Critical warning #17? Lost count? Here’s the latest: “The stock market is about to have a devastating decline; we will see Dow 5,000 before we see Dow 20,000.”
That’s Terry Burnham onPBS, former Goldman Sachs trader, biotech entrepreneur, money manager, author of “Mean Markets and Lizard Brains: How to Profit from the New Science of Irrationality.” A former Harvard professor of behavioral economics, a guy on par with Nobel economist Daniel Kahneman, “Black Swan’s” Nassim Nicholas Taleb, and Dan Ariely, author of “Predictably Irrational: The Hidden Forces That Shape Our Decisions.”
Dow 5,000? Yes, investors, the big one’s coming, dead ahead. We’ve been reporting these warnings, maybe 20 this year alone. But unfortunately, thanks to what Burnham calls the investor’s “lizard brain,” you can’t, you won’t hear the crash coming, till it’s too late.
‘Gloomiest of all gloomsters:’ We’re repeating 1928 sucker’s rally
As if to punctuate his new warning, Burnham’s PBS editor added this postscript: “Over the weekend at ZeroHedge.com, the gloomiest of all gloomsters, Tyler Durden,” compared the current stock market to the sucker’s rally of 1928 that set up and led the lambs to the 1929 slaughter. So history buffs, be warned that Fed Chairman Ben Bernanke’s risky cheap-money bubble-blowing “depression-fighting remedies” are repeating the 1928 bull-market sucker’s rally whose “side effects could include … another depression.”
Warning bells are everywhere: Dow 5,000 … another depression … massive denial on Wall Street and Main Street … a new meltdown bigger than the 2000 dot-com crash … longer than the 30-month recession of 2000-2003 where Wall Street lost $8 trillion of America’s retirement money … worse than the fact Wall Street narrowly breaks even on an inflation-adjusted basis … and bigger than the 2008 bank-credit meltdown with the de facto bankruptcy of all Wall Street’s banks … with trillions of new debt dumped on taxpayers by the U.S. Treasury … and Bernanke’s wanton “grand experiment” showering endless cheap money into speculation … and blowing the biggest bubble in history.
Denial? Yes, massive denial. Why? Lizard brains, 95 million Main Street investors. And Wall Street crawling with a million lizard brains. That’s the primitive, survival-first, irrational part of our old brain that began developing a few hundred million years ago.
You have one of these bio-algorithm drones wired in your brain. It takes over, reacts on autopilot to old fears trapped in outdated behavioral patterns that override your rational brain.
Wall Street’s in denial. Main Street in denial. Nobody hears, till too late.
Here’s how Burnham put it: “The signs of collapse are right in front of us. We cannot see the signs now, however, because our brains aren’t built to seem them … we are more often than not at the mercy of ‘lizard brains,’ which evolved in lizards to drive them to eat, survive and reproduce.”
Today our “lizard brains lead us to buy stocks after they have gone up and blind us to the obvious realities.”
Not only are the vast majority of America’s 95 million investors trapped in this bubble of denial chasing stocks, but Burnham warns that his prediction is “the opposite of the conventional wisdom” pushed by gurus like “Jeremy Siegel, author of ‘Stocks for the Long Run,’ who is predicting new all-time highs for stocks, while Warren Buffett, the best investor of the previous century, is 100% behind stocks.”
And yet, in spite of all this happy-talk from Siegel, Buffett and all Wall Street gurus and pundits, Burnham asks rhetorically: “Am I taking a risk in making such a dire forecast? Yes. I could be stuck with the label ‘Mr. Dow 5,000.’”
Actually he’s loving it. Burnham wears his prediction as a badge of honor: “I embrace the title Mr. Dow 5,000.” That’s how confident he is the markets will come crashing down like 2008, like 2000, like 1929.
Burnham also emphasizes, this is not a new prediction: “I’m not predicting a Dow of 5,000 just because it hit 15,000 so rapidly. I’ve been saying since well before the Crash of ‘08 that the U.S. economy was headed for disaster.” Just like we have here in these columns.
The rational economic reasons you should be terrified
The investor’s “lizard brain” developed historically and neurologically with so many mental handicaps that it is incapable of seeing the coming crash. Our primitive lizard brain was designed to find past patterns, save them, react.
Yes, past patterns: “If you threw a spear a certain way and you got food, guess how you’re going to try to throw it the next time? The same way. The same algorithm applies to stocks.” Wall Street lizards focus on past patterns, ignore the future, miss the new.
Which is also why bull/bear cycles keep repeating through the centuries. And will keep on repeating. Also no surprise why the average investor’s lizard brain is incapable of processing Burnham’s three “rational economic reasons” which are all over the news, and we just can’t hear.
Here are Burnham’s three reasons, so obvious, yet falling on deaf ears:
- Near-zero savings, excessive spending, maximum debt: Sounds simple, but Americans have been saving at a rate near zero the past two decades. “As a nation, we have essentially no savings.” No protection in crises.
- Both fiscal and monetary policies making problems worse: The Fed is not going to save the economy. Forget it. Bernanke’s cheap money fueled the banking sector’s “speculative markets, not real economic growth.” Worse, fiscally we “can’t deficit spend our way to prosperity … also ridiculous.”
- Stocks are “terrible investments” today, get out: Terrible in part because “the vast majority of individuals are absolutely horrible at market timing.” Our lizard brains limit our ability to invest rationally. We’re short-term thinkers, “buy high and sell low.” So today, again at the peak of the market, we’ll buy and “get slaughtered.”
Dow set to crash 65%, drop to 5,000, but nobody listens, till too late
Finally, here’s a selection of the many predictions we’ve reported on this year. All from respected minds that are often ignored because Main Street’s lizard brains are constantly bombarded by Wall Street’s misleading greedy lizards.
Yes, we’ve just been reporting the warnings from the best rational minds out there, warnings Wall Street hopes you don’t listen to even when it’s painfully obvious they’re collectively building to a critical mass, ready to ignite America’s toxic Bernanke Bubble.
Here are some of our “voices of reason,” as Burnham would call them: Bill Gross, Jeremy Grantham, Gary Shilling, Nassim Nicholas Taleb, Nouriel Roubini, Peter Schiff, Jeffrey Gundlach, Marc Faber, Bill O’Neil, Joseph Stiglitz, Richard Gordon, David Stockman, the editors of InvestmentNews and Worldwatch Institute, and more.
Please review some of them … after you tune out your lizard brain and tune into your rational mind:
Paul B. Farrell is a MarketWatch columnist based in San Luis Obispo, Calif. Follow him on Twitter @MKTWFarrell.