Checking in with the doomsayers
Peter Hodson takes a look at the prophesies of five market ‘gurus’ predicting a crash
So, we are rapidly coming up to October, one of the months investors fear the most. Not only that, but this year, on Oct. 19, we mark the 30th anniversary of the worst market crash ( by points at least) in history. Now, September, on average, is the worst month for stocks, but October has a larger share of big drops. Suffice to say, no investor goes into October blissfully anticipating giant gains.
So, in honour of this scary period, we thought we would review the prognostications of five market “gurus” who predict a market crash. Now, of course, many of these experts have been predicting a crash for years, if not decades. One day they might be right. In addition, many doomsayers have books to sell, or otherwise are looking for publicity. So please, take these viewpoints with a grain of salt, and remember, with markets at record highs right now, all doom-and-gloom forecasters have more or less been completely wrong already.
MARC FABER
Known as “Dr. Doom,” Faber is the author of the Gloom, Boom and Doom Report newsletter. In June, he predicted investors should “run for cover” and called for a 40-per-cent correction. Mr. Faber gained credibility in 1987 by warning clients to leave the market before the 1987 crash in October. But most see him as bearish ever since, and he has prognosticated dozens of dozens of crashes in the past decade. Every so often, he will be right.
HARRY DENT
Economist Harry Dent likes to call the big ones. In December 2016, he predicted a “once in a lifetime” market crash of 17,000 points in the Dow. To be fair, he did say at the time that the market would likely rally 10 per cent to 20 per cent more first, and he pretty much nailed that side of the equation. We should also point out that, unlike many other gurus he has not always been a “perma-bear.” He was extremely bullish in the 1980s. Now, though, Mr. Dent is primarily worried about property values and a declining U.S. workforce. His bold calls get publicity, though, which help sell his books and his Survive and Prosper newsletter. Mr. Dent also says, “If we don’t see a major financial crisis in the next three years, I’ll give up and become a limo driver on the Gold Coast of Australia!”
SANDY JADEJA
“The timeline is rapidly approaching” for the next potential Dow meltdown, said Mr. Jadeja in March of this year, when he predicted a 6,000-point plunge. Of course, we are still waiting for that. Making things interesting, Mr. Jadeja likes to call specific days out for their crash potential. One of those, March 13, came and passed. He then said to watch out for May 11. Interestingly, the Dow did drop those days, but only by about 0.10 per cent.
JOHN HUSSMAN
In March of this year, Mr. Hussman, president of the mutual fund Hussman Investment Trust, and Stanford University economics PhD, said you can expect the S&P 500 to return no more than one per cent on average over the next decade. Sooner than that, he predicts, the stock market may plunge as much as 60 per cent (!). He claims that market valuations are as overvalued as they were back in 2007, and just shy of the lofty valuations achieved in 2000 (we might point out here that the Dow is 11,500 points higher today than it was in 2000 and nearly 14,000 points higher than it was at the end of 2008). He says investors have been mesmerized by low interest rates. Unfortunately, investors in his fund have not benefited from his “predictions.” The Hussman Strategic Growth Fund has a 10-year annualized return to Aug. 31, 2017 of negative 6.6 per cent.
NASSIM TALEB
Taleb is best known for his 2007 book, The Black Swan: The Impact of the Highly Improbable, in which he warned about the inability to predict unusual events that have severe consequences. Certainly, he seems grounded, in that he says “you can’t predict what will happen” and we would agree to this completely as to the stock market, at least. His aim is to primarily sell books, but he has had some correct calls in the past. He did say that Trump as President was no worry for investors, for example. Last August, however, he said that “a market crash was on the horizon,” quoting low interest rates and the fact that “you can’t cure debt with debt.”
Should you worry about these dire predictions? We do not think so. An analysis of 28,000 specific predictions by 284 “experts” over 20 years showed that market predictions were “only slightly better than chance” and that simple extrapolation was far more accurate.