On Tuesday, some 1500 people attended an event titled “A night with the bears” to hear the views of Nouriel Roubini a.k.a. Dr. Doom, Meredith Whitney, Ian Gordon and Eric Sprott (whose company organized the event). These gurus are now enjoying widespread acclaim for their bearish views, the most extreme of which is probably Mr. Gordon, who is putting a target of 1,000 on the Dow and cheerfully forecasts that the gloomy economic situation will be with us until 2020.
I have no idea if these gurus have it right but the cautionary example of Elaine Garzarelli, who famously called the 1987 crash, should be kept in mind. Derek DeCloet points out how many of her subsequent calls turned out:
In 1996, on CNBC, she again urged investors to sell. Stocks were overvalued, she said. They were dangerous.
The Dow doubled over the next four years (then it crashed). After that, she got bullish, which worked for a long time. Her advice going into last year? “More of the same, a great 2008,” she told one newspaper. Among her top picks were Home Depot and Lehman.
So by all means, listen to what the bears have to say. But also consider the possibility that they might miss it when the economy turns, and that their worst-case scenarios – their bet against the resilience of capitalism – might be wrong.