s health.
As for stocks, Prechter said individual investors are tapped out and that most of the market activity is driven by institutional investors. The market’s rebound since 2009, he said, is a classic bear market rally.
“Hold cash, and keep it safe,” Prechter said. “There will be another buying opportunity, probably about four years from now.”
He added: “When investors are afraid again, and when stocks are cheap again, that will be the time to buy.”
KIll Bill says:
Aging baby boomers are no longer fueling U.S. economic growth, he said, and younger generations can’t keep the momentum going. -Harry Dent
They cancelled their SNAP cards? And Xboxes and smart phones cant fuel the economy?
We Are All Doomed, I say, DOOMED!
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23rd March 2012 at 10:45 am
DaveL says:
Like I said, “do what they do.”
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23rd March 2012 at 11:48 am
Kill Bill says:
Dont worry. Be Happy. Generation Z will save us all. It could happen.
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23rd March 2012 at 1:46 pm
Colma Rising says:
Kill Bill, the Boomer on the case:
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23rd March 2012 at 8:34 pm
Muck About says:
Robert Prechter hasn’t been right in 40 years. He started being wrong in the 1970 and has never been on the right side of a damn thing since.
Elliot Wave analysis is garbage and if you’d followed his advise you’d be buried under the slab of your broker’s 100 story tower by now.
Between now and May first, only chance and the human propensity to stampede in the wrong direction in times of panic will rule the markets.
If you must be in something, make it defensive. PM’s and oil. International commodities and domestic firms that supply things that people cannot do without (food, medication, etc).
Cash is not the safest thing either. Cash, one day, real soon now, is going to be erased like a first grade teacher wipes off a chalk board and something new (and more of the same shit only worth less) will be forthcoming. At the same time, any personal gold and silver will be “requisitioned” by the US Gov. to help keep welfare payments going and your 401K and IRA will be raped and forced to invest in Treasury Bonds paying 1% so they will be “safe”.
I am so sick of this shit I could just emigrate. If I was younger I’d do it in a minute but damned if I know where to go.
MA
(My! I lost it there didn’t I!)
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23rd March 2012 at 8:47 pm
Colma Rising says:
Count Muckula:
My IRA is liquid and going for tuition.
I’m moving right now and need time to situate.
Tell the crisis that April 1st is inconvenient… I can do May, though.
If there’s going to be a draft, tell them to wait a few semesters so I can kill with shiney bars instead of chevrons.
While your at it, tell my woman’s bio-clock to wait too. I ain’t making critters until I have benefits.
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23rd March 2012 at 8:54 pm
AWD says:
Muck:
So many people, even many of TBP are in denial about the forthcoming financial collapse and loss of their wealth. The government issued $15.4 trillion in IOU’s, and they are just getting started. If you can’t keep it in your house, its gone baby, gone.
Panama is the answer. Great weather and American infrastructure. They built that country vis-a-vis the canal. It’s a jem, and cheap. Great beaches and rainforests. Hot Latinas also.
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23rd March 2012 at 8:58 pm
DavosSherman says:
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23rd March 2012 at 9:02 pm
Muck About says:
Colma: You better hurry up. Pass this to your lady: If your clock is ticking, hit it with a hammer for 5 years or so. I cannot – CANNOT – understand why anyone would want to raise children at this particular point and time in human history. The urge to pass your genes is strong. Resist it.
Other than that, I’ll do my best to delay things so you get a commission. That way you freeking get to lead the charge instead of sitting back in the trench and watch all those other idiots run out into no-man’s land.
AWD: The whole fucking world is in denial. My only hope is die before it all falls to pieces and I end up getting shot by some asshole trying to steal what I’ve set aside to eat for the next week.
Panama? They have malaria there and I hate Spanish on principal. There are bugs, and snakes and it’s hot all year and wet and your feet mold and your toenails fall off and your jock itch drives you crazy and I’m too damn old to play with the Hot Latinas (I’d never get the chance anyhow – my sweetie would blow me away with the Mossberg 500 first!). If I did play on the sly, all I’d catch is crotch itch and clap.
Come up with some good suggestions!
MA
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23rd March 2012 at 9:08 pm
AWD says:
Muck:
You’ve never been there? It’s like Miami.
An actual Panamanian chick:
Well-loved. Like or Dislike:
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23rd March 2012 at 9:20 pm
Zara says:
Muck About, the ultimate SHTF getaway is Iran. The IRS can’t get you there. It’s modern and the people are friendly. In many places the climate is moderate (it’s a high plateau after all). If you keep a low profile, the gov’t leaves you alone. There are many expat communites in that country for exactly these reasons.
You could watch the final destruction of the American Empire from the balcony of an airy bungalow overlooking the Caspian Sea, munching on the world’s best caviar, if that’s your thing. If you have property in a remote place, you could probably even get away with making your own wine.
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23rd March 2012 at 9:20 pm
AWD says:
Zara:
I hope you were being sarcastic for chrissakes. Yea, they love Americans in Iran. Here’s one getting the scenic tour:
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23rd March 2012 at 9:38 pm
Zara says:
AWD, I am partly serious. It has it’s advantages as a pariah state and that brings with it disadvantages, especially if war were to break out. As for Iranians being pro-american, I am absolutely serious. Iranians are among the most pro-american people on the orb. Spend an hour in Iran:
http://www.youtube.com/watch?v=D61uriEGsIM
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23rd March 2012 at 10:01 pm
Colma Rising says:
El Gringo Muckbo:
If a little Spanish bugs you, I don’t know…. Canada would bite sack. New Zealand? The part that isn’t rumbling into the ocean maybe….
I don’t know if Europe or Asia or Africa would be better than Florida. You’d be better off chilling in your local bayou and getting with the program.
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23rd March 2012 at 10:31 pm
KIll Bill says:
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23rd March 2012 at 10:39 pm
Kill Bill says:
Panama had some of the worst ghettos I had the misfortune of seeing.
Costa Rica is the place to go.
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23rd March 2012 at 10:41 pm
Administrator says:
You won’t need to speak Spanish at the TBP FEMA Camp. It has accomodations for 12,500.
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23rd March 2012 at 10:41 pm
Colma Rising says:
Bill:
Colma’s not my favorite album but it’s great guitar work….
It is illegal to drive through funeral processions in Colma
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23rd March 2012 at 10:43 pm
Colma Rising says:
Colma where 1.5 million of its inhabitants are 6 feet under and 1500 arent.
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23rd March 2012 at 10:53 pm
Kill Bill says:
Sorry, that was me, KB, above.
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23rd March 2012 at 10:54 pm
Colma Rising says:
Kill Bill:
That and The Auto Plaza….
The Metro Mall:
And, of course, the Best Buy:
Lots of sales tax money, not many alive to enjoy it.
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23rd March 2012 at 11:13 pm
Hollow man says:
Race riots are coming to a city or town near you. Then they will blame the gun. Then take the gun, more riots, then economic trouble, then riots for that, then occupy gets going, more riots, then the milatry joins the fun. Then the valus of the dollar drops, then it really gets bad. How is that for doom prediction.
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23rd March 2012 at 11:24 pm
Colma Rising says:
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23rd March 2012 at 11:27 pm