In looking over some of the Peter Schiff was right videos from the past few years, I ran across one of CNBC’s regulars, Dennis Kneale’s predictions in June of 2008 that “the recession is over.”
In this video Kneale uses the old axiom touted by some financial advisors and the media that the percentage you should invest in stocks is calculated by taking 110 minus your age. So if you were 70 years old, then 110 – 70 = 40% of your portfolio should be invested in stocks. Personally I don’t agree with this adage, but what I found interesting was the survey he quoted from Merrill Lynch who at that time had not yet been taken over by Bank of America.
In this study it was shown that the world’s wealthiest people interviewed by Merrill Lynch and representing more than $33 trillion of the worlds wealth, had only 25% invested in stocks and worse yet, 21% invested in cash.
Kneale went on to complain that these wealthy people were investing like they were 85 years old (110-85 = 25%). He said that Merrill Lynch was recommending 50% in stocks at that time and only 5% in cash.
Here is a screen shot of the “Pie for the Rich” showing the breakdown of where there money was invested.
When Kneale claimed the recession to be over the DOW closed at 11,350 that day.
Another CNBC commentator, Melissa Lee, was telling everyone on the Today Show in February of 2008 to be 75% invested in stocks and I cautioned people then about doing so.
Larry Kudlow was also telling everyone in the CNBC audience in February of 2008 there was “no recession.”
I wrote an article May 7th, 2008 where I made the statement, “If It Smells Like a Recession, It Probably Is” as 75% of Americans were even saying so in a poll released by Yahoo. The DOW at that time was 12,814.
In that article I cautioned investors;
How long can the game continue is the only question….
It’s like driving a car 45 miles an hour in the fog, but like in Stephen Kings scary novels, the fog will never lift. The Fed is the fog! At some point there’s going to be a crash. The smart driver pulls off at a rest stop or at least proceeds with caution at a much slower speed when there’s fog on the horizon.
Can the average investor make the decision to proceed with caution on their own? Are their financial advisers telling them to?
Over the short term, the Fed’s manipulations will make things seem like they’re working. Over the long term, it’s “Kady bar the door!”
We all know how well the predictions turned out.
But what sets the so called wealthy of the world apart from the average investor who listens to CNBC and the media predictions? How come they were not heavily invested in stocks? Why weren’t they listening to the experts on CNBC? The answer lies in the fact that they think for themselves by doing a little research and getting educated about the economy which showed a financial tsunami was approaching.
So Flash Forward to October 2009 and What Do We Hear?
Well, we have Bernanke and the Fed telling us “The recession is over.” We’ve got the National Association for Business Economics (NABE) telling us the recession is over.
I started to caution readers about this stock market bull run when the DOW first hit 9,000 again. I had said then that the market was moving higher because of green shoots otherwise known as government spending (and Fed bailouts). I had said that we would know by October what the real story would be. October seems to be a month of high volatility. But it matters to me not what month it is. What I want to know is what are the economics that support an end to a recession.
Today’s Economic Climate
Unemployment is still an issue. Without jobs or with individuals worried about their job, consumer spending has ceased and consumers are paying down debt instead of buying that new boat or remodeling the kitchen.
While the dollar has decreased in value thus making DOW 10,000 of 2009 really like DOW 7,700 of 1999 in purchasing power, it hasn’t really put a big dent in the trade deficit we have with most every other nation, especially China. We need China. They don’t need us to get along in this world.
Businesses are still not getting the loans from banks needed to expand but are rather cutting back in an effort to survive. Yes, some are prospering, but small businesses are struggling. I hear it every time I speak to store owners when I’m out asking them how business is doing, and I live in a rather wealthy area of the U.S.. If business is bad here, it’s worse elsewhere.
So that still leaves government spending as the only thing that is keeping the GDP game going. There is even talk of a third stimulus to get the toxic assets of banks off their balance sheet. That this is even talked about is ironic since the original bailout plan, TARP, was supposed to get those bad assets off the books as it was voted on and passed by both sides of the isle to do just that. TARP stands for “Troubled Asset Relief Program,” but the money just went to the too big to fail banks and other financial institutions where they could do what they wanted to with it….no strings attached.
Meanwhile the little banks are struggling with the 100th bank failing this week and the big banks are handing out huge bonuses to those that used our tax money to help keep them in business. Gotta love America!….when the Fed and the Treasury’s got your back!
CNBC, like the old Merrill Lynch commercials, will always be “Bullish on America.”
CNBC has always laughed at, and still do, those who think the economy is in trouble and the stock market is at risk. But who exposes their ignorance and laughs at them?
Don’t follow their advice blindly. Take the time to do your own research and follow those who speak the truth without being bullish 100% of the time because of ties to corporate interests.
Art Cashin talks about this latest DOW bull market run as being “DOW 10,000 Version 2.0.” The Odds of “Recession Is Over Version 2.0” occurring are as likely as people realizing Michael Moore is a capitalist. Surprise! The recession is NOT over and Michael Moore IS a capitalist.
When I hear Mark Haines call a market top or one of the other CNBC cheerleaders admit we’re in a secular bear market, I’ll change my mind about them. I won’t hold my breath…. But ask yourself one question… What are the world’s wealthy doing right now?
Doug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
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