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Prophecy is a pastime for fools, they say, and at least one Tel Aviv stock market player won't be caught getting quoted by name even though he keeps getting it right. A year and a half ago TheMarker interviewed this gentleman, who correctly predicted that the markets were in for a hammering. He got that right. Then TheMarker spoke with him again 11 months later, at the height of the crisis, and found him in a chirpy mood, predicting that investors could make a killing in stocks. Yet again he had it right - equities promptly staged a remarkable rally.

Yesterday TheMarker called him again and found that his cheer had evaporated. He's predicting a violent pullback because the gains of the last few months weren't based on economic facts, he says. They were fueled by nothing at all.

Is he right? Only time will tell, but to judge the wisdom of his instincts, we can revisit his two forecasts delivered in the past.

Back in January 2008, said player was sourly predicting a terrible year for Israeli stocks. "There will be more bankruptcies. We're on our way down," he moaned. "The U.S. is trying to stimulate private consumption artificially, but it won't help. The fall will start after the holidays. Even in Russia there are plenty of risks because a huge proportion of its GDP is associated with oil."

The growth in emerging markets is genuine, he continued back in January 2008, leading hundreds of millions of people to start consuming, but that doesn't mean share prices there make sense. Look at what happened to share prices of American railroad companies a century ago, he says - they went sky-high, then collapsed, and not because people stopped taking the train, or that the companies weren't making money. It was because their share prices didn't make sense. The same thing happened with Internet prices in 2000, he says.

Moving on to November 2008, our player turned optimistic. The crisis was raging in world markets but by and large, he was predicting an upturn - acute crises have to peak at some point, he explained. The acute stage doesn't last more than a year or two. He for one didn't think this crisis was much different from any other, though he acknowledged that the entire world economy would fall sick, including India, China, Brazil and Russia, having been infected by America.

"Things will get worse, but not much worse," he predicted. Yes, the credit crisis was suffocating business, but that would be resolved, he said. His conclusion? It was time to buy stocks, because the potential for gains was greater than the potential for more losses. Investors should buy for the long term, he said: five years, for instance. "You can't know when the stock market will correct upwards," he concluded. And if buying, go to the worst-hit areas, the pits - the real estate sector, for example. Don't get selective: Buy by index.

That was in November 2008, and by and large, everything he said was true.

Now it's August 2009 and he's downbeat, because the gains this year aren't based on any real economic developments, he explains. "Even if the economy was showing clear signs of recovery, even then I'd say stock market prices are too high," he says - and the economy clearly hasn't recovered in any significant way.

Share prices have become bloated, and meanwhile, back in the broad economy, the signs of recovery are weak."

There had been a general sentiment that share prices had overshot on the way down, a feeling he shared. "But now they've overshot in the other direction. The complacency has gone too far. I think that soon we're going to see that corporate profits were weaker than expected and that share prices rose too much."

So the market is going to screech to a halt, he predicts; its recovery wasn't based on solid economic foundations. At these levels, share prices present more risk than potential reward.

The downturn will start with the institutional investors and snowball; that's how the market works, he says. "The big players, the institutionals, were afraid that the market would get away from them. Their nightmare was to miss the rally. They'd only get out when they were sure a bubble had developed, and that's exactly why a bubble is developing. Economists are saying that the recession is over. The problem is that people are captive to their own concepts, because they'd rather get it wrong together with everybody else .... Nobody buys a sweater in the summer, even though they know that winter will come."

As for economic recovery, our player begs to put things into proportion: "The terrible trauma that the world underwent can't be treated with aspirin. Therapy will be a lot more complex and protracted. Asset prices in the U.S., mainly housing prices, had become terribly inflated, by trillions of dollars. Those trillions have been wiped out. There are areas where half the value of homes has evaporated; in Miami, for instance. So aren't these things going to affect the economy? Crises like this one, which shake the economy to the core, don't pass so fast."

Frightened people stop splashing money around, he elaborates. They start putting it aside, when they can. They slash spending. They don't splurge on cars and vacations and thousand-dollar bottles of wine.

Not only is current spending taking a hit. People's futures become less clear. The value of their pension savings has plummeted.

"When General Electric's share price drops from $50 to $10, it wipes out $300 billion for America's widows and orphans. Who do you think owns Wal-Mart? The McDonald's chain? Citi? The American public, that's who," he says.

"Citi sank from being worth $200 billion to $5 billion. American pensions eroded by trillions of dollars. And all this was happening while Americans were consuming more than they could afford."

Moreover, there was flab to cut. They weren't splashing out billions on bread and butter. They were squandering money on consumer nonsense without thought for the morrow. But they don't need to do that now, and they aren't. Americans are consuming less, which isn't the recipe for rapid economic recovery.

If there's a glut in America today, it's capacity. That overcapacity in production will take years to disappear, says our player. Americans are masters of the quick fix - but it won't work this time. They can't stick a piece of chewing gum on this broken machine.

The cold reality is that share prices soared even though retail sales in America were 6% to 10% lower in June and July this year compared with a year earlier, he says. The cold reality is that many American homes are worth less today than the mortgages taken out to pay for them - yet share prices on world markets are largely back to their levels of 2007, before Lehman Brothers collapsed. And back in 2007, the global economic parameters looked a lot better. Add the fact that regulators are still hashing out new rules to govern the financial system, and what you get is yet more delay hindering growth.

And that in a nutshell is the logic behind our prescient player's bad feeling about the short-term future.