Category — Swami Watch!

So says Overstock CEO Patrick Byrne, as he predicts complete economic disaster on CNBC. Watch it here - if you dare.

We are living at the edge of a 1929 kind of disaster.

Guess Americans shouldn’t be buying anymore Overstock crapola, right? We really better save our pennies now. The Overstocked CEO foresees a dim future for us all.

The American economy is like an old man in an oxygen tent that you flood with oxygen, but when you turn off the oxygen he fades very quickly.

Does Overstock sell oxygen now perhaps? Maybe that’s a new corporate initiative at the Big O.

Got to hand it to the Overstocked Swami. What’s rarer than a Swami CEO going public with gloom and doom predictions for all of mankind? He is one of a kind.

So, let’s review: the CEO of a company that sells junk that no one wanted the first time it went to stores is telling the world that global disaster is imminent. And it will be just like 1929 when Americans could barely afford bread, let alone trinkets from the Big O. So what happened to his company’s stock after the Overstocked Swami gave his forecast of impending global doom?

Gee, glad I didn’t own any Overstock this week.

This one will be pretty easy to follow. We have to see complete disaster begin to hit in 2008. Trouble is, if the Overstocked Swami is correct, I will be too busy begging in the streets for food to be checking back on his prognostication prowess. If I haven’t hocked my computer for groceries by June, I’ll check back in on this noble CEO and his bold predictions.

Swami Syndrome: A proclivity for predicting the future coupled with a blinding disconnect to the fact that a coin toss (or the proverbial monkey) would be more accurate than your lame prognostications.

Way back in June of 2005, The Big Swami wrote a sternly anti-Swami article entitled Apprentice Investor: The Folly of Forecasting. He speaks about the “perils of predictions” and how investors often give far too much weight to analysts, professors and other talking heads who are stalwart in their prognostications, yet hopelessly afflicted with Swami Syndrome.

I wish an SEC-mandated disclosure accompanied all pundit forecasts: “The undersigned states that he has no idea what’s going to happen in the future, and hereby declares that this prediction is merely a wildly unsupported speculation.”

The bottom line is that I’ve yet to find anyone who can accurately and consistently forecast the market behavior with any degree of accuracy, beyond short-term trend following. That inconvenient factoid never seems to dissuade the prophets — or the press — from their fortune-telling ways.

No one truly knows what tomorrow will bring. Nobody.

Those are some pretty strong statements regarding Swami Syndrome.

But - just 2 months later, in August of 2005, The Big Swami wrote an article entitled Real Estate Begins to Cool, wherein he lays out of the perils that face the US due to the Subprime Mortgage mess, and then concludes with a very bold prognostication:

We expect a recession in the 2006-07 time frame.

Yikes!! What part of “Nobody knows what tomorrow will bring” am I not understanding? Did the Big Swami have a sudden flash of insight into the workings of the universe that made him boldly pronounce a recession for 2006-2007, in bold type? Or was he just inflicted with that malady that seems to strike everyone who gets “Expert” tagged next to their name on the TV screen, Swami Syndrome?

Let’s check the Thesaurus, maybe we’re off base here:

Nahhh, we’re on the right track. Diagnosis confirmed?

Now there are a few rare souls out there who do seem to have a genuine knack for big picture prognostications. Is the Big Swami the real Salami?

We expect a recession in the 2006-07 time frame.

Well he made it easy for us on this one. Since its December of 2007 already, all we have to do is count the recessions in 2006 and 2007. Let’s see, growth, growth, growth, growth……….

Uh oh. Actually, we’re not even close to falling into a recession so far. And its basically 2008 already.

The Big Swami has one last chance on this one. He needs Q4 to show negative growth, and we need to follow that up with the same negativity for Q1 2008.

Let’s check back in the Spring. We will check on some other Big Swami pics as well in a later post.

Swami Syndrome: A proclivity for predicting the future coupled with a blinding disconnect to the fact that a coin toss (or the proverbial monkey) would be more accurate than your lame prognostications.

Way back in March of 2007, Bill Cara took a look at the real estate market in the U.S., and the subprime market in particular, and came to an alarming conclusion.

In his article The why and how America is in trouble,

he buffed up his crystal ball till it was glowing red hot and pronounced:

The whole of the world watched TV images of the inhumane treatment of the poor of New Orleans following Hurricane Katrina. With great respect to those couple hundred thousand disadvantaged souls (as my readers know I have), I believe those ugly TV images may even look mild compared to the scenario that would follow angry mobs across America if market interest rates rise beyond the tipping point that would collapse the entire US mortgage market.

Yes, I believe there will be a US economic recession, but the elements are now in place for the first time in 80 years for America to sink into a depression.

Heavy stuff!!! Get your shotguns now everybody, Bill thinks the whole nation is about to get Katrina’d.

The Doomsday Swami backs up his claim with many pie charts and graphs that indicate just how badly the American banking system was mismanaged. Of special note is how he identifies the banks that are the most overexposed to Alt-A/Subprime risk, and he provides a chart to show his Swami prowess on that point. Well done. He also shows some real Swami Swagger by showing us a chart of U.S. builders while claiming he called the top in the real estate market. He backs that one up pretty well.

But he used the “D” word here. Only the bravest of Swami’s would go that far.

Is Bill Cara the Swami of the Decade? or is he just a Chicken Little Psuedo Swami with a very bad case of Swami Syndrome?

I think by June of 2008 the answer to that should be very clear. We have to see at least a really nasty recession, not just a little blippy one that reverses, for the Doomsday Swami to be proven correct.

Swami Syndrome: A proclivity for predicting the future coupled with a blinding disconnect to the fact that a coin toss (or the proverbial monkey) would be more accurate than your lame prognostications.

Swami Charles Gave has polished up his crystal ball and sees all green in a contrarian dollar/euro position:

A Comeback for the Greenback

Jonathan R. Laing, the author of the article, starts out by listing all the negatives stacked up against the US dollar in today’s environment:

Of course, the case against the greenback is invariably couched in apocalyptic terms. America’s continuing budget deficit, for example, is said to betoken U.S. decadence, fueled by fiscal irresponsibility and imperial over-reach. The trade and current-account deficits? They are symptoms of a society that consumes more than it produces, spends more than it saves and relies on poorer nations to finance its profligacy.

Nor, at this point, can a strong case be made for foreign investment in U.S. assets in order to sop up the dollar surpluses in foreign coffers. U.S. gross domestic product growth is slowing. Treasury rates seem headed lower. Interest differentials favor higher-yielding government paper like the German bund. U.S. residential and commercial real-estate prices seem headed further south.

And then he gets to statements from Contrarian Swami Charles:

Thus, it comes as something of a surprise that GaveKal, an international investment research boutique with offices in the U.S., Hong Kong, Paris and Abu Dhabi, recently penned a report lauding the dollar’s prospects against the euro. In fact, in a telephone interview from Paris, firm founder Charles Gave terms the euro “grotesquely overvalued” at its current level. In the next couple of years, he maintains, the euro should fall to its “parity” value of $1.05 to $1.10.

Swami Charles goes on to point out many of the financial negatives in Europe that he believes will weigh against the Euro, and even says the M word!!

Higher birth rates of Muslim populations that have been only imperfectly integrated into European economic and cultural life could pose big problems in the Old World over the next several decades. For one thing, the trend could boost unemployment.

I’m guessing that Swami Charles does not live in Holland. Let’s do some math on that:

Far fewer Euro kids from secular Euros + ever increasing Muslim kids who won’t (or won’t be allowed to) assimilate =

Well let’s say it could be a boon to the car industry.

Other than that, Swami Charles thinks the Euros are in a bit of trouble.

Let’s take a look at the US Dollar chart:

Charts don’t get much uglier than that.

Dollar Bear Maoxian (the Beijing Swami) reports on Swami Charles and his bullish prediction for the US dollar in his post Bucking the Euro trend a bad bet:

Maoxian (the Beijing Swami) has been shouting Sell the Dollar! for quite a while now and advising everyone to as sell all US assets (and run off to a better country, like China I guess). He has surely earned his Swami Stripes on the dollar call.

His guess is as good as the next guy’s (commenting on Swami Charles). It might be wise to wait for the trend to reverse before targetting $1.05 to $1.10.

The Euro is sitting around $1.48, so let’s tag that number for Swami Charles and check back in a few months. As for the Beijing Swami, he has already been consistently correct on the dollar dive for weeks now. We’ll wait to see if he keeps shouting sell when the dollar does a reversal. It has to do one sooner or later, right?

Question 1: If Captain Cliche Obama wins the Presidency, will the Beijing Swami continue to be bearish on the US?

Question 2: Will the dollar/euro debate bring out a record number of Swami prognostications?

Question 3: Should the European countries which adopted the Euro switch back to their traditional currency while the chart is topping? Nations as swing traders - silly I know.

Swami Syndrome: A proclivity for predicting the future coupled with a blinding disconnect to the fact that a coin toss (or the proverbial monkey) would be more accurate than your lame prognostications.

Prem Watsa is affectionately called the “Warren Buffet of the North”. He’s not usually as gabby as Warren however, and I doubt that he’s ever whined about not paying enough taxes (Hey Warren, you can cut a check to the Feds anytime you know, its not against the law). Prem did do a recent interview however, wherein he boldly joined the ranks of the Doomsday Swamis.

An Interview with Watsa Swami: He has never been more bearish

The global credit squeeze is in its “early days,” says investor Prem Watsa, who is so bearish that his insurance company has stashed the bulk of its $18-billion investment portfolio into ultrasafe government bonds.

In a rare interview, the chairman of Fairfax Financial Holdings Ltd. said he thinks it’s possible the United States is on the cusp of a prolonged market slide, similar to the one endured by Japan between 1990 and 2003, when the Nikkei index plunged 80 per cent.

“We raise the question, why can’t the Japanese experience be repeated in the U.S.? We think it could be,” Mr. Watsa said.

Watsa Swami thinks the US markets may very well be on their way to a real catastrophe, and he has put his money where is mouth is. He then goes on to state that a near term recession is a sure thing:

“We don’t know how bad the recession’s going to be, so credit is going to be tough,” he said. “You’re going to have these big losses, the banks are going to have big losses. So we are worried.”

Watsa Swami has been a hugely successfull prognosticator in the past with Fairfax, but strange things can happen when folks put that Swami hat on in public.

One absolute prediction for a near term recession.

and

One rather bold, sky is falling prediction of a Japanese style disaster in the U.S.

Let’s check back in with Watsa Swami in June to see how well that Swami hat is fitting in 2008.

Swami Syndrome: A proclivity for predicting the future coupled with a blinding disconnect to the fact that a coin toss (or the proverbial monkey) would be more accurate than your lame prognostications.

Early in 2007 Chairman Maoxian from Beijing stepped tentatively into the Swami for Hire arena by making this generous offer to his readers:

Chairman Maoxian’s Boring picks

This is the Beijing Swami’s self-deprecating description of them:

1. These ideas are extremely boring

2. These ideas won’t win you any friends at a cocktail party.

3. These ideas will definitely not make you rich quick.

He offered to export 15 trade ideas from China, in exchange for American dollars (which were worth a whole lot more back then). And in his own funny way he included a no money back, zero guilt clause for comedic effect. He described them basically as battered down value, long term plays. We can tell that he was extremely confident in them (hence the first time request for $$$$$$). OK so let’s check in to see how he’s done after several months. Here’s some data on the 15 picks (visit his excellent site for traders - a fine read - and send him a bone if you want the ticker symbols)

Lăolao!!!! - 3 winners and 12 losers. He’s got a couple strong winners there, but otherwise he’s taking quite a pounding. Let’s look at a chart to see how his picks have performed against the indexes (yeah, he owns the CMF tan line, the one that seems to be looking for a lost contact lens).

And here’s some further, rather depressing data:

We will check in again on these picks next year, and plan to take note of the Beijing Swami’s dollar death spiral prediction in a future post (he’s been all aces on that one so far). A few questions remain:

Question 1: Do we implore Swami Maoxian to provide a new list of ideas asap so that we can short the hell out of them? Naaa, that’s completely unfair. The above is just a tiny snapshot of the Swami from Beijing’s prognostication prowess.

Question 2: Why didn’t the dollar bashing Beijing Swami ask for his payment in Euros?

Question 3: Do we load up on the picks from this list that have been battered down the most? Hmmm, when my Whole Hog play pans out perfectly (as of course it will) I will be checking back on this list again.

Swami Syndrome: A proclivity for predicting the future coupled with a blinding disconnect to the fact that a coin toss (or the proverbial monkey) would be more accurate than your lame prognostications.

There are lots of Pseudo Swami’s out there with Swami Syndrome!! Let’s see if we can distinguish between a bologna swami and the real thing.

We’ve got a Swami Sandwich filled with contradicting condiments with this first entry:

The Big Threat of Mortgage Credit Losses

On one side you have Swami Ben Stein. He loves to be on TV a lot which automatically puts him at risk for developing Swami Syndrome.

As you can see by that all knowing grin on his face, he may already be afflicted. But, maybe not, is he right?

Ben says, Subprime is a mess. But it’s a small mess.

Subprime mortgages account for roughly 20 percent of mortgages even in the most heavily exposed states. About 20 percent of them are delinquent in some way. That’s 4 percent of mortgages.

Of these, maybe half, or 2 percent, will go into foreclosure. There will be roughly 50 percent recovery on sale of these. This is a loss of 1 percent in the mortgage market — a sum the lenders have already made many times over because of the hefty fees on those deals. In the context of the size of the U.S. financial sector, it’s nothing.

And why should a crisis in subprime drive down stocks in Mexico and Thailand? Again, because the speculators seek to create panic to make money by selling short, and they sell short everything.

Spreading the Fear

In other words, it’s all the speculators trying to panic us so their sell programs will make money. And they’ll make money as long as they can spread their panic. When they can’t do that any longer, they’ll work the long side — and make up reasons for that, too.

In the meantime, the economy is strong. Profits are great, and interest rates are low and will stay that way. Don’t sell. With all the shrieking about the market, it only fell to what it was about five weeks ago — and we didn’t think we were poor then.

So Swami Ben is predicting that the Subprime debacle will not be the cause of an imminent recession. If we don’t go into recession in 2008 I think we would have to say that Swami Ben’s crystal ball was crystal clear on this one.

On the other side we have The Big Picture and Goldman Sachs U.S. economist Jan Hatzius. Swami BigP takes his first shot by bringing up the problem that derivatives pose to the subprime mess.

Its a rather foolish, overly simplistic analysis that ignores far too many other elements of the sub-prime slime. The pyramid of Derivatives built on top of them, for instance. It reminds me of an argument you might get intro with a child: “But daddy, the economy is so big and sub-prime is so small…”

and then he quotes Jan (too lazy to read all of Jan’s opinions so I can’t slap the Swami tag on him):

What’s different about mortgages is, in a word, leverage, he continues. Most stocks are owned by traditional investors, such as individuals, mutual funds, pension funds and insurance companies, who don’t use margin and don’t short. In contrast, most owners of mortgages are highly leveraged, including banks, savings and loans, broker-dealers and government-sponsored enterprises such as Fannie Mae and Freddie Mac, according to Fed data, which don’t count hedge funds.

This distinction makes a huge difference. If, say, these leveraged players account for $200 billion of mortgage-related credit losses, and they lever up 10 times, that hit results in a $2 trillion reduction in credit, Hatzius theorizes.

This would be a shock equal to 7% of total debt. Such a credit contraction could produce a large recession, if it happened in a short period such as a year, or a long period of sluggish growth — say, over two to four years, he adds.

And Swami BigP even goes on in another post to belittle Swami Ben by coining a new catch phrase:

I am starting a new campaign: Let’s replace the phrase “Tom Foolery” with “Ben Steinery.”

It’s clear to me that BigP is predicting a recession, caused mainly by subprime mortgage chicanery. Since we are already well into the subprime fallout, to be a sage like Swami, that recession would have to occur in 2008.

Let’s revisit this one in June of 2008 and see how these Swami predictions are panning out. Will the new catchphrase be Ben Steinery? or will it be Big Picturey?

UPDATE: Lo and behold, Big Picture turns out to be the Anti-Swami!! In his comment below he backs that up by directing readers to this terrific article http://www.thestreet.com/_tscana/comment/barryritholtz/10226887.html

This single line really highlights a theme of his piece:

No one truly knows what tomorrow will bring. Nobody.

That throws the harsh attacks on Swami Ben in a new light. Thanks for the good read!