By William Patalon III
Executive Editor
Money Morning/The Money Map Report
When Slate magazine set out to identify the market prognosticator who called what's right now the low-water mark of the bear market in U.S. stocks, the first nominee was super economist Nouriel Roubini.
Last year, Roubini predicted that "sometime" in 2009, the Dow Jones Industrial Average would hit 7,000. Not a bad call, given that the ultimate nadir of the Dow – reached March 5 – was 6,594.44. The projection scared a lot of folks.
But how great a "market call" really was it, given that the blue-chip index was already on its way down, that American International Group Inc. (AIG) was already in trouble, and that Lehman Brothers Holdings Inc. (LEHMQ) was already bankrupt?
True, it was a good call. But it wasn't a truly great one. So, no, Roubini was clearly only the runner-up in the "Call the Bear Market Bottom Sweepstakes."
So who was the winner?
Money Morning's own Martin Hutchinson – that's who.
Back in June 2008. Hutchinson – turning to his oft-employed measurement of U.S. money supply – said that U.S. corporate earnings had been artificially inflated, and said the Dow could fall all the way to 7,800.
While Roubini's estimate may have been closer to the actual bottom, Hutchinson made his call and predicted a 36% decline when the Dow was well above the 12,000 level, a point in time when most folks were calling for the market to go higher, and not lower.
It's not the first time Hutchinson made such a prescient call. And it probably won't be the last.
In April 2008, long before an implosion in a derivative security known as a "credit default swap" caused the implosion of AIG, Hutchinson warned Money Morning readers that credit default swaps were a $50 trillion problem.
He was right. Credit default swaps were a major catalyst for the collapse of AIG and for the implosion of the U.S. financial-services sector.
And he wasn't done.
In a Money Morning piece back in October, Hutchinson warned again that the Dow could be headed for a low around 7,800. While that would equate to a 40% nosedive, Hutchinson argued that it actually equated to a "safe landing," since it brought stocks into fair-value territory, perhaps opening up the investment market again.
The rally we've seen in recent weeks may well be proving Hutchinson right once again.
[Editor's Note: When it comes to banking or global economics, there's literally no one better than Money Morning Contributing Editor Martin Hutchinson – an investment banker with more than a quarter-century's worth of experience. Over the years Hutchinson has proven himself to be a market maven and he is currently offering investors smart enough to take his advice the opportunity to make $4,201 in cash by June 4. You can get started by clicking here for details.]
News and Related Story Links:
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The Big Money (From Slate):
Who Was Most Right About the Dow? -
Money Morning:
In the Long Run, the Dow's 40% Nosedive May Actually Turn Into a Safe Landing. -
Wikipedia:
Nouriel Roubini. -
Money Morning Market Forecast:
Credit Default Swaps: A $50 Trillion Problem.
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About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.