Stock Veterans Granville, Stovall Predict More Losses
March 17 (Bloomberg) — Joseph Granville and Robert Stovall, octogenarians who’ve seen every financial market downturn since the 1950s, say the current one may be the worst and is far from over.
Granville, born in 1923, remembers his banker father’s bad moods following the stock-market crash of 1929. The younger Granville began his career at defunct brokerage E.F. Hutton in 1957, quit in 1963 to begin publishing a weekly newsletter and wrote nine books on investing.
“We’re in a crash,” Granville, 84, said in a telephone interview from Kansas City, Missouri, where he lives and works. “This is the worst I’ve seen, and I’ve studied every bit of history all my life.”
U.S. stocks plunged to the lowest since July 2006 today after JPMorgan Chase & Co.’s purchase of Bear Stearns Cos. for less than a 10th of its market value sent financial shares falling around the world. The Standard & Poor’s 500 Index neared a so-called bear market drop of 20 percent from its Oct. 9 record.
Bear Stearns, the fifth-largest securities firm and once the biggest underwriter of U.S. mortgage bonds, collapsed as the residential real-estate slump led to bank losses approaching $200 billion globally.
Stovall, 82, started out as a junior security analyst at E.F. Hutton in 1953 and ascended to head of research. He also held the posts of research director at Nuveen Corp. and director of investment policy at Dean Witter Reynolds Inc. before founding and running his own firm for 15 years and selling it to Prudential Financial Inc. in 2000. He currently chairs the investment strategy committee at Sarasota, Florida-based Wood Asset Management, which oversees $1.6 billion.
“With confidence at a low ebb, you wonder if this contagion will spread,” Stovall said in a telephone interview from his office. “We have to be concerned about the stability of the whole financial system.”
Granville correctly forecast the bear market of 1977 and ’78. Later, he failed to foresee the rally that started in 1982 and lasted for five years. He also called for losses in 1995 before the so-called Internet bubble began.
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.
`A Lot Worse’
“I don’t see an end to this thing until sometime in 2009,” Granville said of the current market slump. “It’s going to get a lot worse before it gets better.”
Stovall’s forecasting tools include the so-called Super Bowl predictor, which holds that when U.S. football teams with roots in the National Football Conference win, the stock market rises the year the game is played. This year’s winner, the New York Giants, is an original NFC team.
The worst periods for the S&P 500 since 1950 were the third quarter of 1974, when the index fell 26 percent, and the fourth quarter of 1987, when it retreated 23 percent.
A third-quarter drop of almost 15 percent in 1990 was the benchmark’s seventh-steepest loss. Drexel Burnham Lambert Inc. filed for bankruptcy that year after the collapse of the junk bond market it had dominated.
The September 1998 collapse of hedge fund Long-Term Capital Management after Russia defaulted on its debt triggered a global flight from corporate and mortgage-backed bonds that capped a 10 percent drop for the S&P 500.
“It’s going to be a painful day, a painful week,” Stovall said of the current retreat.
By Elizabeth Stanton and Jeff Kearns