The Cloudy Crystal Ball, Part 3

“You have to keep reminding yourself. We don’t know what’s going to happen with anything, ever.” – Peter Bernstein

Ignore this prediction!

Yesterday’s Wall Street Journal had a very pessimistic “Abreast of the Market” entitled There’s Always Next Year: Hopes Fade for Second-Half Stock Rally As Credit Crunch, Weak Earnings Persist.

For those of you without a newspaper or online subscription to the WSJ, here are some relevant quotes:

“Hopes have all but faded among investors that the stock market will be able to mount a much-anticipated second-half comeback.

Many now think a sustained rebound for stocks may not be in the cards until the middle of next year. Even then, their expectations are limited as the problems in the financial markets continue to spread rather than ease.”

“‘Earlier in the year, we had hoped that the economy would see an uptick in the second half,” and stocks could rally, said Robert Pavlik, chief investment officer at Oaktree Asset Management, which manages some $350 million. Now, he characterizes his outlook for the stock market through the rest of 2008 as “gloomy” and hopes for “some kind of modest recovery in 2009.”

“We just can’t make a case for a sudden bull market or a sudden economic surge,” said Neil Hokanson, a Solana Beach, Calif., financial adviser with client assets of $330 million.

“It’s hard to say what the next leadership could be for the market,” said Linda Duessel, a stock strategist at Federated Investors. With all the crosscurrents, “we’re talking about a sideways market” for the remainder of the year, she said.

Convinced? These “experts” believe that the stock market is going nowhere for at least the next six months. But let’s think about this analysis. What do these strategists know that isn’t already known? Probably not much. And can they predict the future any better than anyone else can predict the future? No, probably not.

So, why pay any attention to them? Good question. Here are words of wisdom from William Bernstein, author of The Four Pillars of Investing:

“It is said that there are only two kinds of investors: those who don’t know where the market is going, and those who don’t know that they don’t know. But there is a rather pathetic third kind – the market strategist. These highly visible brokerage house executives are articulate, highly paid, usually attractive, and invariably well-tailored. Their job is to convince the investing public that their firm can divine the market’s moves through a careful analysis of economic, political, and investment data. But at the end of the day, they only know two things: First, like everybody else, they don’t know where the market is headed tomorrow. And second, that their livelihood depends upon appearing to know.”

To be continued …