Another 24 hours have passed and the markets continue to fall
worldwide. The baton of pain gets passed from Asia to Europe,
Europe to America, and on and on. Haven't we seen this movie
before? An avalanche of macroeconomic concerns that translates into
indiscriminate selling. So what should investors do?
Listening to the financial press would make anyone nervous. Ignore
the fundamentals and sell. One example, CNBC ran the following
headline yesterday afternoon:
Drop 20% More; Cash the Safest Place: Roubini
The media loves Roubini. He's got a catchy nickname (Dr. Doom) and
he always delivers a winning headline. In a television interview
with Maria Bartiromo (aka The Money Honey or Econo Babe), Roubini
says that sovereign debt levels are unsustainable and that the
world economy is at risk of a double dip recession. He cites
problems in the euro-zone countries, Japan, China and the United
States and fiscal, regulatory, and monetary risks.
There's trouble with the euro in case you hadn't heard. Economic
growth is pitifully slow. Governments everywhere are running budget
deficits. No really. Where is that kitchen sink? Macro troubles
everywhere. Time to hide under a rock.
His solution for governments? Cut spending and raise revenues (aka
taxes). No kidding. This guy is a GENIUS!
Roubini's recommendation: Cash. Of course. Sell, sell, sell. Those
seeking a more risky portfolio may wish to venture into the
short-term bonds of countries without debt problems (it's a short
Only in America can an economist and NYU professor make money
selling this kind of advice. I'm sure there are more pearls of
Prof. Roubini's new book: Crisis Economics - A
Crash Course in the Future of Finance
. "Crash Course"? I'm sure that wasn't an intentional pun.
How convenient that CNBC found this guy for a interview on a day
the DJIA fell nearly 400 points. Roubini's forecast? "From here on
I see things getting worse." (Note to self: Add this to list of
possible epitaphs). What did you expect Dr. Doom to say? It'd be
funny if it wasn't so sad.
If all goes "well", these predictions will become self-fulfilling.
Dr. Doom will claim victory and the Money Honey will be there to
cover it. Meanwhile, investors will have locked in their losses and
put their few remaining dollars to work at near-zero rates of
As an investor, I prefer to take direction from two other men who
also made (quieter) headlines yesterday:
Buffett's Scout Says Chances Rising for European
Angelo Moratti is the vice chairman of Saras SpA, an energy concern
which owns the largest oil refinery in the Mediterranean. He has
introduced Buffett (BRK.A) to prospective business sellers in
Europe and presumably knows what the Oracle of Omaha is looking
for. Moratti says Buffett probably won't be deterred by the fiscal
crisis in Greece and the slide in the euro.
He's not interested in the macroeconomic scenario, we hardly
would talk about what the euro will be doing. He's looking for a
business that is of considerable size, that has long-term
prospects, good management and comes out for a fair price.
So with prices in Europe falling, Buffett is more likely to buy.
What a crazy concept from the world's most famous value
Less well known (perhaps because he lacks a memorable nickname)
is Laszlo Birinyi. I grew up watching him on Wall Street Week with
Louis Rukeyser and have always enjoyed his insights on the market.
Since he is a value-oriented investor, it Isn't surprising to see
the following story on Bloomberg:
U.S. Stock Plunge Is Buying Opportunity, Birinyi
"Emotion and political circumstances are dictating the
short-term move, and understandably," Birinyi said. "But
ultimately it comes down to good companies and proper
valuations, and I don't think there's a big issue."
Buffett and Birinyi have nothing on Dr. Doom when it comes to
sensational headlines. That said, I take investment advice from
great investors, not a media savvy professor with a book to sell.
: I own equities (even some based in Europe).
How Bankers Benefit From All the Debt