-- Posted Friday, 25 May 2007 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Friday, May 25, 2007
“Phenomenally accurate forecasts”
In featuring the outlandishly bullish thoughts of Nobel laureate Vernon Smith here yesterday, I said that it would be churlish of me to take issue with the economist, given that a rampaging stock market has placed the burden of proof squarely on the bears for the moment. Yesterday, however, stocks reversed 200 points to the negative, so it’s probably as good a time as any to say a few churlish words concerning the implausible notions of an ivory-tower egghead evidently encouraged by a Journal reporter to go off his rocker.
I didn’t wake up feeling churlish, incidentally, but dreaming of...Drew Barrymore. I am old enough to be her father, yes, but we spent the entire dream – as far as I can recall – looking for my car, which evidently had been stolen. Not such a bad thing, either, since it was a 1969 BMW I once owned whose routine maintenance used to cost me as much as half of the $7500 I made at the time as a newspaper reporter.
Commodities Walloped
Anyway, churlishness came a little later in the morning, when every commodity that I was bidding for got shelled like the deck of a aircraft carrier under siege by a squadron of Zeroes. Typically, when a Hidden Pivot support gets walloped, I will tend to assume that still lower prices are likely. In this instance, though, commodities in particular were getting whacked so hard that one might have thought the deflationary collapse I’ve been predicting for so long was beginning to move its slow thighs.
Which brings us back to Mr. Smith and his off-the-spectrum bullish ideas. (“[He] is so bullish on stocks that…” is how the Journal story began, Rodney Dangerfield-style.) One of the professor’s theories is that the dot-com crash of six years ago was sufficiently punitive to inhibit investors from creating yet another asset bubble. I would argue first of all that an asset bubble that already exists and which any idiot could see – i.e., $420 trillion worth of leveraged derivatives swirling in the financial ether, like some typhoon a-borning – is bubble enough to make the dot-com crash seem like a relative hiccup when global debt markets eventually implode, as they must.
No Irving Fisher
I’ll have to re-read the WSJ story featuring Mr. Smith’s nuttier-than-a-hatter stock-market predictions, since I can’t recall any single quote from him that is as likely to make it into the pantheon of embarrassing predictions as that immortal line from Professor Irving Fisher, publicized just days before the 1929 crash: “Stock prices have reached what looks like a permanently high plateau.”
I would guess that economist jokes were around long before Fisher’s time, but he undoubtedly bears a significant part of the blame for helping to keep them in vogue so long after his time. Fisher was not a Nobel laureate like Vernon Smith, but he was an eminent economist of his day, and notwithstanding the spectacularly untimely remark with which he will always be associated in the popular mind, some of his egghead economic theories are still discussed and written about by today’s economists (who we must assume are equally out of touch with the real world.)
Congenital Bull
It is no mystery why Smith would turn up in the lead story of the Wall Street Journal: With a Nobel prize in his background, he offers a sturdy intellectual anvil off which the Journal can bounce some of its own congenitally bullish, crackpot theories about the stock market and the economy. Could the Journal have interviewed anyone more out-of-touch with the real world than an economist – a Nobelist, no less? Of course not. And that is why the article featuring Mr. Smith seems destined to become an iconic example of “this-time-it-really-is-different” thinking. What a shame Mr. Smith evidently did not produce a sound bite sufficiently pithy to rival, in its potential for finding historical notoriety, Irving Fisher’s immortal phrase.
Let it be duly noted in any event that the Dow Jones Industrial Average stood at exactly 13525 when the Wall Street Journal led its front page with the wisdom of Mr. Smith and this headline: “Why Market Optimists / Say This Bull Has Legs”.
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-- Posted Friday, 25 May 2007 | Digg This Article | Source: GoldSeek.com
