Taking Apart David Tice on His Dow 3000 Call

In other bear markets during the past 50 years, the low in the market did not correlate with single-digit P/Es, as you can see in this table:

Tracking Past Bear Markets Here are the correlating P/E ratios for the most recent bear markets
Bear-Market Year	Median P/E
1957	13
1962	17
1970	15
1982	14
1987	14
1990	13
Source: Value Line

As of last week, even after the recent rally, Value Line lists the current median P/E ratio as only 15.5. That doesn't seem excessive, given the current level of interest rates.

The economy is headed for a double-dip recession. A lot of smart people have made this prediction, and that's reason enough, in my book at least, that the prediction should be discounted. We have a very steep yield curve. Without exception, there has never been a recession with a steep yield curve. In the only double-dip recession in the past several decades, 1980-82, the yield curve was inverted when the second recession started, as the Fed aggressively raised rates to stave off 13% inflation.

Market seers are a dime a dozen nowadays -- and that's about how much their forecasts are worth. More often than not, markets drop precipitously because of shocks to the system that are difficult, if not impossible, to predict.

There's also a psychological component that investors should consider: the unconscious bias that I think Tice and Gross probably succumb to, called the "self-serving bias." Tice, as manager of a short-selling fund, and Gross, manager of a bond fund, sell products that compete with being long equities. Naturally, they're more apt to see the problems of investing in stocks because of their self-serving bias.

The Turnaround Report

In the next issue of The Turnaround Report, I'll have a multi-page spreadsheet on an interesting turnaround candidate that one Wall Street analyst calls a "strong buy" with a "generous margin of safety."

Not so -- in fact, it's quite the opposite: This company has endured an EDS-type stock-buyback problem and has a huge pension problem and a decidedly negative balance sheet. (I'll include my adjustments, of course.) In addition, the CEO has made statements that don't mesh with disclosures to the Securities and Exchange Commission.

On this issue, I'm clearly biased and intentionally self-serving: I'd recommend a trial subscription.