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
http://biz.yahoo.com/ms/080212/228434.html?.v=1
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 . . .
Source:
Dow 18,500? Believe It
Jeffrey Ptak, CFA, CPA
Morningstar, Tuesday February 12, 7:00 am ET
http://biz.yahoo.com/ms/080212/228434.html?.v=1
Previously:
Apprenticed Investor: The Folly of Forecasting
Barry Ritholtz
TheStreet.com, 06/07/05 - 01:05 PM EDT
http://www.thestreet.com/_tscana/comment/barryritholtz/10226887.html
Wednesday, February 13, 2008 | 06:58 AM | Permalink
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Comments
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?
Posted by: Steelduck | Feb 13, 2008 7:36:39 AM
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.
Posted by: Ross | Feb 13, 2008 7:52:27 AM
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...
Posted by: lurker | Feb 13, 2008 8:11:46 AM
Well...
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." http://news.bbc.co.uk/2/hi/asia-pacific/7112773.stm
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.
and
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!
Posted by: Chief Tomahawk | Feb 13, 2008 8:18:49 AM
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!!!!
Posted by: SINGER | Feb 13, 2008 8:20:37 AM
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 safehaven.com
Posted by: Ross | Feb 13, 2008 8:22:49 AM
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
Posted by: Chief Tomahawk | Feb 13, 2008 8:23:17 AM
Steelduck, you gotta quit reading Roubini son.
Is it steelduck as in quack, or when I duck, I want steel over my head?
Posted by: Ross | Feb 13, 2008 8:28:35 AM
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.
Posted by: cinefoz | Feb 13, 2008 8:42:38 AM
Barry,
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...
Posted by: The Financial Philosopher | Feb 13, 2008 8:47:09 AM
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.
Posted by: Stuart | Feb 13, 2008 8:47:27 AM
Dow18500 is where stocks need to go to outperform inflation, nevermind taxes.
Posted by: Paul Griffith | Feb 13, 2008 8:50:07 AM
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.
Posted by: cinefoz | Feb 13, 2008 8:50:56 AM
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%
Posted by: s0mebody | Feb 13, 2008 8:52:49 AM
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!?!?"
Posted by: Florida | Feb 13, 2008 8:53:51 AM
Linked 5 years chart of TLT
does not it look like a major top ?
and 15 years for $TYX
http://tinyurl.com/2syrna
Jan 22 does not it look like blow off bottom ?
Posted by: larytet | Feb 13, 2008 8:57:13 AM
Ya but the pump worked, it got the futures up, and these days that's all that matters it seems. Gotta lead the sheep.
Posted by: Stuart | Feb 13, 2008 8:57:48 AM
Florida,
I agree. The only correct forecasts are the ones that predict gloom and doom. The others are crapola.
Posted by: cinefoz | Feb 13, 2008 8:58:21 AM
Yen at 108.14, Go Carry Trade! God bless the Japanese. Liquidity cometh. Would this be a black swan?
Posted by: cinefoz | Feb 13, 2008 9:04:20 AM
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.
Posted by: Ross | Feb 13, 2008 9:04:54 AM
The only correct forecasts are the ones that predict gloom and doom.
Where you getting that from, homey?
Posted by: Florida | Feb 13, 2008 9:06:07 AM
Weren't these the guys who had a 4 star rating on New Century Financial last year?
Posted by: super-anon | Feb 13, 2008 9:07:42 AM
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.
Posted by: cinefoz | Feb 13, 2008 9:34:40 AM
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.
Ciao
MS
Posted by: michael schumacher | Feb 13, 2008 9:37:08 AM
-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.
Posted by: Stuart | Feb 13, 2008 9:53:26 AM
