Stocks: Buying Opportunity or Run For the Hills

Monty Pelerin / Economic Noise

Stock market volatility, directed mostly to the downside this year, has caught the attention of anyone with funds at risk. The obvious question on most people’s minds is whether to get out or to put more money in. Advice going both ways is readily available. This advice is probably worth what you pay for it — nothing!

Cases can and are being made that this drop is a great buying opportunity. Most sell-side analysts cite any time as a good opportunity to buy. Likewise, there is another contingent, usually not dependent on Wall Street for their livelihood, claiming recent market activity portends the economic Armageddon that is inevitable. Their advice is to get money out of the markets while there is still time.

Sell-side analysts, basically anyone employed by a Wall Street firm, cannot be independent without jeopardizing their employment. These analysts and their firms only make money when people participate in markets. Honesty, at least when people should be wary of markets, conflicts with the way their family eats.

How about those independent of Wall Street? They can afford to be objective and honest in their assessments, although some may have political or other motives which affect objectivity. Independence, however, does not mean their forecasts are any better than others. Right before the 1929 crash Irving Fisher, America’s premier economist at the time, proclaimed:

Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months. (Oct. 17, 1929)

John Maynard Keynes, renowned economist and supposedly astute investor, said:

 We will not have any more crashes in our time. (sometime in 1927)

One does not have to go back to the Great Depression to find equally embarrassing forecasts. Ben Bernanke in 2008 famously said that the Fed was “not forecasting a recession.”

continue article at Economic Noise:

http://www.economicnoise.com/2014/02/06/stocks-buying-opportunity-run-hills/