12-21-13 10:50 AM EST | Email Article
 

By Paul B. Farrell, MarketWatch

 

SAN LUIS OBISPO, Calif. (MarketWatch) -- Yes, "Doomsday poll: 98% risk of 2014 stock crash" was my midyear headline. And yes, it still fits. Why? Because in the new year, after the irrational exuberance of the "Christmas rally" passes, reality will set in.

 

Remember the dark warnings from last January through the fall? Fed even saw an "unsustainable bubble" ... Bill Gross: "Credit Supernova" ... Jeffrey Gundlach: "Kaboom Ahead" ... Charlie Ellis: "Don't own bonds" ... Gary Shilling: "Shocker" ... Nouriel Roubini: "Prepare for perfect storm" ... Peter Schiff "doubling down" on his "doomsday" prediction ... InvestmentNews's warning to 90,000 advisers: "Tick, tick ... boom!"

 

Then a sudden, dramatic psychological twist: The investors' collective brain tired of the negativity in mid-October after the last bearish headline: "America's economic guillotine dead ahead." A week later the reversal: "2014 'Year of the Boom' bet on the bulls," quoting Bank of America's chief strategist: "Bulls roaring. Hot race to the New Year. Then beyond into a booming, bullish 2014 rally ... Great Gatsby's spirit is back in America. Top billing. Let the good times roll. Come join the party."

 

By November irrational exuberance was accelerating, in full holiday mode: Headline, "Shiller's hot P/Es powering a 'Roaring Bull' till 2017," dubbed the 2014 "Katy Perry market." A week later, another headline added: "10 reasons to be a bull in 2014."

 

But why the shift from doomsday to Katy Perry's Roaring Bull?

 

Was it just America coming out of the summer doldrums? Why so sudden? So big? Why after all the dark early 2013 bear warnings from respected gurus, Gross, Gundlach, Ellis, Shilling, Schiff, Shiller, plus InvestmentNews? Yes, investor sentiment rose. Stocks on a bull run. Hot news shifting as fast as market volatility in today's social media.

 

But what happened? Summers withdrew from Fed competition, calming Wall Street? Obamacare crashed, reenergizing the GOP? Ted Cruz and Miley Cyrus distracted us from reality? Now, holidays, shopping, celebrations, movies, bonuses, welcomed diversions?

 

But what really happened? And why? Was it as simple as Americans got psychologically exhausted, tired of all the bad news, the relentless political warfare? We just needed a collective breather? So we jumped on the good news wave? It took on a life of its own?

 

After New Year's, will irrational exuberance cool, disappear?

 

Is all this "Great Gatsby" and "Katy Perry Roaring Bull" just hype? Distractions? An emotional "Christmas Rally?" ... a brief dose of "irrational exuberance?" ... and after New Year's parties, when Wall Street cashes bonuses ... when the next debt-limit fight triggers ... when Yellen's Fed stops printing cheap money ... when the 2014 political battles really heat up ... when we wake up with New Year's hangovers, remember all the earlier warnings from Gross and the bears ... will a bear recession take down the markets? After all, this bull market is in the fifth year of an average four-year bull.

 

What do your see? Comment: Will 2014 be more bull? Or a new bear? And why the shift? To help you, here's what we reported on this past year, with links to the columns:

 

Gary Shilling: warns of '42% decline in S&P ... and global recession'

 

"With a global recession depressing corporate revenues, unsustainable profit margins and currency translation losses spawned by a robust dollar." In early January Shilling saw "S&P 500 operating earnings ... a quarter below Wall Street consensus. Throw in a bear market P/E low of 10 and the S&P 500 Index drops to 800, a 42% decline."

 

Bill Gross: "Credit supernova dead ahead"

 

In February, Gross warned of a "credit supernova." Pimco has $2 trillion at risk if the Fed's cheap money explodes, brings down the economy. Worse, "investment banking, which only a decade ago promoted small-business development ... now is dominated by leveraged speculation and the Ponzi finance."

 

Nouriel Roubini: Global collapse, 'prepare for perfect storm'

 

Roubini on Slate: "Sooner or later, another ugly fight" over debt, and markets get "spooked." Any one trend "would be enough to stall the global economy, tip it into recession."

 

InvestmentNews: Bond crash coming, 'Tick, tick ... boom!'

 

InvestmentNews March front page was so overwhelming, you could hear sirens flashing, warning in huge bold type: "Tick, tick ... boom!" Their readers, 90,000 advisers, trust INews forecasts. Warning: Millions of investors have "no idea what's about to happen."

 

Gary Shilling: 'Shocker' will trigger before Bernanke resigns

 

Long-time Forbes columnist warned of a "grand disconnect" driving "stocks around the world while the zeal for yield, amidst low interest rates ... suggests an expanding bubble." Shilling sees a black swan, a grand "shocker" coming.

 

David Stockman: 'Get out of market now and hide in cash'

 

"Stop the Fed from micromanaging the economy," said Stockman in March: "No more cheap money, debt buybacks, investing in private companies." Restore "Fed's original mission: to provide liquidity in times of crisis." Getting "the Fed out of the financial markets is the only way to put free markets and genuine wealth creation back into capitalism ... If this sounds like advice to get out of the markets and hide out in cash, it is."

 

Gary Shilling: Expanded on 9 signs global GDP will fall near zero

 

Shilling sees "another eight years of slow growth of about 2% in real GDP per year." Plus "continuing deleveraging" due to nine megatrends slowing global growth to near zero over the next generation.

 

Charlie Ellis: Advice to long-term investors, 'don't own bonds'

 

Back in April the author of the classic "Winning the Loser's Game: Timeless Strategies for Successful Investing" said: "The best piece of advice I could give long-term investors today is don't own bonds. And if you do own them ... move out of them."

 

Jeffrey Gundlach: Bond guru sees 'Kaboom' ahead

 

"Kaboom ahead," said Bloomberg about Doubleline Capital's CEO. Real damage yet to come, an "ominous third phase" whose impact will "far exceed the damage of 2008." He's buying hard assets, "sitting on cash" waiting to scoop up deals at "fire-sale" prices.

 

Bill Gross: Warning, the '30-year bond bull market ended on April 29'

 

Bonds started dropping in late 2012. Gross made it official here, the 30-year bull market was dead. His Pimco firm had capitalized on the run, build a $2 trillion portfolio.

 

Societe Generale strategist: 'Bubble with no name' near popping

 

In April strategist Kit Juckes warns we're all trapped in the fourth "mega-bubble" fueled by the Fed since the rise of conservative economics, the "Bubble with no name yet." And "it's close to popping, like the Asian, Dot-com and Credit crashes."

 

Peter Schiff: Doubling down on his doomsday prediction

 

Euro Pacific Capital CEO Peter Schiff, author of "The Real Crash: America's Coming Bankruptcy," is "not backing away from doomsday predictions" wrote MarketWatch's Greg Robb. A week earlier Schiff warned: "I am 100% confident the crisis that we're going to will be much worse than the one we had in 2008." Yes, 100%.

 

Federal Reserve Board: 'Unsustainable bubble' stocks, bonds

 

Fed's Advisory Council's May meeting: Members expressed "strong concerns over the Fed's low-interest-rate policies and its bond-purchase program, which they say could trigger unmanageable inflation and an 'unsustainable bubble'."

 

New Doomsday poll: 98% risk of 2014 stock crash

 

We summarized crash warnings since early in 2013. Bubbles appeared everywhere by June. Ready to blow. Only one obvious conclusion: "Max 98% risk at a flashpoint, with a 2014 crash virtually guaranteed. Only a 2% chance of dodging the bullet."

 

Terry Burnham: 'Lizard brains,' denial, 'devastating decline'

 

In July, former hedge fund manager and author of "Mean Markets and Lizard Brains" predicted: We'll see "Dow 5,000 before we see Dow 20,000."

 

Robert Shiller: 'Bubbles Forever' and irrational exuberance is back

 

Millions of investors were searching for the elusive "new, new normal," something better than today's heart-pounding uncertainties. In July Shiller's "Bubbles Forever" warned that "irrational exuberance" was back in America ... temporarily. Then in November came Shiller's hot P/Es and the "Katy Perry Market," as America's sexy new bell-ringer distracted us with a Christmas Rally and upbeat holiday spirit ... temporarily.

-Paul B. Farrell; 415-439-6400; AskNewswires@dowjones.com

 

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(END) Dow Jones Newswires

12-21-13 1050ET

Copyright (c) 2013 Dow Jones & Company, Inc.
Copyright 2014 MarketWatch
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