Who wants to be a loud, highly visible bear right now? Anyone? Bueller?
Bearish predictions from credible sources were once rare enough to engender a certain respect; now, they're so common that their primary value seems to be as a demonstration of how long forecasters can stick to calls that appear to have gone awry.
Take Lakshman Achuthan, co-founder and COO of the Economic Cycle Research Institute (ECRI). The ECRI has famously never issued a false alarm in its recession calls; it also predicted the post-financial crisis recovery, which made Mr. Achuthan into a fixture on the business TV circuit.
For months now, Mr. Achuthan has maintained that the U.S. entered a recession in July, where he says it remains, despite steady improvement on the jobs front.
Mr. Achuthan has been sticking to his call since September 2011; in December of that year, he said "you're not going to know whether or not we're wrong until a year from now." Well, that's now, and Mr. Achuthan is running out of time to convince people that his chosen measures outweigh the positive GDP numbers in the third quarter and the gradually rising employment figures.
If his prediction doesn't materialize, Mr. Achuthan will join the swollen ranks of other disappointed bears. On August 21, Nomura's Bob Janjuah called for a 20- to 25-per-cent drop in the S&P 500 before the U. S. election; instead, it was essentially flat. The same day, Richard Russell pointed to recent action in the Dow Jones industrial index and claimed that "something evil and bearish is bubbling in the guts of this market." Yet, no evil has surfaced – as of today, the DJIA is down less than 25 points since then. And while David Rosenberg has recently been sounding more bullish notes, on Nov. 6 in his Breakfast With Dave note, he wrote that stocks were 20 per cent overvalued; the S&P 500 dropped about 5 per cent instead, and has made up nearly all the ground it lost.
Even though the downbeat rumblings haven't come true, bearishness appears to be the new norm. Savita Subramanian at Bank of America Merrill Lynch maintains the Sell-Side Indicator, a gauge of sentiment among strategists that has been ringing loudly bearish for equities since the summer. According to BoA, that's a contrarian indicator; Ms. Subramanian believes the S&P500 will rise between 13 and 15 per cent next year.
The best description of the current environment may come from GMO's James Montier, who argues persuasively in a recent paper that while "we don't like stocks as an asset class compared to what we think fair value should be … the alternatives are generally really awful." Being a reluctant optimist isn't much fun, but it's better than waiting for an undesirable outcome that never arrives.