Scary predictions by perma-bears end up being hot air

Volatilestock markets generate a peculiar type of celebrity known as the “perma-bear.” This is the highly negative forecaster who gets credited with calling a bear market before it starts. What you usually don’t get told is that he or she has been calling for a bear market for years without success. When their big chance finally comes, perma-bears milk it for all they’ve got, selling books, newsletters, speaking tours and getting on television every time the market moves a squiggle down.

The latest famous soothsayer is Nouriel Roubini, who teaches at New York University and operates Roubini Global Economics. He began calling for a collapse of the housing market and subsequent recession in 2005; three years later he was vindicated by the 2008 financial crisis and bear market. Roubini, who is now sought out by governments and investors worldwide, remains bearish and has earned the nickname Dr. Doom. The problem with being a perma-bear is that you will only be right about a third of the time: in the past, stock markets and the world economy have been in expansion the other two-thirds of the time.

One of Roubini’s predecessors in the perma-bear role was Howard Ruff, a famous financial advisor and hard money advocate in the 1970s. He wrote a bestseller, “How to Prosper During the Coming Bad Years,” in 1979, just a few years before the greatest bull stock market of the century began. Ruff was a critic of stocks and advocated owning precious metals, art, and coins. He lost favor after gold peaked in a speculative bubble in 1980. In February 2009 he was at it again: he predicted stocks would crash just as a new cyclical bull market was beginning, leading to a doubling of stock prices.

A contemporary of Ruff’s, Granville achieved huge popularity in the 1980s by claiming to use his own form of technical analysis, “on balance volume,” to predict future stock prices. For one investment seminar, Granville dressed as Moses, carrying stone tablets and wearing a crown. His market call to “sell everything” dropped the Dow Jones Industrial Average by 4 percent on April 22, 1980. He continued to proclaim the market was headed for imminent collapse after the last secular bull market began in 1982. His popularity declined and he later wrote a book about winning at bingo. His latest call at age 88 in January was for a 50 percent market plunge this year.

Another forecaster also failed to become governor of New York in one of the worst losses on record in the state. Wall Street financier Pierre Rinfret was an advisor to presidents Kennedy, Johnson and Nixon and a noted bear in the early 1980s. On a speaking tour in New York the day the 1982-1999 bull market began, he said economic and stock market conditions were dismal and held no promise for recovery. Rinfret was beaten so soundly by Democrat Mario Cuomo for governor of New York in 1990 that he almost dropped the Republican line to third on state ballots.
Investors who seek guidance when times are hard and markets are falling should always remember that, as Yogi Berra once said, it is hard to make predictions, especially about the future.