Wednesday, August 26, 2009

Bloomberg's Smear of Roubini Merely Hurts the Insulter

Bloomberg.com may have sunk to a new and despicable low. The half-truths and unstated facts in its article, which was first posted under the following title:
Waiting for Economy Roubini Can Believe In Means Missing Rally and then, strangely, retitled in "Update 1" as Applying Roubini Wisdom to Stocks Means Missing Out. It would appear that while the original title was accurate though misleading, the revised title is factually wrong, as is easily demonstrated.

Why pick on Dr. Roubini? And how was his record? If you take Bloomberg's July 2006 as Roubini's "sell" date, the S&P 500 ("S&P) was around 1230. Now its around 1000. Buy and hold 3+ years later?

The article really gets bad when it touts a probably better-than-average stock-picker and market timer, Laszlo Birinyi, as follows:

He may have missed this year’s bull market because Roubini isn’t focused on stocks, according to Birinyi.

Roubini has “done a very good job on the economy,” Birinyi said in an interview Aug. 24. “Our approach is to try to understand the market and not try to do much more than that.” . . .

Birinyi, 65, who spent a decade on the trading desk at Salomon Brothers Inc. before founding Birinyi Associates in 1989, said on May 20 that the S&P 500 may reach 1,700 by 2011, shifting from his April 13 call that the market had risen too much “by almost every measure.” In October 2007, he told investors to avoid bank stocks, saying bad loans and lower revenue from underwriting would damp earnings. The S&P 500 Financials Index then plunged 82 percent through March 6, 2009.

“Both of them just have a pretty deep understanding of the history of economic and business cycles,” said Eric Teal, who oversees $5 billion as chief investment officer at First Citizens Bank in Raleigh, North Carolina. “Roubini has just had more of an academic background, whereas Birinyi has been much more in the spotlight managing money and working in capital markets.”

Perhaps Mr. Teal missed the following "brilliant" calls from the market professional Laszlo Birinyi from Business Week's What the Pros Are Saying from that marvelous month to buy stocks, December 2007:

LASZLO BIRINYI, PRESIDENT, BIRINYI ASSOCIATES

A Wall Street veteran who landed his first job at a financial services firm, Auerbach, Pollack & Richardson, in 1972, Birinyi has seen many market crises. The current one doesn't faze him much: "Based on historical data, I articulated a principle some years ago that has been very profitable for me," he says. According to Birinyi's "Cyrano principle," "if the concerns of the market are as obvious as the nose on your face, the market and monetary policymakers will have an amazing ability to adapt and adjust." He believes the Fed will do what it takes to calm the credit crisis.

Birinyi thinks the bull market that started in 2002 is still very much intact. He expects the current economic expansion to continue, with 5% corporate earnings growth helping to propel the Dow to 15,000 by the end of 2008. The signs of a market top, which include speculative fervor and rising stock valuations, "really aren't present," he adds. At 15 to 18 times estimated earnings—the exact number depends on how you measure earnings—stock market values are neither cheap nor expensive. If the market were a traffic light, Birinyi says, it would be flashing a yellow signal now.

Birinyi sees "pockets of value." With risk aversion rising, he thinks investors will pay more for such predictable growth stocks as Google (GOOG) and Deere (DE). He expects commodity prices to keep rising "as the emerging markets continue to emerge." He also favors buying stocks which were "excessively punished" in the recent subprime-related meltdown. They include retailers Tiffany (TIF), Nordstrom (JWN), J. Crew (JCG), and financial giant American International Group (AIG).

Let's see: Roubini said to go to cash and stay there. He predicted in unbelievable detail how the overleveraged broker-dealers and complex financial institutions would drag the country and the world into the longest economic downturn in a long, long time. The very month the recession/depression is adjudged to have begun, Birinyi said to buy AIG. His Dow forecast for 2008 was on the money or close to conservative if it had a 1:2 reverse split.

Yes, it is true that Dr. Roubini's advice protected your capital. He had no idea that the stock market could surge so much when so many jobs were being lost throughout 2009. Is that cause for Bloomberg's kneecapping of him? For all we know, the current up-stock market in Asia as I write will be the last one for a month. I suspect that Dr. Roubini has learned the lesson that markets and economic facts can diverge sharply and for long periods of time.

I also suspect that over a longer period of time, perhaps years, the stock market will either have to offer retail investors a fairer deal--higher dividends and lower price-to-book value ratios-- or will continue to underperform gold and perhaps even Treasury bonds.

This Bloomberg.com article is a disgrace. What are the penalties in football for piling on and taunting?

Copyright (C) Long Lake LLC 2009

4 comments:

  1. Very nice perspective. It always galls me that people who predict the market going up 10% in the last week are lauded, but everyone forgets the 50% losses from a year ago. Not to mention all that trading nonsense never takes into account fees or taxes.
    Fresno Dan

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  2. I'm a huge Roubini fan on his economic predictions, and get this every morning from my spouse.

    For a few months this spring, Nouriel was predicting the market, at least as to targets. He's now quit that.

    I still rely on him for macro ecomomic accuracy, not cant.

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  3. I agree that Roubini did a great job of predicting the credit mess. But then again, he is not in the business of stock picking. The Bloomberg piece I would not its a disgrace, but needs to let people know that sometimes soeaking the truth is a lot better then just saying its time to load the boat.

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  4. The only reason I Bloomberg headlines is to see what the PTB on Wall Street are looking at.

    I stopped reading the articles about a year ago for the reasons cited in this post.

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