Friday, March 25, 2011

Laszlo Birinyi's Equity Markets Call On CNBC

Wednesday morning's appearance by Laszlo Birinyi on CNBC caused quite a stir. He made a stunning prediction that we are currently in a new secular bull equity market. He forecast a 2100 S&P500 Index in "2 to 3 years." By my calculations, that's a roughly 60% rise, working out to almost twice the long run Index annual average performance of around 11%.

I don't personally keep track of his record on this sort of call, but I assume it's pretty good. My sense is he is very well regarded in his field.

However, Birinyi said something that fit with my own observations. He talked about equity analysts and noted that there really are no 'stock market analysts,' but, rather, 'stock analysts.'

His own firm specializes in technical analyses of equity markets generally. For example, on the subject of the North African uprisings, Birinyi cited work that his firm has done on German equity markets after the Berlin Wall fell. Maybe it's relevant, maybe it's not. But that's the sort of thing his firm does.

I can identify with that, since my own quantitative work keeps a careful eye on basic equity market trends and behaviors. Like Birinyi, I don't presently see a market in which one wants to be solidly short. There may be increased volatility compared to a few months ago, but, despite many apparent headwinds, signals still indicate solid long positions.

Birinyi came right out and said that most investors simply have no sense of market history. Therefore, they are incapable of seeing trends or understanding how markets are likely to behave.

In light of current US federal and state government spending and debt challenges, and Fed policies, it seems heroic for Birinyi to have made his unequivocal call. However, given his focus, I am inclined to assign him more credibility than most pundits on this sort of prediction.

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