Wed, Mar 14, 2012, 2:42 PM EDT - U.S. Markets close in 1 hr 18 mins
Stocks have now entered the 4th year of a bull market that began on March 9, 2009. The benchmark indexes are up more than 100% since the bottom and it would be easy to pat ourselves on the backs and compile a list of great picks or classic hits. Unfortunately, that would also be useless, since most of our best learning is born of our mistakes.
So with the benefit of hindsight, we've put together a list of 3 mega-mistakes, all of which happened in the past 3 years and also carry a common theme.
Atop the list, not only in dollars, but arguably in terms of the breadth of impact, is the premature burial of the bond market - before it's proverbial heart had actually stopped beating. Sure we are closer to the bottom than the top when it comes to yields, which have been steadily falling for 30 years, but when the 10 year Treasury hit its first trough at 2.1% in mid 2008, calls that the bond bubble was over proved to be premature. And yet, once again in early 2010, the fixed-income morticians were choosing burial plots, including the biggest, baddest bond buyer on the planet - Bill Gross of PIMCO.
Of course now we all know how that worked out, and have learned that an historic black mark on the nation's credit report at the hand of Standard & Poor's does not a selling event make. In fact, the lead-up and loss of our AAA rating last August triggered a flight to - not from - Treasuries, exactly the opposite of what had been predicted. Oops.
Our 2nd "mega mistake" is also culled from the fixed income patch, but specifically, from the corner where municipal bonds normally thrive in relative anonymity. That all ended in late 2010 when the news magazine 60 Minutes grabbed a scoop from the business press and shared it with the masses.
Renowned analyst Meredith Whitney staked her reputation (earned from correctly calling the banking meltdown) on a prediction that there would be "a spate of municipal defaults" that would cost "100's of billions of dollars." It never happened.
"Hey, it intellectually made sense," Macke says, "but turns out, it didn't work out."
And finally, the bronze medal for blunders goes to the commercial real estate market, which defied conventional wisdom and refused to become "the 2nd shoe to drop," as was often predicted. As the mortgage mess spread and further contaminated both the market and financing of residential real estate, it seemed only logical that the same dynamics would ultimately find their way in to the commercial side of the business too. Again, it never materialized; or as Macke says, "that's why pencils have erasers and traders have stops."
Our exercise of errors would be incomplete if we failed to identify a common thread that we can take forward to perhaps better arm us for the next battle. In this case, all three predictions met their doom at the hands of "trillions of dollars of stimuli that was dumped into the system in various ways."
At every turn, it seems whenever the Fed was thought to be out of bullets or painted into a corner or over-extended, they were able to counter with something new, and deliver enormous support to the markets in unprecedented and unimaginable size. This is not to say that everything was right or just or proper or even legal, but it is clear that getting caught on the other side of the Fed's intentions has proven to be lethal.
Did you learn any lessons from blundered bull market calls in the last three years? Tell us in the comment section below.
Will Rising Gas Prices Derail the 2012 Stock Rally?
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By now it's no secret that Silver has wildly outperformed the major indexes and it's fully-precious big brother Gold, up 30% in 2012. Jon Najarian discusses how the smart money is playing silver and what it means for individual investors trading at home via the wildly popular iShares Silver Trust etf (SLV).
Crude oil and gasoline prices at the pump are rising by the day, driven mostly by Middle East tensions. This is putting the biggest risk premium in prices since 2008, according to oil analyst Phil Flynn. Once the conflict ends, gas prices could come tumbling lower.
Even though the national gasoline average price is still 10% below the record-high $4.12/gal hit in 2008, the steady rise through early 2012 is sparking renewed fears that we're in for another pounding at the pump. What's most concerning is that this rise is unprecedented in that we've never ever seen gas prices this high at this early point of the calendar year.
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