Angry at Dave (and other bears) | FT Alphaville

Angry at Dave (and other bears)

Dave Rosenberg is a FT Alphaville favourite. But not everyone is a fan of the Gluskin Sheff bear. In fact, some people are really quite upset with big Dave.

Take Birinyi Associates, the fund management and stock market research specialist. In its latest newsletter, the firm says that investors really should start taking less notice of those “vocal” economists who believe another crash is coming:

With regard to stocks, they have been wrong. Period. One of the more frequently quoted of the bunch has been Merrill’s former economist, David Rosenberg, who was probably the first and therefore the most correct in calling the downturn of 2007/2008 a recession. But, as shown below, his market commentary has been less than prescient.

We might also note that if one truly believed and subscribed to this negative market posture, one might have missed a significant rally. But suppose one was an aggressive and active trader and actually shorted the stock market or bought puts on the S&P on May 21, 2009 in all probability that individual would no longer be in business.


And just to underline it point, Birinyi produces the following annotated chart. (Click to enlarge).

Ouch again.

But the research house isn’t just angry with “vocal” economists. It’s also annoyed with the press (they can’t mean us, surely) for giving the likes of Rosenberg, Edwards and Janjuah the oxygen of publicity:

There may be, to be fair, some economists who are more positive, more constructive, but it is another characteristic of the present time that the press has a markedly negative bias perhaps reflecting sentiment. One recent New York Times article, “Economic Pessimists Gain Cachet” (August 10th), discussed a number of them including an especially bearish individual whose comments someone sent us. This individual who apparently has a long and distinguished record and (although as the Times reported, his model portfolio has lost 96% shorting India and 68% shorting Franklin Templeton stock) based his view on the pattern at right.

Here is the pattern below — and the individual mentioned is Raoul Pal, a former Goldman Sachs derivatives expert:

While the overlap is intriguing we had, from the beginning, several issues. For one it is only one data point or one experience, 1929. And we saw the same example in 1987 when the Crash was overlaid with ’29.There is, however, another subtle point which very few, if any, analysts realize. Comparing the S&P in 1929 to 2010 is not apples to apples. In 1929 the S&P only had 90 companies vs the 500 today and none of them were banks or any financial company. The S&P did not have any financials until July 1976. (On page six we have included the 90 members of the S&P at the start of 1929).

But Birinyni is not finished with Pal yet. As they go on:

This particular commentary was especially interesting in that this writer actually made a rather daring (in our view) prediction. His letter, dated May 18, 2010 said: I think there is a very high probability that the markets are going to crash within the next two days to two weeks. Obviously the market did not fall apart and while it has traded lower, had we bought June puts or sold our portfolio in anticipation of buying it much lower, we would have been disappointed.

We await the response of Rosenberg et al with interest.

Fight, fight, fight.


And in case anyone is interested — here’s Birinyi’s performance so far this year:

Clearly, it’s been a tough month!

Related links:
This is Dave’s moment – FT Alphaville
Rosenberg’s 17 reasons to be bullish (seriously) – FT Alphaville