When wading through the predictions of financial doom and gloom ahead, keep in mind one key component of human nature.
Sometimes it takes quite a bit of space and ink to convey real insight. Sometimes it can be done in 140 characters or less.
This is an example of the latter:
3 simple rules will explain 99% of human behavior 1: Most people don’t think. 2: Some people are jerks. 3: Everyone is selling something.
— Barry Ritholtz (@ritholtz) June 15, 2015
Nowhere is the third part of “Arends’ Law” more true than in the financial media. Everyone is selling something, whether is be a newsletter, a book, or advisory services. And in the cutthroat competition to stand out, a good story is more valuable than good experience.
The 2008 recession drove a number of companies out of business, but it was a boon to a very specific corner of the financial media. The meltdown empowered the perma-bears who make a living scaring investors into sub-optimal asset allocation strategies recommended by their $49.99 monthly newsletter. Armed with marketing materials celebrating their brilliant recession calls, this group has spent the better part of the decade since terrorizing gullible and risk-averse investors with more recession predictions.
Let’s meet some of the serial offenders.
Charles Nenner is a market analyst who previously worked for Goldman Sachs and a number of other firms. Among his creations is the “Nenner Cycle” system that predicts major movements in the stock market, which he claims warned him of the 2008 crisis.
Boasting of his success in calling the last collapse, Nenner began making the rounds again in 2010 warning of more chaos.
In that interview, Nenner predicted challenging days ahead:
It is going to be very difficult few years to make some money. … I don’t expect the economy to pick up until 2020.
For anyone who listened to him, making money was indeed difficult. Those who held the market came out fine though; the Dow has added almost 8,000 points since that prediction.
What is perhaps Nenner’s masterpiece was authored in 2011, when he made the bold prediction that the upcoming stock market collapse would result not from monetary policy or consumer spending patterns, but a major war.
The basis for this bold prediction? War and peace cycles, of course.
Well, I don’t want to depress you, but I should tell you that I also do war and peace cycles and it shows that were going to have a major war at the end of 2012, beginning of 2013. And I think that’s going to do it.
In March 2014 Nenner was still going strong, making the rounds to the media outlets happy to host him (after all, his claims likely drive good ratings) that the Dow was headed for — you guessed it — 5,000.
A few months later, in September 2014, Nenner was back on CNBC. While his prediction remains generally similar, the timeline appears to have been altered a bit; financial ruin has been delayed for a few years, which should allow Nenner plenty of additional television interviews:
Nenner offers a subscription service through his website, which is chock-full of (presumably) unintentional comedy. Given his track record, this gem is particularly precious:
Charles takes a conservative approach to investing. The goal of the research is to identify ‘windows’ of opportunity that present the lowest risk to investors.
Harry Dent is the author of financial books and newsletters, focusing on the predictive power of demographic trends. Since warning on the credit market collapse in 2008, Dent has remained bearish — and vocal.
In late 2011, Dent made headlines by predicting that the Dow was eventually heading to 3,000. (CNBC has mercifully misplaced the image titled “chart_scary.jpg,” perhaps after renaming as “chart_neverhappened_758.”)
Whiffing on that call didn’t stop Dent’s phone from ringing; in January 2013 he popped up on CNBC again to warn of a crash coming later that year:
In March 2014, Dent was still at it, this time predicting that the Dow would plunge by more than half by 2016. (Yes, he is the “Pro” mentioned in the article headline below.)
Dent is selling a number of different products, including The Great Crash Ahead (published 6,700 Dow points ago) and The Demographic Cliff: How to Survive and Prosper During the Great Deflation of 2014-2019 (published 1,600 Dow points ago).
Dent’s company also offers a number of newsletters; a lifetime subscription comes at the bargain basement price of $7,500.
Terry Burnham is an author, former Goldman Sachs trader, and Harvard professor who has spent time researching the neuroscience of economics. In July 2013, he told PBS that a collapse was coming.
The explanation for this prediction was certainly unique:
The signs of collapse are right in front of us. We cannot see the signs now, however, because our brains aren’t built to seem them. As I have written…we are more often than not at the mercy of “lizard brains,” which evolved in, yes, lizards, to drive them to eat, survive and reproduce.
Burnham’s bold predictions were picked up by several other journalists, including Paul Farrell at MarketWatch who spiced up the title and threw in a few lizard-related thoughts of his own:
Farrell is clearly enamored with the lizard brain analogy, adding a bit of his own commentary in this prediction:
You have one of these bio-algorithm drones wired in your brain. It takes over, reacts on autopilot to old fears trapped in outdated behavioral patterns that override your rational brain.
If you’re one of the drones who was unable to free your rational brain and get out of the market, perhaps the 2,500 or so points the Dow has added since this column ran will serve as some consolation.
A little over a year (and a little more than 1,000 Dow points) later, Burnham was still beating the same drum and still finding respectable publications willing to broadcast his predictions:
Burnham’s prediction — that the Dow will hit 5,000 before it hits 20,000 — remains a possibility. But it has certainly become less likely since the columns above were published; as of June 23, 2015, the Dow had gained about 2,700 and 1,600 points since the publish dates, respectively.
Burnham has a couple of books that he’ll gladly sell, including Mean Markets and Lizard Brains.
Paul Farrell, highlighted above for his profile of Terry Burham, is a MarketWatch columnist with a love for the doom and gloom. His market crash predictions are too numerous to recount in full here, so a few of the greatest hits will have to suffice. Ahead of the 2012 election, Farrell warned that markets were headed for a crash regardless of the outcome:
A little over a year later, Farrell’s tone remained similar but his level of certainty had skyrocketed — to 98 percent to be precise:
Farrell, a former investment banker, has authored nine books. One of those, Think Astrology & Grow Rich, seems to recommend making investing decisions based on the positions of the stars. This is, unfortunately, not a joke; they guy splashing “stock crash” headlines across one of the most widely-read financial sites in the world wrote a book with this advice:
When Uranus and Neptune go into Aquarius, I look toward information and technology.
Mark Cook has been a trader for more than three decades, and was the winner of the 1992 U.S. Investment Championship. Lately he’s been making calls for a big drop in stock markets:
A few months after this column appeared, its author released a book called Prepare Now and Survive the Coming Bear Market that was co-written with none other than Mark Cook. Sometimes even the journalist is selling something.
Fast forward 11 months to June 2015, and two things have changed: the stock photo of a bear (now much less menacing), and the price of the Dow (up about 1,500 points). Everything else is about the same; Cook is calling for markets to drop by about 25 percent, using some back-of-the-envelope math from 1987.
In addition to the book he co-authored with Michael Sincere, Cook sells trading seminars designed to “maximize your trading personality with an approach tailor made to you.”
To his credit, Sincere has some original bear calls as well. In August 2011, he predicted that “there’s an increased chance the market will drop 10% or 15% before it rises 10% or 15%.”
The indicators of an imminent crash cited in this article — which does not appear to be satire — include:
- It’s September or October; and
- Media spreading doom and gloom.
Best of the Worst
The list of perma-bears whose crash predictions never came to fruition could go on and on, as could the list of the outlets who highlight their predictions. Below is a sample of some of the other notorious doomsday prognosticators.
Robert Prechter was described at the time of his 2010 call for Dow 1,000 as a “market forecaster and social theorist.” Echoing the words of George R.R. Martin, he made a dire prediction that the rally from the market bottom was setting investors up for more heartache:
I’m saying: ‘Winter is coming. Buy a coat.’ Other people are advising people to stay naked. If I’m wrong, you’re not hurt. If they’re wrong, you’re dead. It’s pretty benign advice to opt for safety for a while.
Following Prechter’s advice was anything but benign; the Dow had added almost 2,000 points before the end of the year.
Additional advice from Prechter is available in many forms, including a “Financial Forecast Service” ($59 per month) and the “Elliott Wave Trader’s Classroom” ($49 per month).
Mark Hulbert, a journalist who monitors and reports on the performance of investment newsletters, has at times found it tempting to make a few predictions of his own. In late 2013 — about a year after a similar prediction — he warned that another 1987-like crash was “inevitable.”
A subscription to Hulbert’s newsletter costs $59 for the first year.
David White, a financial planner in Michigan, predicted in early 2012 that the Dow would fall by nearly half to 7,000 by the summer. The Dow finished the year above 13,000.
In August 2011, longtime market bear Bill Strazzullo appeared on CNBC and advised “investors” to wait until the Dow hit 9,000 to buy and then sell around 11,500. The Dow never even dipped below 10,000, but has continued to run far higher than his sell point.
David Stockman was Ronald Reagan’s budget director and a former Michigan congressman. In March 2013, shortly after publishing The Great Deformation, he penned an op-ed in the New York Times warning of a coming economic meltdown and advising investors “to get out of the markets and hide out in cash.”
Marc Faber is a Swiss investment advisor and author of the Gloom, Boom & Doom Report ($300 per year). He’s made a number of bearish calls over the years, including a prediction of a market crash in 2014.
In early 2011 Brady Willett encouraged subscribers to Fall Street ($180 annual subscription) to sell stocks, based on the premise that Warren Buffett had begun a “hibernation process” that involved moving to cash. Buffett has, of course, continued to do deals and has maintained exposure to U.S. stocks. Since this article was published, Berkshire Hathaway (BRKB) has gained about 65 percent.
Grady means was a former advisor to Nelson Rockefeller and an economist at the U.S. Department of Health. He’s also the man behind perhaps the most amusing prediction of economic collapse — one with an exact date!
The stock market may very well be overvalued. And eventually, we will experience another pullback and another bear market. And following it will come a new round of doomsday predictions from “professionals” who will play up their wins and completely ignore the money that anyone who listened to them left on the table. Which, by the way, can be substantial:
The primary goal of the folks constantly warning of a market meltdown is to sell you their books or newsletters. Eventually, a few of their calls will be spot on, and they’ll try to convince investors that they know what they’re doing. In reality, they’re just as clueless as the rest of us.
Josh Brown perhaps said it best:
The constant correction call is noisy in bull markets, dangerous in bear markets and of little value to the majority of people in either case.
The predictions and headlines highlighted above are made with a very specific purpose. But that purpose has nothing to do with the financial well-being of the readers. Tuning out the noise can be difficult, but it can also be rewarding for the noisemakers.
About the Author: Michael Johnston
Michael Johnston is senior analyst for Fund Reference, and also serves as COO of parent company Poseidon Financial. His investment expertise has been featured in The Wall Street Journal, Barron’s, and USA Today, among other publications. He resides in Chicago.