**[investwise]** Rich Karlgaard: Insane Bulls And Bears!

 

Evidently a believer in Rahm Emanuel's dictum that no crisis should go to waste, stock bear Robert Prechter has emerged from the woods, grabbed a microphone, and predicted Mega Depression and a Dow 1,000.   Why, sane people ask, does Prechter's prognosis get any play at all?  Well, because of the fear surrounding the "crisis" of 2010. That would be a stock market that gave back a fairly normal, certainly unalarming, 17% of its April high after swelling more than 70% during the previous 13 months.   Hmm--that doesn't really reach crisis levels, does it? Well, it does if you toss in job losses, an epic oil spill, a Greek debt bomb, and a U.S. president who is so clearly in over his head that we are forced to acronymize his name to O.B.A.M.A. .. . Overwhelmed By Any Mess Anywhere   Not one to let this crisis go to waste, in waltzes Prechter. If Prechter didn't exist, Drudge would have to invent him.   The howling insanity of Prechter and his fellow bears is rising. My theory about this is admittedly cynical. It could be called The Men Who Want to Be Roubini. The NYU econ professor and permabear, Nouriel Roubini, happened to be in the right place at the right time with the right call in September 2008. The result was that Roubini's lecture fees zoomed from cab fare to 60K in seven seconds.   The Men Who Want to Be Roubini--which is to say rich and famous--include Prechter; Marketwatch's apocalypse beat writer, Paul Farrell; and the oddest of them all, book writing blowhard Harry Dent, who predicted something like a Dow -2,000 in his 2009 book, The Great Depression Ahead.   Harry Dent drags around demographic statistics to prove his Dow collapse theory--and therefore should never be confused with another drag artist, Harry Denton, who sponsors weekly drag shows at San Francisco's Starlight Club. (Just want to be crystal clear about this fact for anyone Googling Harry Dent.)   Show maestro Denton, not Dent, is apparently consistent about his act. Dent's act, on the other hand, is all over the map. In 1999 Dent predicted a 40,000 Dow sometime between 2006 and 2010. Others, like James Glassman, talked of a 36,000 Dow. The world was filled then with heavenly proclamations.   True enough, forecasting stock prices into the far far future can make a fool out of anyone. I myself predicted an 18,000 Dow in 2007 shortly after the index had popped over 14,000. I'm still living that one down. All I can say is that I've somewhat made up for that goof with a correct market bottom call in March 2009 and another correct market top call in April 2010.   How? Simply by switching my methodology. I observe economic activity on the ground, talk to business owners and look at historical trends. I've given up on formulas and models, such as the Fed's. Models work ... until they stop working. Unfortunately, no one flashes a sign that says "model out of order." Observation, interviewing and history work much better.   Observation, interviewing and history tell us that the current doldrums are not at all like 1932, but are somewhere between Japan's post-bubble malaise and the U.S. in the mid and late 1970s. The potential of a long debt-deflation period resembles Japan, but with a crucial difference. Japan struggled--still struggles--with an insular and shrinking population and very little entrepreneurial pop left in the culture. Japan has nothing to replace its miraculous 1950s to 1980s period.   The U.S., on the other hand, still has a growing population and entrepreneurial longings. Also, Americans may say they hate debt, but we love it. Therefore most of the political forces in the U.S. will be pushing for inflation if the current debt-deflation scare scenario goes on too much longer. That's why I think America is retracing its own 1970s, and not its 1930s or Japan's 2000s.   For stocks, that means we likely face a range-bound market for a few years, as happened from 1977 to 1982 after the 65% recovery of 1975 to 1976. The range between mid-2010 and 2013 is probably from 8,000 to 12,000. Close enough, anyway.   Good public policy could move the range toward 10,000 to 14,000. More bad public policy--Obama's forte--could move it toward 7,000 to 11,000.   Even if it's the latter case, forget Prechter and the other uber bears that call for utter and total collapse.   So which forecasters have credibility in this market? The two best ones that understand this range-bound market are Barry Ritholtz and Doug Kass. Encouragingly, Doug Kass thinks we've seen the 2010 low. Ritholtz is less sanguine. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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