Thursday, August 7, 2008

Long-time bear joins bulls: Controversial Joe Granville says Dow could rise 800 points

I didn't realize he was still alive. There was a time when he moved markets, then he started predicting earthquakes. Then he called the crash of 2000 within 24 hours of it's March 10 Nasdaq peak of 5048. After the MW piece are a story, a stub and a bit of history.
From MarketWatch:

The good news: a long-time bear has turned bullish. The bad news: it's Joe Granville.
Unfair! Some readers get angry whenever I mention Granville, veteran editor of The Granville Letter. They remember his clownish behavior in the early 1980s, when he had a hot hand and was the most famous letter writer in the world, and also the subsequent disastrous performance of some of his portfolios, among the worst for which the Hulbert Financial Digest has a record.
But that was then, and this is now.
Granville has retrenched, abandoning systematic stock advice, so that the HFD now follows only his market-timing advice. And that's been quietly successful for some time....MORE

Published: January 11, 1981

Joseph Granville doesn't use the word ''forecasting.'' He prefers to say that he applies to the stock market a ''theory'' that he declines to reveal but whose results he communicates to clients in a weekly investment newsletter.

Last week, as his latest bullish issue was still in the mails, Mr. Granville's theory suddenly turned bearish and advised selling. That advice, transmitted to about 3,000 clients in emergency telephone calls, triggered a selloff that drove the Dow Jones industrial average down 23.80 points and resulted in a new one-day volume record on the New York Stock Exchange. The next day, Mr. Granville predicted an earthquake of Richter magnitude 8.3 would hit Los Angeles in May.

From the New York Times:

NOTES ON PEOPLE; As a Seismologist, He's a Good Stock Analyst
April 11, 1981, Saturday
Late City Final Edition, Section 1, Page 16, Column 3, 224 words

When Joseph Granville, the Wall Street analyst, told the 3,000 subscribers to his Granville Market Letter to ''sell everything,'' they had enough faith in him to trigger the Dow Jones industrial Average into tumbling 23.8 points Jan. 8. It was the heaviest trading day in the history of the ...

The market bottomed at 776.92 on Thursday August 12th, 1982 and started moving fast:

Aug. 13 788.05
Aug. 16 792.43
Aug. 17 831.24
Aug. 18 829.43
Aug. 19 838.57
Aug. 20 869.29
Aug. 23 891.17

Just like that, 14.70% in seven trading days.

The Times had a story on Sunday the 15th that reflected the mood, note the timing:
Dark Days on Wall Street

The last leg of a bear market is often crushing - a swift plunge in stock prices on heavy volume that pounds small investors and institutions alike, leaving them with big losses and shattered emotions. The effect can be cathartic. But in the vacuum that remains, investors can begin rebuilding their confidence.

That last leg is exactly where the stock market now seems to be heading. Indeed, it is hard to find anyone on Wall Street these days who does not believe, or at least suspect, that the bear market is moving into some sort of climactic phase that will purge the investment community of its pent-up fears of economic collapse....MORE

Granville completely missed the start of the 18 year Big Bull, from 777 to 11750 on the Dow Jones Industrial Average.On the other hand, Naked Capitalism writes about the March 11 call:

On March 11, 2000, a day after the Nasdaq Composite Index peaked at 5,048.62, he wrote that investors in technology stocks ``will soon be burned.'' The index, which now gets 42 percent of its value from computer-related shares, sank 78 percent through Oct. 9, 2002....

From BusinessWeek:

Joseph Granville's Profits of Doom

...Q: Does technical analysis really work? You've predicted many things right, but you've also made some mistakes, such as predicting a crash in 1982.
When I make a mistake, I do something no other market letter does: I apologize for it, like when I called the market wrong in 1982. My mistake was, when the market bottomed, I stayed bearish. I predicted it for the previous two years correctly.

It's very important to always own up, because we learn by our mistakes. Therefore, every mistake I make is a very, very valuable experience.

What I stress is that everybody in the market should always have a stock loss under everything they own. For instance, if you're long on a stock at $50 a share, you're going to have a stock loss at the $45 level, a 10% stock loss. If you go short on a stock, you have to have a buy stop above it. It's Wall Street myth that, "Oh, you can't go short, because if you go short you can have unlimited loss."

You've heard of a stock called Enron. When that stock was $95 a share, you should have had a stop loss under it at $86. You would have been out of Enron at $86. Wall Street committed the crime of the century. They let people ride Enron all the way down to 24 cents a share, and never apologized for not having a stock loss under it.

Q: Do you think technical analysis is superior to Wall Street's analysis?
Wall Street is the exact opposite of the market. We need them because, when we are bearish, we need somebody to sell our stocks to. If we are bullish, I need someone to buy stocks from. Wall Street is the opposite of what I do. To prove that, just look at their record -- one mistake after another.

Q: Can your model work forever?
Of course. Truth is never out of date. There's only two things that can change the value of a stock -- supply and demand, the only thing I teach.