The Experts Are Overrated

Includes: DIA, GLD, QQQ, SPY, USO
by: Mark Krieger

These days, everybody seems to be in the mood to spout off his or her opinions on the direction of the stock market and economy. This noise should be taken with a grain of salt. Even the Oracle of Omaha, Warren Buffett, falls into this class, as he is simply overrated. At the rate of decline his holdings are experiencing, he could quickly turn from Billionaire status to Millionaire status. His take on the economy sounded more like a stab in the dark than from an accomplished Wall Street veteran. His latest analysis could be construed as “incoherent and random” rather than a reasonable assessment of the future. It teetered on almost mea culpa, proportions.

Don’t get me wrong, I still have tremendous respect for the man, as he has more knowledge in his little finger than I do in my entire body, but nobody is perfect. The number one stock guru of all time is simply getting on in age, and his mind obviously isn’t as sharp as it once was (it happens to all of us). His statement, “the economy will be in shambles throughout this year and way beyond" is contradictory to his assessment that he does not have any idea which way stocks are headed. If he follows his own logic, he must deduce stocks will move lower if he anticipates a poor economy over the next 24 months, as the stock market typically looks 6-12 months ahead.

Clowns out in full force: Henry Blodget has gone from one extreme to another. This former Goldman Sachs analyst, who had a reputation as a ultra bull (pumping Yahoo (NASDAQ:YHOO) at $300 per share in 2000) has gone full circle to the bear camp, along with his “partner in crime,” Aaron Task. The term “devastation” seems to be their favorite word these days and they appear to think we are in for another 30% haircut, because that’s what the charts say.

Their favorite guest commentator, Nouriel Roubini, looks to fan the flames of fear, as he attempts to capitalize on this current fame as one of the pundits that accurately called the meltdown, but his prominence will soon fade as his dire forecasts have already reached lunacy levels. Headlines such as “Even Dr. Doom is Scared” are proving the media’s thirst for sensationalism is reaching extremes, as they promote their current agenda of severe bearishness. This extreme pessimism permeating from all directions, leads me to believe a bottom is near. Although I recognize the Blodget/Task team members as extremely talented journalists, their crystal ball antics are no better than anyone else’s. What does it all mean? It means these guys have no clue which way the market is headed. None of us do. The stock market is not that tidy and simple and usually does the exact opposite of what the masses are anticipating.

What to do:

  1. Cash is king - keep your powder dry, you will soon need it to load up on some of the best bargains of the century.
  2. Utilize about 30% of your cash now to begin gradually accumulating low PE stocks, carrying minimal debt and high cash. Try and prospect for stocks that pay a nice dividend yield and are defensive in nature (such as food and drug) while exhibiting high relative strength (easier said than done).
  3. Short high PE stocks as a hedge against your long positions
  4. Buy oil and gold stocks
  5. If the Dow falls to 5000, up your allocation from 30% stocks to 70% stocks and cover your shorts as the market will be set for a huge rally.

The market will fluctuate, and obviously yesterday is history and tomorrow is a mystery. Don’t listen to the noise of the pundits, rely on your own instincts and logic to take you to the promised land. The point is, history tends to repeat itself and those investors brave enough to go against the crowd will ultimately end up being the big winners. The worm will turn!