Best of the Week
Most Popular
1.Crude Oil Price Trend Forecast 2016 Update - Nadeem_Walayat
2.Will Deutsche Bank Crash The Global Stock Market? - Clif_Droke
3.Gold Price In Excess Of $8000 While US Dollar Collapses - Hubert_Moolman
4.BrExit UK Economic Collapse Evaporates, GDP Forecasts for 2016 and 2017 - Nadeem_Walayat
5.Gold Stocks Massive Price Correction - Zeal_LLC
6.Stock Market Predicts Donald Trump Victory - Austin_Galt
7.Next Financial Crisis Will be Far Worse than 2008/09 - Chris_Vermeulen
8.The Gold To Housing Ratio As A Valuation Indicator - Dan_Amerman
9.GDXJ Gold Stocks - A Diamond in the Rough - Rambus_Chartology
10.Gold Boom! End Game Nears As Central Banks Buying Up Gold Mining Companies! - Jeff_Berwick
Last 7 days
Donald Trump Failing to Recover After 1st Debate Hillary Shimmy Loss - Betfair Betting Market - 30th Sept 16
BEA Revises Q2 2016 US GDP Growth Upward to 1.42% - 29th Sept 16
Could the OPEC deal set stage for the Next Stock Market Risk Rally? - 29th Sept 16
Why Trump Lost, Hillary Won the 1st U.S. Presidential Debate - 29th Sept 16
Is a Dollar Crash Imminent After the Senate Overrides Obama Veto on Saudi 9/11 Bill? - 29th Sept 16
2017: Gold and Silver's Year of "Public Recognition" - 29th Sept 16
Did Trump Win the 1st US Presidential Election Debate? - There's Something Happening Here... - 29th Sept 16
FED Goes from ZIRP to NIRP! - 29th Sept 16 - Chris_Vermeulen
Here’s Why You Should Be in Cash Right Now - 28th Sept 16
The Fed Put a 50% Tax on Your Retirement Plan - 28th Sept 16
Massive Chinese Debt And Why They Are On A Gold Buying Binge! - 28th Sept 16
Stocks Commodities and FX Markets Waiting Technically While Fundamental Data Neutral Poised - 28th Sept 16
This Commodity Has Perked Up its Investors' Portfolios - 27th Sept 16
Charting the Continuing Gold Market Correction - 27th Sept 16
Stock Market Crash and Recession Indicator Warning: Extreme Danger Ahead - 27th Sept 16
Financial Markets and FX Setups 27th Sept - 27th Sept 16
Crude Oil, Forex and Stock Market Trend Forecasts - 27th Sept 16
Why There is Trump - 27th Sept 16
Save Up to 70% in Shopping Expenses for Daily Items - 27th Sept 16
Gold’s Moving Averages and Long-Term Outlook - 26th Sept 16
September Stock Market - The Not So Silent Demise of Deutsche Bank - 26th Sept 16
SPX sell signal confirmed - 26th Sept 16
SPX is testing the next level of support - 26th Sept 16
Outrageously Entertaining US Presidential Campaign Final Stages - What Happens Next? - 26th Sept 16
BoJ, FOMC and Where To Now? - 26th Sept 16
Stock Market New All Time Highs Next - 26th Sept 16
Why Trump Will Win US General Election 2016 Prediction Forecast - 26th Sept 16
Martial Law Rolls Out Across the US As Jubilee Nears - 26th Sept 16
Stock Market More Correction Likely - 25th Sept 16
US Presidential Election Forecast 2016 - Trump Riding BrExit Wave into the White House - 25th Sept 16
US Economy GDP Growth Estimates in Free-Fall: FRBNY Nowcast 2.26% Q3, 1.22% Q4 - 24th Sept 16
Gold and Gold Stocks Corrective Action Continues Despite Dovish Federal Reserve - 24th Sept 16
Global Bonds: Why Our Analyst Says Things Just Got "Monumental" - 24th Sept 16
Where Did All the Money Go? - 23rd Sept 16
Pension Shortfalls Could Be 4X To 7X Greater Than Reported - 23rd Sept 16
Gold Unleashed by the Fed - 23rd Sept 16
Gold around U.S Presidential Elections - 23rd Sept 16
Here’s Why Eastern Europe Is Doomed - 23rd Sept 16
Nasdaq NDX 100 Big Cap Tech Breakout ? - 23rd Sept 16
The Implications of the Italian Banking Crisis Could Be Disastrous - 22nd Sept 16
TwinLakes Theme Park Summer Super 6 FREE Return Entry for Real? - 21st Sept 16
Has the Silver Bullet Run Out of Fire Power? - 21st Sept 16
Frack Sand: The Unsung Hero Of The OPEC Oil War - 21st Sept 16
What’s Happening With Gold? - 21st Sept 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Power of the Wave Principle

Good Reason for Stock Market Doom and Gloom

Stock-Markets / Stock Markets 2014 Jun 10, 2014 - 05:24 AM GMT

By: Casey_Research

Stock-Markets

By Doug French, Contributing Editor

Predicting the future, like getting old, ain’t for sissies. Questioning the bull market is even more treacherous.

Howard Gold, writing for MarketWatch, makes fun of seers who made what he calls “the four worst predictions to gain traction over the past few years.”


Gold says the last six years have been a disaster for those who stayed out of the stock market. He claims there’s a bull market in doom and gloom, referring to a column by his colleague Chuck Jaffe, who points out, “The fortune-tellers … know that the more outrageous the prediction, the more attention they get. They can highlight any forecasts they get right, knowing that their misfires are forgotten quickly. Thus, calamity and catastrophe sells. Right now, it’s a bull market for bearish forecasts.”

If such a bull market in doom were really happening, the market wouldn’t be hitting all-time highs. Besides, no one ever went broke being out of the market.

But more importantly, there is a very good reason people respond to gloomy forecasts. Behavioral economics pioneer and 2002 Nobel Prize winner Daniel Kahneman explains in his bestseller Thinking, Fast and Slow that when people compare losses and gains, they weigh losses more heavily. There’s an evolutionary reason for this: “Organisms that treat threats as more urgent than opportunities have a better chance to survive and reproduce,” Kahneman explains.

Most people, when given the opportunity to win $150 or lose $100 on a coin flip, decline the bet because the fear of losing $100 is more intense than the hope of gaining $150. Kahneman writes that the typical loss aversion ratio seen in most experiments is 1.5 to 2.5. Professional stock traders have much higher tolerance for risk, but most people investing their retirement accounts are not pros and have little fortitude for losses.

The average Joe can’t just sit tight while his retirement account drops 40%. He’s not wired that way. His retirement savings represent safety, and a market crash is the modern equivalent of a flood, a bear, or a warring tribe. When stocks start falling, survival mode kicks in. He or she sells and runs for cover.

So when someone makes a compelling case that stocks might crash, the average person rightly listens. Otherwise they don’t get any sleep.

Gloomy Forecasts

Economist and financial newsletter writer Harry Dent predicted the DJIA would crash to 3,000 and told investors to bail out between early 2012 and late 2013. Some people likely took him up on it. In July 2010, Robert Prechter of Elliott Wave fame predicted the DJIA would fall to well below 1,000 over the ensuing five or six years.

“I’m saying: ‘Winter is coming. Buy a coat,’” Prechter told the New York Times. “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.”

While Prechter sees massive deflation on the horizon, Marc Faber, editor of the Gloom, Boom & Doom Report, says Zimbabwe-style hyperinflation is on the way. Gold calls this “the single worst prediction of the past five years.” Gold calls Faber wacky for telling Bloomberg in 2009:

I am 100% sure that the U.S. will go into hyperinflation. Not tomorrow, but the problem with the government debt growing so much is that when the time will come and the Fed should increase interest rates, they’ll be very reluctant to do so and so inflation will start to accelerate.

Peter Schiff’s call for $5,000/oz gold also has Mr. Gold laughing. Schiff sees the Fed printing more to stimulate the economy, which will send the yellow metal soaring.

“Back in the real world,” sneers Gold, “new Fed Chairwoman Janet Yellen is actually winding down the Fed’s extra bond buying (quantitative easing, or QE), and she’s on pace to finish by fall.”

Europe’s economic problems had establishment news outlets like The Economist saying in November 2011, the euro “could break up within weeks.” President Obama’s former chief economist, Austan Goolsbee, said “there probably isn’t” any way to hold the eurozone together.

And the ultimate establishment voice, Alan Greenspan, told CNBC the divergent cultures using one currency “simply can’t continue to work.”

So it’s not just wackadoodles wearing tinfoil hats missing the mark, as Mr. Gold implies. He writes, “But too many people have lost precious time and a chance to make real money by listening to these fear mongers. They’re probably kicking themselves now, or should be.”

However, nearly all of the gloomy prognostications Gold makes fun of are in response to the actions of central bankers, who have been at least as wrong as anyone else in their predictions.

Big financial-services companies should be kicking themselves for paying Greenspan $100,000 a speech these days. The Maestro reportedly hauled in an $8.5 million advance for his book, The Age of Turbulence. That’s a lot to pay for someone who whiffed on the housing bubble. In 2002, Greenspan said, “Even if a bubble were to develop in a local market, it would not necessarily have implications for the nation as a whole.”

Ben Bernanke, who used to make $200,000 a year, now makes “that in just a few hours speaking to bankers, hedge fund billionaires and leaders of industry,” the New York Times reports. “This year alone, he is poised to make millions of dollars from speaking engagements.”

He hasn’t exactly been an accurate predictor either. In 2005, Ben Bernanke was asked if the housing market was overheated. “Well, I guess I don’t buy your premise,” he replied. “It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis.”

Even former Treasury Secretary and ex-New York Fed President Tim Geithner is getting in on the action, receiving $100,000 to $200,000 per talk. Plus he likely received a large advance for his book Stress Test.

Geithner admits he didn’t see the financial crisis coming. In his review of Geithner’s book, Flash Boys author Michael Lewis writes, “The story Geithner goes on to tell blames everyone and no one. The crisis he describes might just as well have been an act of God.”

They Warn for a Reason

Mr. Gold believes that economic catastrophes have natural causes. “Bad things happen in life,” he writes. “Hurricanes and tornadoes destroy communities. Nuclear war and climate change are big long-term dangers. And there will be bear markets and deep recessions in the years ahead.”

Inflation to any degree is not an act of God. Neither are currency nor stock market crashes. Central bankers create these calamities and then ride off into the sunset, earning six-figure speaking fees and multimillion-dollar book deals. The positive reinforcement they receive ensures they’ll repeat the same mistakes over and over again.

Thus, warnings must be issued constantly. Bad things are going to happen to the finances of individuals who aren’t prepared.

It’s not a matter of if, but when. Better scared than sorry.

(Editor’s Note: How quickly a crisis can creep up on you is demonstrated in our Casey Research documentary, Meltdown America. If you haven’t watched it yet, you should. Click here to watch this free video.)

The article Good Reason for Doom and Gloom was originally published at caseyresearch.com.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Casey Research Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife