Light At The End Of The Tunnel (From Nouriel Roubini, AKA Dr. Doom, Man who predicted the meltdown)

Forbes ^ | 4/2/2009 | Nouriel Roubini

[WOSG]

“put your money where your mouth is.”

I already have. If I believed such a prediction, I’d be in cash. I’m not. I had cash on the sidelines and started buying stocks, bonds and selling puts in Nov and Dec. Timing wasnt perfect, but I am beating the market averages, and I am now well above where I was on December 1. Since December got into PRM at $1.50, PLD at $2.50, CBG at $3.80, AER @ $2.50, MF @$2, XL @$2.90-$4, lots of well-known stocks (eg IBM, MSFT, PFE) and Pilgrims Pride bonds at single digit/$100 face value amounts. Also did some risk arbs for takeovers. Been carefully selling puts. Not buying right now, but will do so carefully, probably via selling puts where premiums are high. eg COP is above $40, but the 40 put is $2. One error/missed oppty was not loading up and selling puts when it went to 6500, but I was too busy at the time to do it right. Right now, in a holding pattern. Will buy more if it does another dive.

IMHO, it wont go up or down too far from here, but get into a trading range, probably in the 7400-8300 on the Dow, for another quarter. recovery in late 2009 would lead it higher. I could be wrong, but I am picking undervalued individual stocks that I think will recover far more strongly than the market. So I am not too worried if it swoons.

“We might get a lower low down to about 500, stretch 450, on the SPX/S&P 500” - This is the absurd prediction. The likelihood of it being wrong is greater than 95% for numberous money flow and valuation reasons. Ergo, BAD PREDICTION. That level is below the S&P in 1995. These kinds of absurd nonsensical predictions on the downside are if nothing else confirmation that we are in bottoming phase, as its a trend and not value-based prediction.

If you believe YOUR prediction, you should be BUYING PUTS.

you toss out an absurd prediction and when challenged on it you are more worried about pride and ego than simply doing the smart thing and asking the question - is it right or is it wrong? It’s completely unimportant to show you are a ‘big man’ compared with actually increasing your net worth and protecting your assets.

I humbly suggest that if you want to do the latter, consider the possibility/probability that market values will be higher in december than they are today, and that the dow wont get below 7000 in the interim.