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This collection of calls has been easier to write than "See Spot Run." My only difficulty has been restraining myself in order to not be sued, punched out or have my tires slashed. That being said, I will be paraphrasing some of the geniuses I quote below. And I’ve included a bonus — quotes from some of the analysts who have been dead-on correct.
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1.
"We have hit bottom. "
Any Week between Jan. 2 and mid-September Approximately 14,117 analysts all of whom have been interviewed on CNBC, Fox Business or the fifth-grade weekly television show at the Herbert Hoover Elementary School.
Learn more about Micheal Shulman’s take on the the financial crisis
Next: "Housing will bottom when…"
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2.
"Housing will bottom when new housing starts fall below 1 million units per year."
Any Week between Jan. 2 and mid-September Virtually every analyst following the homebuilders for the first nine months of the year. November housing starts dropped to 625,000 — down 18.2% year-over-year and 6.4% from October — and new permits fell even harder. Total housing inventory is twice what it was two years ago.
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3.
"GM has bottomed … GM is a buy here."
Feb. 18, 2008 Jim Cramer, video-based analyst, or so he says.
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4.
"Investors can now buy bank stocks at their cheapest levels in almost two decades … the last time an opportunity of this nature existed to buy bank stocks this cheap was in 1990 …. the next time will be in 20 years. This is a once-in-a-generation opportunity."
March 10, 2008 Dick Bove, a formerly brilliant analyst at Punk Ziegel. He is now on what one hedge fund manager I spoke to calls "full TILT." The banking ETF, the Financial Select Sector SPDR (XLF), is down 54% since this prediction.
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5.
"Bear Stearns is a buy at these levels, and we are buying."
Friday, March 14, 2008 Bill Miller of the Legg Mason Value Fund (LMVFX), not an analyst but a money manager, clearly does little or no analysis. He bought when Bear Stearns hit around $30. On Monday, March 17 — St. Patrick’s Day — the company was acquired for $2 a share.
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6.
"Successful efforts by authorities to restore liquidity and the orderly functioning of financial markets, along with the massive amount of policy stimulus that has already been applied … are expected to lead to a modest recovery in the U.S. economy in the second half of the year."
March 20, 2008 -
Larry Kantor, resident genius and head of research at Barclays Capital.
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7.
"Chinese growth will be 9.4% in 2008."
April 1, 2008 The World Bank. Who cares, there are still a billion and a half of them, right? Gotta buy something, right? "Oops, Chinese growth in 2008 will end up at 7.5%." Same guys at the World Bank working 20 hours a week in between first-class flights home.
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8.
"Power is the place to be — I like Foster Wheeler right here."
April 7, 2008 -
Jim, "you’re the (wrong) man" Cramer, the Merlin of people looking for tax losses, when Foster Wheeler (FWLT) was at $62. It is down 60% from this insightful analysis.
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9.
"We are buying more of Freddie Mac, we bought another 30 million shares."
September 2008 -
Bill Miller, Legg Mason Value Fund … no analysis again. One week later you and I — through our servant Hank Paulson — took over Freddie (FRE) and Fannie Mae (FNM).
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10.
"Our forecast is $149 a barrel for U.S. crude oil … .strong fundamentals were a more important factor than a strengthening dollar."
Aug. 20, 2008 Goldman Sachs (GS). Well, they only missed it by a $100 a barrel — matches the rest of their performance this year. "Oops, sorry, oil will be $70 a barrel by year-end. And it could hit $50," said the same group of geniuses two and half months later.
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11.
"Tangible equity means nothing in valuing bank stocks."
December 2008 Dick Bove again, in response (I think) to a blog showing (and proving) a huge amount of core tangible equity at Citigroup (C) is deferred tax assets — profits to be realized in the future. This quote is the equivalent of saying the quality and amount of cheese and dough have nothing to do with the quality of a pizza.
- Some people got it right…
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"The big banks are going to be on life support for at least 18 months or 36 months. They won’t fail, but they won’t grow either for another two years."
First and foremost, then, now and in the future, Ms. Meredith Whitney of Oppenheimer. This brilliant (and brave) analyst issued a sell on Citigroup and said they would cut their dividend in late October of 2007. She received death threats for that call, and I met her a few days later when we appeared together on Fox Business the day the bank stocks broke. Citi was around $40 when she made her call — it’s now at $8 and headed to pocket change.
Today Whitney sees another downturn in bank stocks because they have little earnings power going forward and weak balance sheets. She also sees another 20% drop in home prices — don’t bet against her.
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“I think the charts have been forewarning us that the markets are deteriorating…The 2002 lows are very vulnerable and chances are good they are going to be broken.”
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And how about Louise Yamada, founder and the boss of Technical Research Advisors? She is generally regarded as one of the best — and perhaps the best — technician on the planet and has called most everything that has gone on in the market. Her current thoughts? An S&P eventually trading between 400 and 600 as, she says, the market is making "lower highs and lower lows." The basis of this forecast? The "bricks" — the companies — that make up the S&P 500 do not have the earnings power in 2009 and beyond to support valuations at their current level.
Next: "In terms of nominal GDP, I see it being around 1% for a long time…"
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“In terms of nominal GDP, I see it being around 1% for a long time, five years for sure … if it took the corporate sector five years to recover from the bursting of the dot-com bubble, to suggest that it would take five years for consumers to recover from this seems like a very conservative call.”
Last but not least is Stephanie Pomboy, who was conveniently interviewed for the first time in more than three years in Barron’s this week. She is a macro analyst who founded and runs MacroMavens.
Pomboy has called the structural problems in housing, consumer credit, the dollar and so on going back to 2002. She sees the deleveraging of the consumer and the economy as perhaps a decade-long affair and the government having a continuing and outsized role in financial markets and the economy in general. Stephanie is more bearish than I am — perhaps 10% plus unemployment, 1% GDP growth (on average) for quite a while — and a shift from paper to hard assets.
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A New Analyst Model
When I review these three analysts’ work, I see a need to combine their efforts in a new model — testosterone-free analysis. No hype, no hope, just agnosticism in the face of too much opinion. And since the most laid back and incredibly accurate male analyst I know is Bill Gross of PIMCO, who speaks in a totally testosterone-free manner, I would put him in your reading mix. A credit market and macro level analyst who has nailed it all year long. And made a lot of money doing it.
All four of these folks see secular changes in world credit markets and the U.S. economy, and I agree. I also agree with them that we will see more in 2009 of what we have seen in 2008: Wall Street surprised by a continuing mess in housing, a continuing mess in bank balance sheets and earnings, and a continuing shrinkage of credit due to the de-leveraging of all financial institutions and consumers.
So stay testosterone free — metaphorically speaking, of course, for many of you — and be careful who you listen to in 2009.
Learn more about Micheal Shulman’s take on the the financial crisis
