Saturday, September 1, 2018

Chart of Shame

Courtesy of Newsalert and MarketWatch, here is a chart that memorializes all the bearish calls of well-known analysts over the past six years.

For the record, I have been consistently optimistic/bullish since December 2008. That call was a bit early (the bottom came three months later), but anyone who bought then and held through today is undoubtedly very happy with the results.

click to enlarge

HT: Brian H.


Benjamin Cole said...

Kudos to Scott Grannis and his refreshing optimism.

Let the last 10 years be but a prelude to the next 10 years!

steve said...

There's a bull market in something all the time. Shorting stocks is the dumbest possible way to make $ possible.

Johnny Bee Dawg said...

Great 6-10 years ahead as market and GDP each catch up and revert to the mean!
We have put off socialism for a little while longer.
Drain the Swamp, restore Constitutional limits on government, and there's no reason we have to stop the prosperity after that.

Thank you for this outstanding blog site, Scott!

ChuckP said...

Scott; Is it possible to call you with a couple of questions??? Chuck Petersen I just signed up for your blog.

Scott Grannis said...

ChuckP: Sorry, but I don´t use the phone due to a hearing impairment. Happy to answer good questions here, however.

ChuckP said...

Hi Scott; Me again. My question is since you called the great meltdown back in the fall of 2008 just a few months early my question is what do you see on the horizon over the next 12 to 24 months??? Iam new to this site but your blog was "Highly Recommended" to me from a guy that knows you. Thank You in advance. Chuck P

Unknown said...

Nice chart and thank u.

Scott Grannis said...

I'll take this as an opportunity to summarize my current views. I fully acknowledge the risk that Trump's trade wars/tariffs could escalate into a global problem. At the very least, higher tariffs are acting and will continue to act as a headwind to growth. So it's difficult to be aggressively bullish these days, and it's indeed hard to find things that are cheap.

But at the same time it's important to note that the market is still priced to a good deal of caution. The risks out there are not escaping notice. 10-yr Treasury yields are still quite low from an historical perspective and relative to current and expected inflation. This is not due to any undue influence from the Fed; I think it's more likely due to investor's demand for a hedge against recession (Treasuries are the classic recession hedge). Gold is also still benefitting from relatively strong demand, since its long-term inflation-adjusted average price is about $600/oz and current prices are almost double that. Gold is a classic hedge for all sorts of perceived risks. Real yields on 5-yr TIPS are a good proxy for the market's expectation for real growth, and at today's relatively low levels, real yields are, I would argue, priced for only modest/moderate growth. Taken together, I see little if any evidence that the market is priced to a new era of 3-4% real growth. Caution still reigns.

I'm optimistic that the economy will exceed current expectations. That's been my stance ever since late 2008. Back then I thought that although the economy was likely to experience a sub-par recovery, it would nevertheless be somewhat stronger than the market's meager expectations. Today the gap between expectations and what we are likely to see going forward is not as huge as it was in late 2008, but it's still observable. So I think optimism is likely to pay off, but I wouldn't want to bet a fortune on that outcome.

I'm probably more optimistic than the market when it comes to expectations for Trump's economic policies. I think the market is under-estimating the power of drastically lower corporate income taxes and Trump's ongoing attack on regulatory burdens. I'm a supply-side economist, which means I think people respond to incentives. Today, the incentives to start, run, and grow a business are stronger than they have been for a long time. I think this can easily result in a significant increase in economic growth going forward. So far we have seen tentative signs that the pace of growth is picking up, with Q2/18 real GDP growth (4%) being one of the most obvious. Add to that the very strong growth in profits of late, plus a double-digit increase in capital goods orders over the past year or so, and you have the seed corn for a return to strong growth in productivity. The labor force participation rate is still quite low, and there is plenty of room for that to change for the better, as sidelined workers are attracted back into the workforce by better opportunities and higher wages and salaries.

Scott Grannis said...

Further to my comment above:

I'm currently working on a post covering corporate profits and equity valuation. I don't think earnings multiples are excessive. Equities are not cheap, but neither are they egregiously over-valued.

Equity returns going forward are unlikely to be as strong as they have been in recent years. But it's not a stretch to think they can beat the alternatives on offer in the money market and bond market. Interest rates will have to be a lot higher before they can offer a compelling alternative to equities.

For those willing to bear a lot of risk, emerging markets have recently suffered a punishing selloff. Things could get worse, but by the same token they could get a lot better, and it wouldn't take much to turn sentiment around. Emerging markets today are not under the same pressures as they faced in the late 90s and early 00s, when monetary policy was aggressively restrictive (real yields were 4% and the yield curve was inverted), the dollar was very strong, gold prices were very low ($250-300), and commodity prices had been crushed.

marcusbalbus said...


Johnny Bee Dawg said...

Marcus...have you ever been right about anything, ever?
Certainly not on this blog. Its been years.'s at all time highs again.

WealthMony said...

Scott, thank you for all the work you do in laboring for the benefit of many of us who you do not even know, for sharing the knowledge and financial wisdom you're acquired over the years. You make a comment in your "comments" section that I do not understand, and would appreciate your explaining what you've written: "Gold is also still benefitting from relatively strong demand..."

Gold is priced where it was in January 2016 and is even now at a 52-week low. It looks like since 2016 the price has meandered between ~$1180 and ~$1380. The "strong demand" is not pushing the price higher, so what do you mean it is still benefiting from relatively strong demand? I'm not sure the price of gold tells us anything nowadays. I recall investors used to flock to gold at times usually for fear of inflation, although I've never considered gold an inflation hedge. I'm just not sure gold is a hedge against anything.

If you have time and see fit to respond, I will be appreciative. I am an old one still willing to learn. Sorry to hear about your hearing issue.

Scott Grannis said...

WealthMony re gold: When I look at gold, I'm always thinking of it in terms of its current price relative to its long-term, inflation-adjusted price, which I calculate is roughly $600/oz. Since it trades today at about double its long-term average, I think that reflects strong (above-average) demand for gold. Yes, gold has dropped from its high of several years ago, but I think that just means that demand back then was super-strong, and now it is merely very strong. Gold is trading at a relatively high price, as are 5-yr TIPS and even 3-mo. T-Bills. All reflect the market's desire for assets that are relatively risk-free and/or safe havens. In other words, I think the market still displays significant signs of caution and risk aversion. Less that it did a few years ago, but there is still a good degree of caution that is priced into the market.

The opposite of these conditions prevailed in the early 2000s, when gold was trading well below its long-term average ($250 or so), real yields on TIPS were 4+%, and T-bills were 6+%. Back then the market was convinced the economy would grow like gangbusters forever, and investors had thrown caution to the winds.

vito said...

Hello Scott,
long time reader thanks for your thoughts.
Could you post your current thoughts on the mounting federal debt levels and their effect on the markets when rates rise

Frozen in the North said...

To Vito

Please note that when the incumbent is a Republican, the national debt no longer matters!

So stop asking these questions, it's unpatriotic!

Scott Grannis said...

vito, re federal debt levels: When analyzing the federal debt, it is essential to compare it to nominal GDP. Today, the burden of debt (total federal debt owed to the public divided by nominal GDP) is just over 75%, That's the highest it's been since the early 1950s. The best that can be said about this ratio is that it hasn't increased much for the past 5 years. Nevertheless, it is still large and potentially problematic. Many economists argue that debt burdens become truly bad when they exceed 100-125% of GDP, so we have a ways to go before disaster presumably strikes.

What happens to our debt burden going forward depends on three key variables: federal spending, federal revenue collections, and nominal GDP. Congress hasn't been very successful in trimming spending, and it is likely to continue growing thanks to entitlement programs. Revenues have been weak for the past several years, and many believe that with lower taxes revenues will weaken further. Meanwhile, nominal GDP growth has been picking up.

I think the key to the debt burden lies in nominal GDP growth. If we get strong growth in the economy, tax collections are going to be strong. Several years of 4+% real GDP growth could easily reduce the burden of federal debt. On the other hand, if lower tax rates don't produce the supply-side growth spurt I expect to see, then we will have a big problem looming. And if Congress fails to rein in spending, that will also be problematic.

Billy Bob said...

I find your posts informative, but I'd suggest that you post your predictions from 2000-2010. It's far too easy for economists or PMs to pat themselves on the back over the past 10 years because the economy has only gone in one direction...UP. Show readers your alpha more than your beta.

honestcreditguy said...

Kudos to you for being persistently bullish...Dr. Ed also....

Scott Grannis said...

I have great respect for Ed Yardeni, and have followed his work regularly for decades.

Scott Grannis said...

Billy Bob: At the end of December, beginning in 2008, I have annually posted my predictions for the coming year. Prior to that I was with Western Asset Management. I can't claim to have predicted the 2008-9 financial crisis, but prior to the housing price collapse that began in 2007 I did predict that housing prices would fall 30-35%.

vito said...

Thanks Scott plenty of big what if's.
Do you think adding to a allocation in GLD would be beneficial if the worst case scenario plays out?

ChuckP said...

Hi to all; I just have a follow up question if I may. If the Democrats take over the House and Senate in NOV. do you see a pretty substantial selloff???? Knowing that they would repeal the Corp. tax rate that Trump got approved and the fact that he would be impeached I would like you folks to give me your opinion so I can plan for a worse case scenario. THANK YOU.

The Cliff Claven of Finance said...

Mr. Grannis has always been bullish in this blog,
starting in late 2008, just before the market crashed.

It appears he will always be bullish in the future, and never
predict a recession, so you should expect that bullish bias here.

Since the economy has only one or two recessions in a decade,
an economist will be "right" most of the time if perpetually bullish,
and wrong most of the time if perpetually bearish.

People in the finance industry are perpetually bullish
when dealing with the public -- the right time to buy stocks
is always "now" and the best holding period is "forever".

Strange that financial institution traders
do not make their profits
by following their own advice !