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This week's prediction roundup

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September 18, 2009 – Comments (3)

A random collection of (mostly bearish) views of the future...

 

Those Seeing Sun

Barry Ritzholtz says the rally could continue: "There's nothing in the technicals that we look at that tell us we're done.... Based on history, which is no guarantee, we could be in the sixth or seventh inning of this rally, which means there still could be a ways to go."

Jon Markman sees Dow 14,000 on the horizon: "Dow 14,000? Maybe not next week. But in three years? Not a problem. The fact is that the majority of the world's largest hedge funds are still bearish and believe stocks are set for a big fall. And if those guys are as wrong now as they were in being bullish last year, as I believe they are, then when they capitulate in the face of a steadily rising market you will witness one of the largest short squeezes in history. Trust me on this: Big money does not mean smart money."

Laszlo Birinyi thinks stocks have "a lot of room to run": "I don’t know how you could wish for a better set of circumstances. The economy is probably a little bit better than most people are giving credit."

 

Those Seeing Rain

According to Bloomberg, Joseph Stiglitz thinks happy days are not yet here again: "Stiglitz, former chief economist at the World Bank and member of the White House Council of Economic Advisers, said the world economy is 'far from being out of the woods' even if it has pulled back from the precipice it teetered on after the collapse of Lehman. 'We’re going into an extended period of weak economy, of economic malaise,' Stiglitz said. The U.S. will 'grow but not enough to offset the increase in the population,' he said, adding that 'if workers do not have income, it’s very hard to see how the U.S. will generate the demand that the world economy needs.'”

Doug Kass says the market is overvalued: "Stated simply, my argument is that the earnings expectations for 2010 -- the level and growth rate -- will disappoint, and the expectation of disappointment has brought the market into overvalued ground. (As an aside, if the P/E multiple expansion phase of the market is indeed closing, it suggests that market leadership will likely shift from low quality to outperformance of self-financing, large-market-share owners of higher quality).... The credit expansion of the last several decades has reversed, it will take time to reverse the damage to net worth and confidence, the consumer remains in a fragile state, corporations will make do with more productive but fewer personnel (job growth could continue to disappoint), there are no apparent drivers to replace the role of housing (2002-06) and numerous nontraditional headwinds (most importantly higher marginal tax rates) will have an uncertain impact on aggregate growth."

David Rosenberg tells Barron's that investors should choose bonds over stocks: "It's crucial to understand that secular bull and bear markets move in 18-year cycles, and to understand that today, we are really only halfway into the secular bear market. Then you know how you can service your clients. In a secular bear, market rallies are to be rented, not owned. But in a secular bull market, corrections are opportunities to build your long-term positions at better prices, as was the case with the crash of October 1987.... We are in a post-bubble credit-collapse environment, and what is critical is capital preservation and income. Asset mix is extremely important. We at Gluskin Sheff have a cautious view toward U.S. equities. We're more positive on Canadian equities, given that the banks are stable and the commodity market is in a bull phase. We've been big fans of corporate bonds, though, admittedly, a good part of the low-hanging fruit is behind us. But they will be relative outperformers."

Janet Yellen expects a lukewarm and fragile economy: "But I regret to say that I expect the recovery to be tepid. What’s more, the gradual expansion gathering steam will remain vulnerable to shocks. The financial system has improved but is not yet back to normal. It still holds hazards that could derail a fragile recovery. Even if the economy grows as I expect, things won’t feel very good for some time to come. In particular, the unemployment rate will remain elevated for a few more years, meaning hardship for millions of workers. Moreover, the slack in the economy, demonstrated by high unemployment and low utilization of industrial capacity, threatens to push inflation lower at a time when it is already below the level that, in the view of most members of the Federal Open Market Committee (FOMC) best promotes the Fed’s dual mandate for full employment and price stability
This time though rapid growth does not seem to be in store." 

Whitney Tilson thinks home prices haven't yet bottomed: "We think home prices have another year to go before they bottom and that's going to impact any stock that has exposure to the housing sector…. Right now, we’re playing defense. Five months ago… we were playing offense.”

Nouriel Roubini tells CNBC that the economy could still suffer "death by a thousand cuts": "[Roubini] said housing prices are likely to fall another 12 percent in the next year—40 percent overall since the market began its steep decline—and about half of all homeowners will owe more on their mortgages than their houses are worth. Repeating his prediction that the economy faces a threat of a 'double-dip' recession and at best a slow-growth U-shaped recovery, Roubini said in a live interview that more banks will fail and residential real estate prices have more room to decline. Additionally, non-government bonds will face pressure, the securitization market is all but dead, the credit markets are still frozen and consumers will continue to save more rather than spend and boost growth."

According to CNN/Money, insiders are taking profits: "Corporate officers and directors have been selling shares at a pace last seen just before the onset of the subprime malaise two years ago. While a wave of insider selling doesn't necessarily foretell a stock market downturn, it suggests that those with the first read on business trends don't believe current stock prices are justified by economic fundamentals."

Robert Brokamp is the senior advisor for The Motley Fool’s Rule Your Retirement service. 

3 Comments – Post Your Own

#1) On September 18, 2009 at 4:57 PM, russiangambit (29.47) wrote:

The bulls are traders, the bears are economists. It appears to be a matter of the time horizon.

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#2) On September 18, 2009 at 6:59 PM, rofgile (99.43) wrote:

I would argue the opposite, russiangambit.  

  All the FED economists support GDP growth in the Q3 and Q4 - quite bullish, and many mainstream economists support this viewpoint as well.

  Traders and both bullish and bearish.  I would think much of CAPS crowd consists of traders over economists, and the most popular view in CAPS is still bearishness.   However, checklist42, portefuiellio, and some others have been more popular view points lately.

 -Rof 

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#3) On September 18, 2009 at 8:12 PM, starbucks4ever (98.54) wrote:

Economic science was invented to make meteorologists look less bad.

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