The Market Pundits are Different From You and Me

Where's the humble gene?

The pundits are different from you and me.  Some of you recall that James K. Glassman wrote a book in 1999, along with Kevin A. Hassett entitled Dow 36,000.  In the book, they talked about how stocks were not as risky as bonds in that, over long periods, stocks always outperform.  Their metrics revealed that, in 1999, market valuation was far from reflecting this fundamental fact.  They said,

"...the single most important fact about stocks at the dawn of the twenty-first century: They are cheap....If you are worried about missing the market's big move upward, you will discover that it is not too late. Stocks are now in the midst of a one-time-only rise to much higher ground–to the neighborhood of 36,000 on the Dow Jones industrial average."

The Dow peaked at 11,750 and subsequently headed to 7,286 on the back of two bubbles bursting.

Financial advisors today still see the train wreck resulting from buying into forecasts along these lines. Clients come in and say that they want to get into the market but are shy because the last time around their retirement funds were decimated by acting on Glassman's et al. views.

Where's Glassman today, you may ask?  You may think he has waddled off into the weeds with his tail between his legs.  You would be wrong.  Actually, he writes a column for Kiplinger (a magazine I subscribe to and recommend for its excellent educational articles) dispensing investment advice each month.

How are pundits different from you and me?  They totally skipped the humble gene.

This isn't a recent development.  It has been reported that the medicine man in American Indian tribes would give "good medicine" via chants to the warriors before they went into battle.  The "good medicine" would ward off soldier bullets, it was said.  I don't recall ever having read about the shaman being run out of the village after the dead were counted.

All of this is brought to mind with a pronouncement this week by market guru Dennis Gartman, a man who cannot be accused of mincing words.

He said the end of the bull market run was here,

"The game board has been flipped over; the game has changed... change with it or perish. We cannot be more blunt than that."

Who knows - the market may go up or may go down.  Anyone have a coin?  A useful exercise in the classroom is to begin by asking students for a strongly held belief.  Some will say, for example, that "I was raised by my parents."  Then, follow up with asking what evidence would it take to  convince them that they were wrong.  In this way, students learn critical thinking by examining their beliefs and the underlying evidence.

In the same vein, it would be worthwhile, I think, to ask market pundits, such as Gartman, what it would take to admit that he was wrong.  Suppose the market is up 15 percent 6 months from now. Would that do it?

In any event, if he is wrong, he likely will follow fellow pundits and not be deterred from making equally bold forecasts in the future.  Furthermore, if he is right - suppose the market does take a big downturn - he will likely write a book and make all the talk shows.

There is a subtle moral hazard issue, as Glassman so aptly demonstrates.