Wednesday, May 14, 2008

Yeah, That Worked Out Well

The latest installment (the first one is here). Some readers are probably familiar with Don Luskin. I rarely watch financial TV, but as I click through the channels he seems to be on fairly frequently. His profile was pretty high a few years ago during the debate over Social Security reform. Luskin holds himself out as someone worth listening to, and he's not shy about calling others "always wrong."

I got curious about Luskin's own record. How'd he do on the subprime crash, one of the most important chapters in the history of financial markets? I took a look at his stuff from the past year to find out (note the dates, which are important). As I explain at the end of the post, there's a special reason why Luskin's calls deserve scrutiny:


April 27, 2007: This earnings season is especially sweet for me, and not just because I love to see bloviating blowhard bears on television make fools of themselves. ...There virtually can't be a recession on the horizon. The world is awash in financial liquidity. Anything that goes wrong — like the housing slowdown or the subprime mess — is easily absorbed by the massive amount of money available in the world.

June 29, 2007: Through the end of the year, it's going to be great for stocks. With no contagion from subprime, and the Fed on the sidelines, there's nothing to stop the economy from growing a lot faster than "moderately," which means that corporate earnings are going to keep growing, too. So abstracting from the occasional correction here and there, stock prices should pretty much keep making new all-time highs through the end of the year.

July 6, 2007: ...I appear on CNBC about once a week, usually on a panel with other experts. ...And in my expert opinion, the bears — permanent and otherwise — are in for another big disappointment here. Consider the facts behind my belief. Earnings are cheap compared to interest rates, which are still low. The economy is re-accelerating and earnings are booming. Liquidity is plentiful. The Fed is on the sidelines.

And the best fact of all is the bears themselves. The very fact that they keep worrying fills me with confidence and optimism. They're always wrong, it seems. The only calamity they're going to get is the reputation damage of being wrong, once again.


July 27, 2007: So what words are left to describe a really big down day like Thursday? How about, "Stocks became a better bargain than ever!"

August 3, 2007: While it's been a turbulent couple of weeks for stocks, the resiliency of the market in the face of rampant panic and pessimism has been very encouraging.

That means two things. First, at these prices, even though stocks are still near all-time highs, they are nevertheless bargain-priced. Second, the credit crisis that has triggered the recent volatility really isn't all that threatening. ...

So it's a mess to be sure. But it's not a real mess — it's just a psychological mess. ...

Stocks will have to live with a little uncertainty, while we see just how "brief" this brief period of adjustment is. But the credit markets will repair themselves and stocks will be at new highs before you know it.


August 24, 2007: Everyone's saying that the financial system is "broken" thanks to losses in subprime mortgages, and the collapse of exotic loan securitization structures like collateralized debt obligations, or CDOs. So how come the financial sector of the S&P 500 has performed better than the overall market during this alleged meltdown?

Guys and gals, take a stress pill and count to 10. This is nothing. At least for most investors. ...

This is like Hurricane Katrina. If you lived in New Orleans when it hit, then it was a profound personal tragedy. Thousands of such personal tragedies added up to lots of money, call it $100 billion plus. But in the grand scheme of things in the overall economy, it doesn't even register on the radar.

To paraphrase Humphrey Bogart in "Casablanca," the troubles of a few thousand little people don't amount to a hill of beans in this crazy economy. ...

Bernanke is no politician. He's an academic, and a serious student of monetary policy. He's not thinking about the cover of Time. That's why he hasn't cut the fed-funds rates, and why he's not going to. ...

So here's the play: Buy stocks on dips. There will plenty of dips while the panic plays itself out. But the bottom is in, and I think you can buy with confidence now.


August 31, 2007: It's hard to find any fellow bulls out there anymore. And oddly enough, those few that I encounter all base their bull case on something I totally disagree with. They think that the Fed is going to save the markets by slashing interest rates. I disagree. I don't think the Fed will cut interest rates at all. ...

There will be no rate cut. And stocks will be at new all-time highs by the end of the year.

You heard it here first!


October 26, 2007: Right now everyone thinks the credit markets are dead, dead, dead. ...

No one expects Wall Street to get right back up on its feet and start up a new credit cycle, with all the profits — yes, and all the risk and all the foolishness — that such a thing implies.

Yet I think there is a decent chance that some version of that will happen, and quite soon.


November 30, 2007: The bottom is in. Yes, I know I've been too early in saying to buy stocks during the correction from the October highs. But all the classic signals of a durable bottom are in place now.

December 7, 2007: On Wall Street, vultures don't go after dead things. They go after things that are alive and very cheap. And right now, they're going after troubled financial stocks in a big way, which means it's time to move in. ...

The fact that all these deals are taking place says that the assets that have been thought to be most at risk during the credit crisis of the last six months have finally hit rock bottom. And that, in turn, says some very positive things about the economy and the stock market in general. ...

The vultures have come in and set a floor for the value of existing debt. Now the uncertainty has been resolved as to where that floor is, and it's all upside from there.


December 28, 2007: Bearish expectations that lending will necessarily contract because of damaged bank capital structures suffer from a fallacy of static analysis...

As long as investors, businesses and consumers have good reasons to keep borrowing, I think that the banking system will continue to be fully able to keep lending.


January 18, 2008: I admit that I've been very wrong. I've been saying to buy stocks all the way down since the October highs. I was wrong. I repeat: I was wrong.


I don't know if Luskin's involved in money management these days, but if you don't know what happened a few years ago, take a look.

By the way, your wallet has an interest in Luskin's record. He's an economic advisor to John McCain -- the candidate who admits he doesn't understand the economy as well as he should. Ready for these guys to take a crack at "fixing" Social Security?

23 Comments:

Anonymous Anonymous said...

Always wrong...never in doubt. And now he admits he's been wrong...so NOW we should listen to him and buy stocks?

Err...no, now he should leave the finance biz and find something where no thinking is required like being a talking head on TV.

5/14/2008 9:50 AM  
Anonymous charles said...

Well, it's not like he's suggesting to his audience that they should actually take his rants as 'investment advice', since it's purely 'informational' (wink, wink).

If those suckers are foolish enough to actually take his advice and lose their shirts in the process, that's their own problem, and certainly not his fault (nudge, nudge).

5/14/2008 12:16 PM  
Blogger Dave S. said...

The key quotes for me are from July 27 and August 3, where we see the shift from "the market's up, so that's good!" to "the market's down, so that's good!" It reminded me of the ever-shifting rationale for the 2001 tax cuts and provided further proof, as if any was really necessary, that this crowd has never been concerned with the justifications for or effects of their ideology-driven agenda. They're not going to feel the effects anyway.

5/14/2008 12:32 PM  
Anonymous Anonymous said...

Before he was for Mccain he was with Ron Paul.

5/14/2008 12:54 PM  
Anonymous Anonymous said...

It's a sad window on how low expectations have drifted, but I was so stunned to see a simple "I was wrong" on January 18th that I was momentarily ready to forgive and forget years' worth of comically-inaccurate "insight" and get going on that giant "LUSKIN" tattoo across my shoulder blades.

5/14/2008 3:25 PM  
Blogger LFC said...

McCain now has Luskin and Phil Freakin' Gramm as economic advisors. Both have proven themselves to be fiscal idiots. (When does he sign up Ben Stein and Larry Kudlow?)

McCain also said he'd buy Greenspan's book, but doesn't understand that much of the real estate bubble can be laid at Alan's feet. Alan held rates down overly long and he essentially said we need more people in ARMs.

McCain also said...

"Senator Obama says that he doesn't want to raise taxes over -- on anybody over -- making over $200,000 a year. Yet he wants to nearly double the capital gains tax -- nearly double it -- which 100 million Americans have investments in -- mutual funds, 401(k)s.

Uh, John. Withdrawals from a 401(k) are taxed as income, not capital gains. Are you telling me that you don't understand the taxation of the single most important private retirement vehicle in the country?


If you want a continuation of the fiscal debacle that characterized the Bush years, vote John McCain!

5/14/2008 4:08 PM  
Anonymous goldhorder said...

I don't watch any financial advice from the media. It is pure propaganda

5/14/2008 6:54 PM  
Anonymous b-psycho said...

No wonder his blog is named "the conspiracy to keep you poor and stupid". He's part of it...

5/14/2008 7:35 PM  
Anonymous Anonymous said...

Luskin is of the Kudlow school of economics. No need to elaborate.

He was right about one thing, the world awash in money. Heaven and earth are being moved to lure as much of that money as possible into financial instruments and stocks but sadly much of it is now going into stuff. Thus stuff is inflating instead of paper and real estate. I am sure Luskin is all for the answer de jure. More money and then some more created, hoping that will go into paper. That by the way is the Kudlow strong dollar policy.

5/14/2008 8:31 PM  
Anonymous goldhorder said...

Speaking of Friedman...looks like he is all set for more war. LMAO

http://www.commondreams.org/archive/2008/05/14/8937/

5/15/2008 12:56 PM  
Anonymous NeilS said...

Luskin's record in investing reminds me of Bush's record in business.\

Is this the guy we need advising the next president about economoic affairs?

5/15/2008 3:12 PM  
Blogger Michael said...

I believe Luskin was laughed off Jim Cramer's site a few years ago.

He was hated by everyone, righteous and wrong.

5/15/2008 8:55 PM  
Anonymous Anonymous said...

I tend to fall in the bear camp these days, but I enjoy watching Kudlow overall. Even though I disagree in general with Kudlow himself, he is a likeable fellow, and is Vince Farrell. The only regular that I can't stomach at all is Luskin. What a pompous ass...constantly taking cheap shots at others with that smug look on his face. What a complete jerk.

5/15/2008 10:16 PM  
Anonymous Anonymous said...

Sorry Grandma, your Social Security funds, the money you depend on for utilities and food, "The funds are a casualty of the economy." Oops. We're bad. Sorry. The financial "expert" managing our money told us it was safe showing us historical charts, rates of return. He said times are different, and that the real danger was that you would run out of money before, well before you kicked. But alas, it was a gimmick, a game, and fee-generator, and we're sorry you lost. Sorry. But didn't we have fun.

"Analysts see the fund as a gimmick trying to attract investors. "The entertainment, the gimmick, doesn't really have anything to do with investing,""

We all would be better off, if there were fewer financial and economic experts tooting their own horn in the media. And lets face it, if they were so great, they'd quit their job, borrow as much as they could get, and go out with a bang using their own crystal ball. But it is easier, I guess, to play the public. What a way to run a great Republic. God protect us from financial and economic experts.

5/15/2008 11:08 PM  
Anonymous Mr. Hedley Bowes said...

"Even though I disagree in general with Kudlow himself, he is a likeable fellow..."

I watched Douglas Feith interviewed by Jon Stewart yesterday, and I genuinely expected to loathe every minute. But I found Feith to be a 'likable fellow' much the same as I've heard others say about the current executive and vice.

Then I think of the realities the 'likability' masks and I wonder: if aren't these people the very definition of the 'banality of evil'

5/16/2008 1:18 PM  
Blogger J. Michael Neal said...

There's a reason Brad DeLong calls Luskin the stupidest man in the world.

5/17/2008 10:57 PM  
Anonymous Todd said...

No wonder Kudlow and Luskin are pals. Permabulls have strong bonds.

I completely revile this guy Luskin. He makes my blood boil. It's people like him who spout pure bullshit and caveat emptor to all the suckers who are watching on tv who listen to his total garbage.

CNBC should be responsible and ban this guy from the air permanently. They should also give viewers some kind of track record of each of their commentators going back a few years. People should know who to listen to and not listen to. As for Luskin, I would short his stock picks.

5/22/2008 10:11 PM  
Anonymous Anonymous said...

I worked for the guy for a short time years ago. He was a jerk and he seems to select idiots to be his right hand as well.

7/08/2008 1:56 PM  
Anonymous Anonymous said...

Thanks--I'm very happy someone finally did this.

9/14/2008 9:55 PM  
Anonymous Blissex said...

I don't see the reason for all this hate -- he seems himself clearly as a republican propagandist, knows which side is buttered on, and writes accordingly. We all know how seriously to take sell-side analysts, and he clearly is a RNC-side one, not that's much different from a sell-side one.

As to his economics/financial analysis, which very rarely transpires from beneath his obvious political propaganda, he is not that wrong, as someone else remarked.

The world *is* awash in liquidity, new liquidity is being created all the time, especially recently by the Fed, and for most of the past several years constant transfers of GDP from workers to corporations have made stocks and profits have had a very good run. Now that profits have taken a beating he has acknowledged that.

From the point of view of the top 1% of the population, most of what he writes makes a lot of sense, propaganda aside. And who cares about the bottom 80% or 99% of losers?

Also, I am forever grated to Luskin for largely answering (and from the insane point of view of a gold bug) my question as to what happened in 1995 that resulted in an insane leveraging of the economy, with the establishment of a clearly different trend line from the previous one. Check out for one example among many the price over 30y of Merrill stock:

http://finance.yahoo.com/q/bc?s=MER&t=my&l=off&z=l&q=l

Well, Luskin pointed out that in 1995 something very strange happened to Fed policy, and another guy built on that to discover that in 1995 fractional reserve was in effect abolished.

http://www.smartmoney.com/ahead-of-the-curve/index.cfm?story=20060203
http://www.signallake.com/innovation/FedReserve1995.pdf

9/15/2008 8:57 AM  
Anonymous Anonymous said...

Dow Down 500: It Could Have Been Worse, but
'Crash' Risk Remains, Roubini says- Tech Ticker Meltdown shakes
up Wall Street's workers-


Worst Financial Crisis In 1000 Years?

it to last in to next week.
Oil. Down down down.
Gold. who cares. if you think you need gold buy a
gun and loa

9/15/2008 10:19 PM  
Anonymous generic viagra said...

Don Luskin knows he has a good impression, and in fact, he is very intelligent and elegant, but he thinks he's right all the time.

12/23/2010 9:20 AM  
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