In Response to Paul Kedrosky's "Why Do Bears Always Have the Best Arguments?"

In Why Do Bears Always Have the Best Arguments? Paul Kedrosky asserts: "Bears have been generally wrong for so long that they have to know how to tell better stories."

There is an implicit thesis in Paul's article that because bears make better arguments they are smarter than bulls. Paul proves this thesis inadvertently. How? Because he assumes that the bears have been wrong, and he never even considers that he might be wrong about that!

Well let's examine the case going back a convenient eight years and looking forward just a bit. Over the last eight years the NASDAQ is down 58% . Yes, I picked the peak of the bubble, but I am going back eight years and measuring performance in dollars, which is hardly fair to the bears. The S&P is also down. Now the bears never claimed that they would be correct forever. They are usually arguing in terms of an economic cycle. If they can be right for eight years that would suggest that indeed they were right in the first place and historically accurate in their predictions.

But the argument I make is slightly stronger than it might at first appear. Let's measure this in gold and oil. How did the NASDAQ perform versus oil? In 2000, oil was at $30 a barrel and in 2007 it was at roughly $90 - a three fold increase. This means that the NASDAQ has gone down 86% from its peak compared to oil. Let's remember that to go down 100%, the NASDAQ would have to go to zero. How about gold? I get roughly the same figure - an 86% decline.

I could go on with other things, like comparing the S&P to Euros. Let me just say that the S&P compared to Euros is in a state of steady decline. The basic idea is that securities purchased eight years ago buy almost nothing of any value today. So we certainly do not qualify for any type of bull market. Ask yourself if your securities buy less than before they went up in value. Looking forward, will the Qs ever surpass oil or gold or even wheat? If we begin the race from 2000, the answer does not appear to be yes. Considering the above, it doesn't look like the bears have been wrong in any sense of the term, not even in dollars, over a fairly extensive historical period starting eight years ago.

Let me make a final brief point on why. It has to do with corrupt irresponsibility and lack of freedom. US markets are overburdened with taxes and regulations. Ask yourself if truly free markets in the most technologically advanced society ever could otherwise produce such poor results. No society has ever had so many starting advantages and produced so little. We do not have a free market society so we do not enjoy the benefits of a free market society and we should not expect to. Investors themselves have been irresponsible in allowing this to occur. As an example, investors fixate on the Fed funds rate but not the tax rate or the dollar printing rate. This may just be short sighted behavior of guess who: the bulls!

Comments

[Manifestor:]

You don't mention some of the other possible reasons for the poor performance of the markets. How about the useless Iraq war that drained trillions and raised the price of oil and gold. How about that largely useless trillion dollar tax breaks that went mostly to the rich who didn't need it. Not to mention the fed rate bailout of 2001 to 2004 that resulted in the biggest housing bubble. In the process we allowed the emerging markets and euro zone to cut the lead we had and pull down our dollar. Tax cuts are not always the answer, I am afraid.

2007 Dec 19 04:34 PM