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Paul B. Farrell
Dec. 21, 2010, 12:01 a.m. EST
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By Paul B. Farrell, MarketWatch
SAN LUIS OBISPO, Calif. (MarketWatch) "” I'll bet you thought ol' Noah just loaded his ark with animals two-by-two? Me too. But then I discovered that the world's favorite Christmas badboys, Scrooge and the Grinch, were stowaways.
They're hedging, tapped into Noah's encrypted warnings from Huffington Post columnist Dan Dorfman, who's got a luxury cabin:
"Wall Street's bulls, bears and buffoons will soon be blitzing us with their traditional year-end bombardment of forecasts on what's ahead for the stock market in 2011," Dorfman wrote.
"The problem is the overwhelming number of forecasters are notoriously inept," he noted. "Just check the year-end market predictions of your favorite TV business shows and financial publications at any time over the past 10 years, look a year out and you'll see how consistently wrong the supposed experts have been. In most cases, the self-proclaimed Wall Street and media experts would have probably fared a lot better simply tossing a coin."
Our panel of star Wall Street strategists expects stocks to rise at least 10% next year, as a U.S. economic recovery accelerates. Barron's Clare McKeen reports.
As if to underscore Dorfman's point, USA Today lit up last Friday's front page like a Vegas Christmas tree, with huge hypnotic headlines screaming: "Get Back Into Stocks." Plus, the lead feature story in the paper's Money section added to the hustle with this biased headline: "In 2011, It's All About Stocks." (Yes, Uncle Dan got it right!)
Wow, so 2011 is about "nothing but stocks." Now that's got to scare the hell out of bondholders, further disrupt the already volatile markets and confused investors, especially when you see trillion-dollar Bond King Bill Gross everywhere in the press pushing stocks and warning that the three-decade-long "age of bonds" is ending.
Like Dorfman, I also tend to be a bit of a skeptic and contrarian listening to Wall Street's hypemeisters high on year-end champagne. His "wikileak" got me rethinking an email I recently got from one of those Wall Street forecasters who always predicts sunshine. The guy ignored my accurate predictions of the 2000 crash, the 2008 meltdown and the 2009 rally, pointing out instead that I didn't emphasize the third quarter's 10.3% run-up.
His email attack putting down my skepticism of a 2011 rally got me thinking about The Fed/Wall Street conspiracy against America's middle class. He wrote: "Don't ever underestimate the power of 0% money market rates in drawing all types of investors (retirees, hedge funds, individual speculators, corporations, etc., etc.) into riskier assets. Those short rates are not going away any time soon, and with all the cash out there, this market ain't going down! Keep making predictions, I'll go the other way!"
Yes, history's on his side. As the New York Times reminded us last week: "The American economy, and the American stock market, tend to do much better when a president's term is nearing an end than they do when the term is beginning. If that pattern continues, the news from both Wall Street and Main Street may get better over the next two years."
So all those "Wall Street's bulls, bears and buffoons" are actually just regurgitating the predictions of two parrots on Noah's Ark. Here's the Times' analysis:
"For the stock market, the sweet spot is usually the third year of a presidential term, which is 2011 for the Obama administration. "¦The stock market often leads the economy, and that seems to be the case in presidential cycles. The fourth year, on average "¦ the most economic growth."
The report continued: "In the years from 1946 through 2009, 62% of the American economy's growth came during the final two years of presidential terms, compared with 38% in the first two years. A third of the growth came in the fourth years.
"The stock market pattern was even more marked," the story concluded. "An investor who owned stocks during the third years of terms, and stayed out of the market during the other years, would have earned profits more than twice as great as those that went to an investor following the opposite strategy, owning stocks in all but the third years."
So yes, history clearly favors the bulls in 2011 and 2012 (history also favors President Obama's re-election, much to the dismay of Mitch, the GOP, Tea Party and all conservatives). But politics aside, skeptics like Dorfman (and all his hedger Grinches and Scrooges who love getting rich shorting the conventional wisdom) still think "Wall Street's bulls, bears and buffoons" are just trying to con America's 95 million Main Street investors into believing the "third-year-of-a-Presidency-is-a-winner" prediction, because if we do we'll buy their hype and Wall Street will get richer off the commissions.
Be forewarned, says Uncle Dan as he boards his luxury cabin on the captain's deck: "As far as 2011 goes, one thing seems certain. Clearly, a tug of war lies ahead, what with many hedge fund managers I talk to solidly downbeat for all the reasons everybody knows, while Wall Street is predominantly bullish. So who and what are we supposed to believe? And is it time to get excited about stocks again?"
That's more than a rhetorical warning from Uncle Dan: "Many hedge fund managers I talk to are solidly downbeat." Yes, let's repeat that: Dorfman's contrarian "hedge fund managers" are "solidly downbeat," and those guys get rich betting against "Wall Street's bulls, bears and buffoons."
Get aboard the Ark "” just in case "” even if you have to stay in steerage with the Grinch, Scrooge and all the cute animals. Seriously, hedge your bets in 2011 (and 2012). Remember Mitch's vow to sabotage Obama. Remember the intense anger of GOP conservatives and the Tea Party about killer deficits. Their irrationality will stop at nothing "” even destroy the economy to get rid of Obama. And that insanity is why hedge fund managers may be betting with the GOP and against the "too-good-to-be-true" prediction that the third year of a presidency is a winner.
For the rest of you doubters sitting on the fence, wondering whether to stay on shore and jump back into stock market or keep your cash with you under a mattress on the Ark, there's a refresher course that I got from Capt. Jerry Shields of the First Marine Expeditionary Force: "All I Really Need to Know I Learned From Noah's Ark."
This was on the wall of the home we moved into 10 years ago. Shields was the chaplain of the owner's son's unit. I saw it and was hooked. I'm a Marine vet and Noah's Ark collector. I did a double take and put in an offer for the house on the spot. We got it and love it more with each passing Christmas, living here in God's country.
Paul Farrell writes the column on behavioral economics. He's the author of nine books on personal finance, economics and psychology, including "The Millionaire Code," "The Winning Portfolio," "The Lazy Person's Guide to Investing." Farrell was an investment banker with Morgan Stanley; executive vice president of the Financial News Network; executive vice president of Mercury Entertainment Corp; and associate editor of the Los Angeles Herald Examiner. He has a Juris Doctor and a Doctorate in Psychology.
It may not be a return to the go-go mid-2000s, but the downtrodden private equity industry is making noise in the financial markets, writes David Weidner.
11:00 a.m. Today11:00 a.m. Dec. 21, 2010
"Use "?Noah's Ark' survival kit for a stormy 2011 http://on.mktw.net/hx9x1L" 12:12 a.m. EST, Dec. 21, 2010 from MKTWFarrell
"Obama is a hostage, but not to the GOP http://on.mktw.net/fVbZps" 12:08 a.m. EST, Dec. 14, 2010 from MKTWFarrell
"10 reasons to shun stocks till banks crash http://on.mktw.net/hahEQk" 12:03 a.m. EST, Dec. 7, 2010 from MKTWFarrell
"Bombshell bras, hot lovers and gift sales http://on.mktw.net/fcXekR" 1:00 a.m. EST, Nov. 30, 2010 from MKTWFarrell
"Kamikaze Capitalism: GOP out to destroy http://on.mktw.net/emR4Vn" 12:14 a.m. EST, Nov. 23, 2010 from MKTWFarrell
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