Beware the bear
Sunday, Nov. 19 2006
The hotel conference room in Clayton was overflowing with admirers. The speaker
had drawn a group that appeared to be gathered for a rock concert. The
excitement was extraordinary, but the crowd was not there for a typical form of
entertainment. These were investors, and they were present to hear the wisdom
of one of America's most famous stock market analysts, Joseph P. Granville.
It was the 1980s, and stock prices were climbing in the early days of the
greatest bull market in history. Granville had made some extraordinary
projections that led investors to hang on every word. Everyone remembered the
day in 1981 when Joe said, "Sell everything." Prices briefly crumbled on
enormous volume.
Today, Joe Granville is alive and well, only 83 years old in a business that
has its share of senior experts in their 90s, and living in Kansas City. In the
world of investors and big-time market analysts, Granville is both a legend and
a visionary.
If you didn't get a copy of Joe's 1960 classic, "A Strategy of Daily Stock
Market Timing for Maximum Profit," you can pick one up on the Internet for $10.
It may sound like something sold on late-night infomercials, but this is no con
job; Granville's work is responsible and insightful.
So, what does Joe think now? Well, he's so bearish that he can hardly get the
words out fast enough, and no one can out-talk Joe Granville. He says
unhesitatingly that stock prices are going to crash. Of course, Joe has been
wrong before, but he also has made some startlingly great calls, including
being bearish in 2000. He says this time it will be as bad or worse.
Here's the current Granville
theory: Joe says markets decline when earnings are rising, just as markets rise
when earnings are falling. Stock prices anticipate the future. The Dow Jones
industrial average is the last index to top out, according to Granville, and
he's not excited by the recent new highs. He believes that there is a four-year
cycle at work that will mark the upcoming top, and he is stunned by how few Dow
stocks are rising as the Dow industrials hit new highs. He argues that the
parallels with late 1999 are apparent.
It gets worse. Joe wrote another book in the early 1960s that refers to his
theory of "on-balance volume." According to his analysis of "net field
theories," the volume numbers in the current market are extremely bearish and
soon will give way to a 1929 sort of panic. Joe says, "I follow the charts.
Wall Street can't read the charts." That's why he wasn't surprised to see the
recent Barron's cover article that projected Dow 13,000. Joe says investors
should be prepared for Dow 7,000.
Meanwhile, Granville contends that he's not the only brilliant mind who sees
what's coming. His friend Richard Russell writes about the historic Dow Theory,
and points to the failure of the Dow transports to confirm the industrials as a
major market flaw. Also, Paul Volcker, the great Fed chairman of the 1980s,
says he's very worried about the current economic environment, projecting a
serious crisis on the horizon.
However, Granville is not really worried. In fact, he says he never worries. He
asserts, "All [worrying] can do is shorten your life. Sometimes, on the other
hand, I'm damn concerned."
Perhaps this is one of the times that Granville is most concerned, though his
philosophical view of life and stocks suggests that bad news can be overcome,
because the worst crises always are followed by better times.
Frankly, no one should be surprised by the philosopher-analyst who wrote his
first book in 1941, at age 16. It was called "A School Boy's Faith." It was
filled with Granville's poetry and it was contemporaneous with Joe's
participation in several school plays directed by another icon, Orson Wells.
So the cycles of life and the stock market continue, and Joe says this time it
will not be different. It will be very rough.
However, you might consider the Bernard Baruch line, quoted in Granville's 1960
strategy book: "I have always thought that if, in the lamentable era of the
'New Economics,' culminating in 1929 … we had all continuously repeated, '2 and
2 still makes 4,' much of the evil might have been averted. Similarly … when
many begin to wonder if declines will never halt, the appropriate abracadabra
may be: 'They always did.'"…"
And while you can always stop one of those big declines, apparently, you can't
stop Joe Granville.
MARK KASEN IS A ST. LOUIS EDUCATOR AND LONGTIME STOCK TRADER FOCUSING ON
ECONOMICS AND MARKETS.
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