Before I get into the multitude of issues I have with Harry Dent, I'd like to begin by saying that I think he's an intelligent man and not the charlatan one financial Web site called him. After all, he's in the market timing business and to get it right once is almost a curse because your followers expect you to be on the money each and every time you open your mouth. It just doesn't happen that way. Even being in the ballpark doesn't cut it when day traders have you under the microscope. As a disclaimer, I'd like to say that I'm not a subscriber to Dent's newsletter and hot line, but do have access to them through a fellow investor that shares them with me. I also have read all of his books and find the majority of his material useful because he's an excellent researcher. His prowess as an investor is questionable, but we'll get to that in a moment.
Dent was a raging bull in the 1980's, 1990's and 2000's. I'm going by the seat of my pants here only because it's been a long time. But during the 1990's, Dent wrote both The Great Boom Ahead in 1993 and The Roaring 2000s in 1998. In The Roaring 2000s, Dent claimed that the DOW would reach 25,000 in a matter of years, only to see it come crashing down after reaching a high of 11,722 the week of January 10th, 2000. In 2004, he came out with another book, The Next Great Bubble Boom where he made another bold prediction of the DOW reaching 40,000 by the end of the decade. We all know what happened here. The Dow reached a high of 14,093 the week of October 8th, 2007 and never looked back as it went spiraling downward to the lows of March, 2009.
In fact, in the Fall of 2008 when the market imploded, Dent hung onto his bullish predictions until November when he advised clients to raise cash and get out of the market. It was a few months later at the beginning of January, 2009 that Dent wrote in his monthly newsletter urging subscribers to get back in. The market then proceeded to tank once more, but he garnered a 20% gain for his followers in 2009 if they stayed fully invested to take advantage of the current rally we are still experiencing. However, Dent is by no means a perma-bull. He's quite bearish right now (although he does see this rally continuing for another few months) and has been predicting another great depression for more than a decade. His 2009 book The Great Depression Ahead is a New York Times bestseller and rightfully so. It's a good read and I recommend it.
What I don't recommend is investing in Harry Dent's relatively new AdvisorShares Dent Tactical ETF (DENT) because it is an actively managed Exchange Traded Fund and because Harry Dent has had poor performance in the past when he ventured into the mutual fund business. As Larry Swedroe of CBS MoneyWatch wrote in September of 2009: "In 1999, the AIM Dent Demographics Trend Fund was launched, based on the demographic, economic and lifestyle trends identified by Dent. Unfortunately, the fund's results were miserable. From 2000 through 2004, the fund lost more than 11 percent per year and underperformed the S&P 500 Index by almost 9 percent per year. In 2005, its sponsor put investors out of their misery by merging it into the AIM Weingarten Fund.". Although I realize the AdvisorShares Dent Tactical ETF (DENT) is a new venture for Dent and I should give him the benefit of the doubt, I am opposed to actively managed ETFs because of their high expense ratios and believe ETFs should just be index based.
I've had the opportunity to read many investment newsletters and find Dent's to be one of the better ones because he does such thorough research and backs up his findings with cold, hard data from a variety of sources. However, I think it's how you interpret the data that gets Dent in trouble at times. He tends to be more of a technical analyst and I am a value investor and many times don't see eye-to-eye with his interpretations of the statistics he presents. He's also in the dangerous business of making short-term projections as to where the market is heading. He reports these projections in his almost weekly updates. As stated earlier, The Great Depression Ahead is an excellent book and I found it to be instrumental in determining some of my bearish stances. The rest of his books are outdated now, so they are best to avoid. I'll continue to read his newsletter while taking them with a grain of salt.
Sunday, February 28, 2010
Monday, February 22, 2010
Eating Crow
Two weeks ago while the market was in a downward trajectory, I made the prediction that we were heading for a well needed 15%-20% correction and came up short. The market did correct, but only by 9% from peak to trough. Does this deter my long-term stance that we will be retesting the lows of March 2009? No. Absolutely not, although I'll probably be lambasted for being foolhardy until I meet that benchmark, or at least get close to it. In actuality, the mini-correction of a fortnight ago actually strengthened my resolve that the market will take a nosedive sometime in the next six months because it really hasn't had a healthy pullback in almost a year. November, December, January and February tend to be the four best months for the market. I'm just going to bide my time because we are almost through a seasonably advantageous time for stock prices.
Bill Clinton, Larry Summers, Alan Greenspan, Barton Biggs and Jean-Claude Trichet among a host of others all gave glowing praises to David Smick's The World is Curved: Hidden Dangers to the Global Economy and I really looked forward to reading it. If you have been following this blog, you know I try to review at least one book a week to inform readers about what is going on in the financial press and to buttress my conviction of more widespread panic in the market. Smick believes that the two decades before the sub-prime crisis were an anomaly of growth and that: "During this quarter-century, the Dow Jones Industrial Average climbed from 800 to 14,000, before the financial crisis hit. To match that stock market success in percentage terms over the next twenty-five years, the Dow would have to exceed 170,000.". So if you have a short-term time horizon and think you can keep racking up gains of 15% almost every year like we have from 1982 to at least until 2000, you are grossly mistaken.
The praise bestowed upon The World is Curved: Hidden Dangers to the Global Economy reminded me of the glowing recommendations for How Markets Fail by John Cassidy. With both books, I didn't see what all of the excitement was about. To be quite frank, reading Smick's book was quite a chore. Like with all economics books, I did get something out of it, such as the stance that China is in a bubble and that when it bursts, it will send share prices of securities from all over the globe cascading downward. This bubble could bust faster than you think because: "Most Western experts suggest that if the Chinese growth rate drops to below 7.5 percent, serious unemployment would set in, furthering political unrest and threatening the stability of the entire economic system. During 2009, the economy officially grew between 6 and 7 percent.". Smick is an experienced international financial consultant and feels China is another house of cards, just like our interconnected worldwide banking system, but only worse from its lack of transparency: "Compared to the Chinese banks, today's troubled, large American and European financial institutions look like paragons of financial purity.".
I got a lot out of Smick's chapter on China. While most soothsayers will tell you China is the engine that will drive the markets forward, he takes the opposite stance: :"...all but the most sophisticated media paint a picture of China as the great Asian Promised Land. Perhaps it will be. But in my view, China is attempting to accomplish something never achieved in the history of mankind - to marry a market economy with a Marxist political regime.". The World is Curved is a good book, but not a great book because as much as I learned about China, it wasn't enough information to warrant reading it in it's entirety. However, I did read it and it gave me added ammunition to remain in my short positions. I don't know if China will be the catalyst, but something is going to trigger another avalanche because there is just too much sovereign debt, especially in the United States. I was wrong two weeks ago and I could be wrong again, but I'll hold steady with my convictions until I see evidence that sways me in another direction.
Bill Clinton, Larry Summers, Alan Greenspan, Barton Biggs and Jean-Claude Trichet among a host of others all gave glowing praises to David Smick's The World is Curved: Hidden Dangers to the Global Economy and I really looked forward to reading it. If you have been following this blog, you know I try to review at least one book a week to inform readers about what is going on in the financial press and to buttress my conviction of more widespread panic in the market. Smick believes that the two decades before the sub-prime crisis were an anomaly of growth and that: "During this quarter-century, the Dow Jones Industrial Average climbed from 800 to 14,000, before the financial crisis hit. To match that stock market success in percentage terms over the next twenty-five years, the Dow would have to exceed 170,000.". So if you have a short-term time horizon and think you can keep racking up gains of 15% almost every year like we have from 1982 to at least until 2000, you are grossly mistaken.
The praise bestowed upon The World is Curved: Hidden Dangers to the Global Economy reminded me of the glowing recommendations for How Markets Fail by John Cassidy. With both books, I didn't see what all of the excitement was about. To be quite frank, reading Smick's book was quite a chore. Like with all economics books, I did get something out of it, such as the stance that China is in a bubble and that when it bursts, it will send share prices of securities from all over the globe cascading downward. This bubble could bust faster than you think because: "Most Western experts suggest that if the Chinese growth rate drops to below 7.5 percent, serious unemployment would set in, furthering political unrest and threatening the stability of the entire economic system. During 2009, the economy officially grew between 6 and 7 percent.". Smick is an experienced international financial consultant and feels China is another house of cards, just like our interconnected worldwide banking system, but only worse from its lack of transparency: "Compared to the Chinese banks, today's troubled, large American and European financial institutions look like paragons of financial purity.".
I got a lot out of Smick's chapter on China. While most soothsayers will tell you China is the engine that will drive the markets forward, he takes the opposite stance: :"...all but the most sophisticated media paint a picture of China as the great Asian Promised Land. Perhaps it will be. But in my view, China is attempting to accomplish something never achieved in the history of mankind - to marry a market economy with a Marxist political regime.". The World is Curved is a good book, but not a great book because as much as I learned about China, it wasn't enough information to warrant reading it in it's entirety. However, I did read it and it gave me added ammunition to remain in my short positions. I don't know if China will be the catalyst, but something is going to trigger another avalanche because there is just too much sovereign debt, especially in the United States. I was wrong two weeks ago and I could be wrong again, but I'll hold steady with my convictions until I see evidence that sways me in another direction.
Wednesday, February 17, 2010
Peter Schiff
I'm not one to kick a guy when he's down, but that's what some segments of the media did to Peter Schiff in 2008 when his client's holdings at Euro Pacific Capital allegedly decreased by 60%-70%. Mish's Global Economic Trend Analysis, a very popular financial blog, really piled on and threw him under the bus with a scathing review of Schiff's investing acumen in January of 2009. Schiff in return has written a rebuttal to all of his detractors in Crash Proof 2.0 which basically stated that he is a long-term investor and those that chided him were myopic in their leanings. Crash Proof 2.0 is the newest edition of Schiff's Crash Proof that was published in 2006 and correctly called the housing bubble and subsequent implosion in 2008. I'll give credit where credit is due and Schiff did call the financial meltdown of the housing and stock markets. His timing was impeccable, but some of that is attributed to riding with lady luck. Crash Proof 2.0 essentially reprints most of the first book and gives addendum's at the end of each chapter that were written in the aftermath of the crash.
If you are not familiar with Schiff, besides being president of Euro Pacific Capital, his resume also reads economic advisor to Ron Paul's presidential campaign, so you can infer he is to the right of right. As he says in both books: "I, along with a handful of others using the same lens, am simply applying the basic laws of classical Austrian economics. The Austrian school is not considered mainstream these days, so guys like me are few and far between.". That's probably a good thing. I've written at length about the Austrian School of economics in previous posts so I won't go into great detail about it only to say that they essentially believe in ending the Federal Reserve, going back to the gold standard and minimal government intervention. While I don't agree with Schiff and the Austrian economists who seem to be coming out of the woodwork these days, on 99% of the dogma they adhere to I do concur that there is still more fallout in the market. In the author's note to Crash Proof 2.0, Schiff states: "while most believe that the economic collapse is over, the reality is that it has only just begun. What we have witnessed thus far are merely the events that have set the collapse in motion. It will take some time for all of the dominoes to fall.".
The Dow Jones Industrial Average at 4,000-5,000. Gold at $5,100 an ounce. The dollar bottoming at 20, maybe lower. These are all eye-popping predictions Schiff makes in his book. He claims he is not your run-of-the-mill perma-bear who are like stopped clocks and can be right a couple of times. But, he has been bearish for as long as I have been aware of him. He even states in Crash Proof 2.0 that he had his clients stay out of tech stocks in the 1990s. He contradicts himself more than once during the book. For example he advises readers to invest in only conservative dividend paying foreign stocks while warning about the evils of investing in ADRs because the stocks are too big and well known. I'll call off the dogs here because the purpose of this article is not to trash Schiff, but to take another "expert's" opinion on why the market is going to correct. However, at the risk of belaboring a point, he and John Downes (who co-wrote the book) do contradict themselves at times.
The investment advice Schiff gives can be summed up as follows: Put 70% of your money in foreign stocks, 30% in gold and sit tight and wait out the crash, not in worldwide securities, but in American stocks. He deems the sun is setting on the American Empire because of all the debt the government has accumulated. Schiff believes in markets decoupling, that the greenback will no longer be the world's reserve currency and probably be replaced by the Euro. I couldn't disagree with him more. Crash Proof 2.0 is well written, but I have a problem with it in that it is like a lot of other books written by Austrian School economists. They all say the same thing except for Robert Prechter in Conquer the Crash. Prechter believes in deflation, not hyper-inflation like the rest of the herd. I tip my hat to Schiff for predicting the 2008 real estate meltdown in Crash Proof, but cannot recommend his newest book because it's a couple of years too late.
If you are not familiar with Schiff, besides being president of Euro Pacific Capital, his resume also reads economic advisor to Ron Paul's presidential campaign, so you can infer he is to the right of right. As he says in both books: "I, along with a handful of others using the same lens, am simply applying the basic laws of classical Austrian economics. The Austrian school is not considered mainstream these days, so guys like me are few and far between.". That's probably a good thing. I've written at length about the Austrian School of economics in previous posts so I won't go into great detail about it only to say that they essentially believe in ending the Federal Reserve, going back to the gold standard and minimal government intervention. While I don't agree with Schiff and the Austrian economists who seem to be coming out of the woodwork these days, on 99% of the dogma they adhere to I do concur that there is still more fallout in the market. In the author's note to Crash Proof 2.0, Schiff states: "while most believe that the economic collapse is over, the reality is that it has only just begun. What we have witnessed thus far are merely the events that have set the collapse in motion. It will take some time for all of the dominoes to fall.".
The Dow Jones Industrial Average at 4,000-5,000. Gold at $5,100 an ounce. The dollar bottoming at 20, maybe lower. These are all eye-popping predictions Schiff makes in his book. He claims he is not your run-of-the-mill perma-bear who are like stopped clocks and can be right a couple of times. But, he has been bearish for as long as I have been aware of him. He even states in Crash Proof 2.0 that he had his clients stay out of tech stocks in the 1990s. He contradicts himself more than once during the book. For example he advises readers to invest in only conservative dividend paying foreign stocks while warning about the evils of investing in ADRs because the stocks are too big and well known. I'll call off the dogs here because the purpose of this article is not to trash Schiff, but to take another "expert's" opinion on why the market is going to correct. However, at the risk of belaboring a point, he and John Downes (who co-wrote the book) do contradict themselves at times.
The investment advice Schiff gives can be summed up as follows: Put 70% of your money in foreign stocks, 30% in gold and sit tight and wait out the crash, not in worldwide securities, but in American stocks. He deems the sun is setting on the American Empire because of all the debt the government has accumulated. Schiff believes in markets decoupling, that the greenback will no longer be the world's reserve currency and probably be replaced by the Euro. I couldn't disagree with him more. Crash Proof 2.0 is well written, but I have a problem with it in that it is like a lot of other books written by Austrian School economists. They all say the same thing except for Robert Prechter in Conquer the Crash. Prechter believes in deflation, not hyper-inflation like the rest of the herd. I tip my hat to Schiff for predicting the 2008 real estate meltdown in Crash Proof, but cannot recommend his newest book because it's a couple of years too late.
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