"My God...it's full of FAIL!"

People out there in the world actually pay Donald Luskin to give them financial advice. Can I short these people somehow? And then find out everything else they're invested in and short all that as well? I've just cut and pasted the whole thing because it's that awesome. Read and learn...

Every single bear market feels like it will go on forever. But none of them has. The average bear market, over history, has lasted 13 months.

Every single bear market feels like stocks are going to zero. But they never do. The average bear market, over history, has racked up stock losses of 33.2% at the point of greatest decline.

It feels like this bear market will go on forever. It won't. So far it's lasted 13 months, the same as the historical average.

It feels like stocks are going to zero. They won't. So far stocks have lost 44.2%, a third-again the loss of the average bear market.

So there's no reason based on historical norms to expect that this bear market has to go on a lot longer or get a lot worse. But based on emotion, it feels like it will. This one feels especially violent, and you can see that in the fact that an above-average loss has been experienced in the average 13-month bear-market duration.

But I really think we're at the end of this bear, or close to it. Let me define my terms. This bear market will be over -- correction: will have been over -- when we can look back and see that stocks have rallied at least 20% from any given low point, over at least two calendar months. That 20% move meets the minimum definition of a bull market. It may be no more than 20%, and it may last only a short time -- or it may go further and last longer -- but that's the minimum definition I'm using.

I think we're at the end because I think the fundamental event drivers that set this bear market in motion in the first place have changed.

The thing that started it was a series of botched government "rescues" of troubled financial firms -- Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, AIG, Washington Mutual and Wachovia. These interventions (or lack thereof in Lehman's case) -- which in each instance pretty much wiped out the companies that were being "bailed out" -- made matters worse, turning a typical credit crisis into a full-fledged banking panic.

But now the Treasury's TARP program, along with new programs from the Federal Reserve and the FDIC, are really helping. Financial firms are still going to have to struggle. And heaven only knows what they're going to do for earnings growth in the future. But the risk of a global meltdown of the financial system is now off the table for sure.

First the regulators created a runaway train of cascading failures of financial firms. Then they stopped the runaway train they themselves created with the massive cash infusions of the last month. That's a very, very good thing.

But when you stop a runaway train, some bad things happen.

When a train is headed downhill at 100 miles per hour and you suddenly stop its engine, what happens to all the freight cars the engine was pulling? They smash into each other, they jack-knife, and they jump the tracks, spilling their contents all over the countryside. Better than a runaway train, but still a huge mess. That's where we are now: a huge mess called a recession.

Make no mistake about it. Until a couple months ago we were not in a recession. It was just a slowdown. But the banking panic set in motion by the botched bailouts turned that slowdown into a very sudden recession. We're definitely in a recession now. The only question is how long and how deep.

Wait, so we've been in a bear market for 13 months...has this been Luskin's position all along? I think not. And it's the government's fault, because just a few months ago we weren't in a recession but now we are, all of a sudden? But if "the fundamental event drivers that set this bear market in motion" were botched non-rescues that took place a few months ago, why have we been in a bear market for 13 months? The rescues were so botched that they travelled back in time, propagating bearishness a year into the past? That's just nonsense on it's own terms, setting aside the reflexive and idiotic anti-government wankery.

Comments

[MrTimbo]

Hilarious. No data. No argument. Just a story to explain events that are already understood. What an idiot.

[abb1]

It feels like stocks are going to zero. They won't.

Sounds like the guy is practicing financial psychiatry without a license.

[tomboy]

The DJIA actually went up more than 20% from its intraday October 10th lows.

It was below 7780 on October 10th, and rallied to over 9700 on November 5th.

So Don Luskin, the bear market didn't last forever, it just feels like you're an idiot.

[PQuincy]

After the multiple humiliating pummelings that Luskin took at the hands of Brad DeLong and Paul Krugman, one wonders why anyone would take his ideas seriously, but still...thanks for pointing out this further inanity.

My favorite: "The thing that started it was a series of botched government "rescues" of troubled financial firms..."

So were these rescues botched because they were unneeded government intervention into firms that were, well, er, about to fail? Or were they botched because they actually prevented some of the consequences of such failure. By cleverly not specifying the most elementary assumptions behind his story, Luskin tries to let both the blindly ideological 'free market' types and the 'we hate Bush incompetence' types have their cake. Is he saying that the government should not have 'rescued' any of these firms at all -- in which case, like Lehman, they would have been liquidated? Or that the rescue should have been done better (how?)?

[Adam Kotsko]

I'm poised for the market to dip into negative territory: people won't even accept stock for free -- you have to slip them a fifty along with it.

[Robert Waldmann]

Don't jump to conclusions. How do you know that the people who pay Luskin for his investment advice aren't already doing the opposite of what he advises ? Always wrong is as useful as always right and Mr Luskin has an *amazing* track record.

I know someone whose brother is a trader type who claims that he makes exactly this use of Luskin.

[Robert Waldmann]

Oh and, by the way, congratulations on you influence on economic policy makers -- no not on policy on quinoa which they ate at the G-20

"MENU FOR THE DINNER IN HONOR OF THE SUMMIT ON FINANCIAL MARKETS AND THE WORLD ECONOMY

Fruitwood-smoked Quail with Quince Gastrique
Quinoa Risotto"

http://hotlineblog.nationaljournal.com/archives/2008/11/what_are_they_e.html

via Yglesias.

The menu was fine, but could you advise them on the final communique ?

[Jose Padilla]

When did we rescue Lehman Brothers? The guy is truly an idiot.

[abb1]

We feed quails to our dog every day. Albeit raw and without risotto.

[belle waring]

frankly, that seems like a waste of perfectly good quail, abb1. I hope you're already sick of quails split and broiled, on toast, and the many other tasty way to prepare quail. not that I begrudge dogs their tasty treats, but really...

[abb1]

Well, you see, they are sold whole, with all the entrails, which is what dogs need, according to my daughter. Also, they are relatively cheap here, something like 8-9 euros for a half dozen.

Although I remember a couple of years ago during the avian flu scare they got twice as expensive. The dog wasn't happy.

[PG]

I'm poised for the market to dip into negative territory: people won't even accept stock for free -- you have to slip them a fifty along with it.

That aspect of "Of Human Bondage" confused the hell out of me when I first read it in high school, before I understood that there were investment schemes other than the limited-liability corporations predominate on the U.S. stock market. Every time Phillip had to put more money into the failing South African whatever-it-was, I kept thinking, "Sell, sell!" It made a good counter-point to the romantic storyline where I kept thinking, "Dump, dump!"