Session 13—“One-Shot Wonders (Roubini)”, Why Do They Continue to Get More Guest Shots?

I’m not sure on this one, maybe it is because they were credited with making one spectacular call and the media still believes that their views are important and a draw.  Now I’m all about free speech, but some free speech may cost you money and opportunities.  Let me give an example.

NYU professor, Nouriel Roubini, a Turkish-born American economist who warned about the possible collapse of the U. S. housing market back in 2005, was quoted on CNBC this morning saying “tax increases on wealthy Americans and reduced government spending (a la the Sequester), will have a severe impact on economic growth in the United States this year, wiping out the positive effects of the recovery in the housing market and cheaper energy.”

Why is this a headline?  It is pretty dire stuff (but not a new negative).  It might be concerning, if Roubini had not been continually making this type of negative remark since his early calls for caution eight years earlier.  In other words if you were fortunate enough to heed Nouriel’s early warning, you would have sold out before the peak in 2007, but missed the devastating decline in 2008/2009.  The catch is that if you continued to follow Roubini, you would still be out of the market; which in the case of the S & P 500 means you missed, some or all of, a 130% up move.  Yes, the market is definitely a two-way street and will have major sinking spells from time to time, but why do they keep trotting this guy out and giving him expert status to tell us that possibility exists?  I don’t get it.

Recent (and not-so-recent) history is replete with examples of one-shot wonders whose opinions (sometimes radically wrong) have been lauded by the media long after their One Big Call.

You might remember Meredith Whitney, a Wall Street analyst who got the banking collapse right in 2008, then she remained bearish on the group for much of the subsequent recovery from the March 2009 lows.  Ms. Whitney then really went out on the limb in 2010 predicting a horrific blow-up in the municipal bond arena that, as of yet, has not yet come to pass.

Then there was guru Elaine Garzarelli in the late 80s and early 90s.  Ms. Garzarelli was credited with calling the huge October meltdown in 1987.  That was pretty much it for Elaine.  In 1993, before the market lift off into a seven-year romp, she was quoted as calling for the market to be flat for the better part of the decade.  She continued to be spotlighted by the media for many years after that.

Technician, Joe Granville made successful bear calls during the 1970’s that gained him a reputation as a market seer whose pronouncements could move markets.  He continued to make those bear calls well into the 1990s.  His record subsequent to the 1970s was atrocious, but he continued to show up in and be taken seriously by the media years after those correct calls.

What’s the common thread?  All of the above have made at least one big correct call in their careers.  After that call their advice became, for the most part, useless…probably bearish when they should have been bullish.  However, due to that one great call, the media ascribed credibility to every additional utterance these people made even years after the fact.  It was noise.  Ergo, you should be careful about the One-Shot Wonders, as you will see them again and again.  You might want to use them as contrary indicators.

In closing, I am not a Pollyanna.  We do have a country and world facing many serious problems (a la Roubini). There will certainly be setbacks in the market…some vary scary.  These moves are tough for most to trade because most of us, including myself are not equipped intellectually or emotionally for the task.   But, from my vantage point it is hard for me to imagine an investor making out better over the next ten year owning a ten year, two percent, U.S. Treasury vs. General Electric common stock with a three-plus percent dividend, where you have a chance to see that dividend grow over time.

Caveat Emptor.  I own GE common stock.

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