THE IDIOT-MAKER RALLY: Two Years Of Making Gurus Look Dumb

robert prechter

Today marks the two-year anniversary of the bull market. In the past 20 four months, the S&P has nearly doubled, from 666 up to 1320.

During this period, countless gurus have said they don’t believe in the rally and told you to sell.

MARCH 2009: Nouriel Roubini predicts new lows in the next 18 months

'During the last recession, the economy bottomed out in November 2001 and GDP growth was robust in 2002 but the U.S. stock markets kept on falling all the way through the first quarter of 2003. So not only were the stock markets not 'forward looking,' they actually lagged the economic recovery by 18 months--rather than lead it by six to nine months.

A similar scenario could occur this time around. The real economy sort of exits the recession some time in 2010, but deflationary forces keep a lid on the pricing power of corporations and their profit margins, and growth is so weak and anemic, that U.S. equities may--as in 2002--move sideways for most of 2010. A number of false bull starts would occur as economic recovery signals remain mixed.

Thus, most likely, we can brace ourselves for new lows on U.S. and global equities in the next 12 to 18 months.'

--Nouriel Roubini on March 12, 2009

Dow: 7,170

Dow today: 11,971

MARCH 2009: John Mauldin say bulls will get their hopes crushed over the summer

APRIL 2009: Dylan Ratigan says this is a suckers' rally, no question

Blodget: Last question. You've been right in the middle of this meltdown day after day, interviewing the smartest people, etc. So is this a new bull market, or is this another suckers' rally?

Ratigan: Suckers' rally. No question. That's not an indictment of the judgment of the market. That's just my perception of the ability of the banks to function in a timely fashion, the ability to create meaningful amounts of jobs in the immediate future, and the as-yet unrecognised meaningful losses to come in commercial real-estate and other asset classes

-- Dylan Ratigan on April 10, 2009

Dow: 8,083

Dow today: 11,971

'Is this the dawn of a new era? Are we off to the races again? I'm not so sure. Only a fool predicts the stock market, so here I go. This sure smells to me like a sucker's rally. That's because there aren't sustainable, fundamental reasons for the market's continued rise.

-- Andy Kessler on May 12, 2009

Dow: 8,469

Dow today: 11,971

'I believe that the markets are in the later stages of a powerful bear market rally that is close to its peak. I expect the market to trade in a narrow trading range until late this summer before it starts to head down again this fall.'

--Michael Markowski, founder of Stock Diagnostics, on June 2, 2009

Dow: 8,740

Dow today: 11,971

JUNE 2009: Glenn Neely predicts the S&P will decline 50% in the next six months

'Technically speaking, according to NEoWave a correction began at last October's low; the March-June rally is the final leg of that correction. The March-June rally is now ending, allowing the bear market to resume. During the next six months, the S&P will decline 50% or more, breaking well below 500!'

-- Glenn Neely, founder of NEoWave Institute and prominent Elliott Wave analyst, on June 16, 2009

Dow: 8,504

Dow today: 11,971

'If you were to jump in right now, you're crazy. On the same front, if you're 35, 40, 45 years old and if you do your research and you buy like a Wells Fargo or a Merrill and it's going to survive, it could be the opportunity of a lifetime. Take small little nibbles.'

-- Dave Rovelli, managing director of US equity trading at Canaccord Adams, on July 17, 2009

Dow: 8,743

Dow today: 11,971

'I expect this risk rally to continue into -- and maybe through -- a large part of August. What happens after that? The next ugly leg of the bear market begins as we get into the July through September 'tipping zone', driven by the failure of the data to validate the V (shaped recovery) that is now fully priced into markets.'

-- Bob Janjuah on Aug. 12, 2009

Dow: 9,361

Dow today: 11,971

AUGUST 2009: Doug Kass says markets are overshooting to the upside

'I believe that the markets are now overshooting to the upside and that the U.S. stock market has likely peaked for the year...

A double-dip outcome in 2010 represents my baseline expectation. When the stimulus provided by the public sector is finally abandoned, it seems unlikely to be replaced by meaningful strength or participation by any specific component of the private sector, and the burgeoning deficit (described above) will ultimately require a reversal of policy, leading to higher interest rates, rising marginal tax rates and a lower U.S. dollar. My forecast assumes that the market's focus will shortly shift from the productivity gains that have been yielding better-than-expected bottom-line results toward these chronic and secular worries.'

-- Doug Kass, on August 26th, 2009

Dow: 9,543

Dow today: 11,971

OCTOBER 2009: Joseph Stiglitz says the markets have been irrationally exuberant

OCTOBER 2009: Gary Shilling predicts a new low on the S&P

'I think what's happened is still a bear market rally. And as a result, whether we hit new lows or not remains to be seen. I think we very well could go back and test that 666 on the S&P, maybe go a bit lower than that. And this decline may very well spill into next year.'

--Gary Shilling on Oct. 23, 2009

Dow: 9,972

Dow today: 11,971

OCTOBER 2009: Bill Gross says the rally is at its pinnacle

'Investors must recognise that if assets appreciate with nominal GDP, a 4%--5% return is about all they can expect even with abnormally low policy rates. Rage, rage, against this conclusion if you wish, but the six-month rally in risk assets--while still continuously supported by Fed and Treasury policymakers--is likely at its pinnacle. Out, out, brief candle.'

-- Bill Gross on Oct. 27, 2009

Dow: 9,762

Dow today: 11,971

'For Japanese investors, it took some time to learn the new metrics of investing. Today, investors have no such excuse... The leading indicators have begun to turn down in the US and so risk assets are therefore dangerous. Almost no-one will be willing to predict renewed global recession and no-one will predict new lows in equities. And with the market so bullish a cyclical failure will come as a crushing blow to sentiment. It is time for caution. It is time to sell.'

-- Albert Edwards around Dec. 9, 2009

Dow: 10,337

Dow today: 11,971

DECEMBER 2009: Mohamed El Erian says stocks will tank within one month

'We're on a sugar high. It feels good for a while but it unsustainable.'

Claims: Stocks will drop 10 per cent in the space of three or four weeks, bringing the Standard & Poor's 500 index below 1,000.

-- Mohamed El Erian on Dec. 28, 2009

Dow: 10,547

Dow today: 11,971

'Sell all U.S. stocks now. We're heading to 1018...When markets get this unstable, it doesn't take much to destabilize market.'

-- Keith McCullough, Hedgeye CEO, on May 28, 2010

Dow: 10,136

Dow today: 11,971

JUNE 2010: George Soros says the market is overextended

'We have just entered Act II...The collapse of the financial system as we know it is real and the crisis is far from over...1930's style budget deficits are essential as counter-cyclical policies, yet many governments are now moving to reduce their budget deficits under pressure from financial markets. This is liable to push the global economy into a double-dip.'

-- George Soros around June 7, 2010

Dow: 9,932

Dow today: 11,971

JULY 2010: Bill Fleckenstein says Bulls are getting too optimistic

'There is a reasonable probability of a decent rally getting under way...However, it will be just that: a rally. If things play out along those lines, it may very well be time to start thinking seriously about putting on some short positions, preparing for a move back down.'

-- Bill Fleckenstein, president of Fleckenstein Capital, on July 9, 2010

Dow: 10,198

Dow today: 11,971

JULY 2010: Robert Prechter says traders should short the S&P 500

'The selling pressure will abate at times, but by the end of 2010, stock prices should be much lower...Experienced traders should be short the S&P 500 index... The current bear market will be the biggest in nearly 300 years.'

-- Robert Prechter on July 15, 2010

Dow: 10,359

Dow today: 11,971

'As of last week, the Market Climate for stocks was characterised by rich valuations, elevated (but not extreme) bullish sentiment, generally positive but overbought price trends, and continued negative economic pressures. Overall, our measures suggest an overvalued, overbought, overbullish condition, but with shorter term factors struggling between emerging economic weakness and overbought conditions on the negative side, and speculative trend following on the positive side. For our part, the current set of conditions is associated with an unfavorable return/risk profile, so the Strategic Growth Fund and the Strategic International Equity Fund remain well hedged.'

-- John Hussman on Oct. 11, 2010

Dow: 11,011

Dow today: 11,971

NOVEMBER 2010: David Rosenberg says the market is overbought and all signals are negative

Now before you say it, yes, the bears could still be right (if extremely late) and this could be a repeat of

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