Herding together may have been a good instinct back in the days when humans evolved… when they were as frequently prey as hunter. But times change, and the old instincts become enemies. In a financial downturn, the instinct to do what everyone else does is definitely no friend.
So we look to see what everyone else is doing… so we can run in the other direction. Are they selling out? Are they dumping houses and stocks? Are they buying gold?
The answer: no.
A poll of Americans shows that most think that now is a good time to buy a house. They believe that a bottom has been reached in the housing bear market – with prices down only about 12% nationwide.
At the end of 2007, when Barron’s asked market strategists to look ahead to 2008, they opined that stocks would rise 4% during the year.
Not one of the 12 market strategists polled by Barron’s said he saw a recession in 2008. Today, more economists expect a recession – many think it is already here – but nearly every one of them believes it will be mild, and will be followed by a rebound in the second half of the year.
And then, there is Ed Yardeni… whom we put in a class by himself. Yardeni, and Abby Joseph Cohen, typically speak for the most credulous part of the crowd – the part that will believe anything. (At the end of the dotcom bubble, for example, it was Yardeni who had taken Y2K hysteria mainstream, predicting a digitally-inspired recession for 2000. It was he, too, who thought he had identified a whole new subspecies of human being – the Digital Man – who understood how the communications revolution had created a New Era… and left the human race divided between those who ‘got it’ and those who, like your editor, suspected the whole thing was a bubble.)
What does Yardeni think of today’s economy? He has crossed over to the “Dark Side,” he says. He believes the economy fell into an employment-led recession in February.
But don’t worry about it. “Just because I crossed over to the Dark Side on the near-term economic outlook doesn’t mean I can’t have a Light Side outlook for the stock market… blab, blah, blah… that would put the market up 15% to 20%… by the end of this year.”
That’s enough for us. Sell!
And our old friend Marc Faber recalls a similar quotation from R.W. McNeal, a market analyst writing in 1929:
“Some pretty intelligent people are now buying stocks… Unless we are to have a panic – which no one seriously believes – stocks have hit bottom.”
Markets and Money