Financial Planning: A Midyear Guide 1987 : part two: The Stock Market : How 3 Gurus Turned Into 3 Bears

Howard Ruff is at home in Utah, sporadically working on an autobiography titled “Confessions of a Prophet of Doom” even as he complains that the news media have always pegged him unfairly as a hard-money survivalist fanatic.

In Kansas City, Mo., Joe Granville is refining a new series of the elaborate technical stock market indicators that have always been his specialty (along with audacious forecasts) and explaining that he missed 3 1/2 years of the post-1982 bull market because he was “blinded” by the parallels to 1929 he was writing about in his book, “The Warning” (published in 1985).

And Martin E. Zweig is recalling from his New York office how afraid he was of a looming depression in 1982, but changed his mind just in time for the August rally that year. “I get cold feet all the time on an intermediate basis,” he said, “but in (mid-) 1982, I felt stocks were dirt cheap.”

These are three gurus with philosophies about as different as Wall Street can accommodate: Ruff with his eye never far from the price behavior of inflation hedges such as precious metals, Granville preoccupied with the possibilities of profits in low-priced stocks (including a couple mired deeply in bankruptcy) and Zweig, focused intently on interest rates and believing that the safest haven for investors when the market turns bearish is cash.

As it happens, all three have about the same long-term forecast of a bear market, and all have roughly the same expectation in timing (sometime in the next one to three years). That’s not particularly important, because anyone should be able to tell that what goes up (as the stock market has for the past five years) must come down. What’s more interesting is how these three financial analysts with wide followings have arrived at this point.

Howard Ruff has been identified with the hard-money philosophy--that inflation hedges such as precious metals are the keys to financial survival--ever since he published his book, “How to Prosper in the Coming Bad Years,” in the 1970s. It’s an identification that has not always made him comfortable.

“I was on a radio talk show in Detroit recently, and someone called in and said, ‘You’re the leader of that head-for-the-hills crowd. You live in Utah, don’t you?’ ” Ruff recalls. “I told him we were civilized in Utah. Actually, I always thought those hard-core survivalists were dingy.”

Still, Ruff calls himself a “financial survivalist: I think we’re heading for very difficult economic times, either hyperinflation or depression.”

Ruff’s timing has not been unerring in the past, as he

acknowledges. “During the 1970s,

when I first attracted media attention, I was predicting hyperinflation,” he says. “When the wave of inflation in the ‘70s came, I thought that was it. But it wasn’t.”

Inflation had begun to abate by late 1981, and Ruff changed his tune. That year he began counseling subscribers to his newsletter, Ruff Times, to buy bonds. (In September, 1982, flush with the revelation that a “spectacular recovery” was on the way, he changed its name to Financial Success Report; last November, he changed it back.)

Whether he was disenchanting the hard-money enthusiasts or, as he says, he was staying away from direct-mail appeals for subscribers, his subscription list fell off steadily during the stock and bond markets’ good times of the mid-1980s. Ruff Times has lost 60,000 subscribers since 1982, and now stands, Ruff says, at about 115,000. “We’re still the king of the hill in circulation,” he adds.

In the past two months, Ruff has been advising subscribers to sell bonds. “I’m telling people right now that the most money to be made over the next few months will be in the stock market; we’re convinced the last wave of the bull market is still ahead. But we’re closer to the end than the beginning.” He also tells subscribers that at least one-third of their investments should be in inflation hedges.

What Ruff is to the gold and silver crowd, Joe Granville is to the stock market technicians. Unfailingly voluble, Granville became famous for his Jan. 6, 1981, flash signal to subscribers to “sell everything!” The next day, the Dow Jones industrial average plunged nearly 24 points on what was then record New York Stock Exchange volume of 92.88 million shares.

That made it all the more remarkable that Granville proceeded to miss a more important call: a buy signal for most of the bull market of 1982 and later. Granville finally turned bullish in February, 1986. What brought him around?

At first, he said, he was obstinate about sticking to his bearish readings after August, 1982. “My wife told me I was wrong, but I wouldn’t believe her,” he says.

Then, as he writes in his May 29 newsletter, Karen Granville told him two years ago that she was giving up her two-bottle-a-day vodka habit. She has kept her word.

“I realized three things,” he says. “One, it’s never too late to change. Two, it’s never too late to make a contribution. Three, the only way to change the past is to change the future, because it becomes the past. Get it?”

He’s made other changes, he says. “I’ve changed my philosophy completely,” he says. “You’ll never hear a ‘sell everything’ signal from my lips again, because nothing’s as certain as death and taxes.”

Granville is now taking a more surgical approach to the stock market, and it has made his Granville Market Letter portfolio the top performer among advisory services surveyed by market analyst Mark Hulbert. He now focuses on low-priced stocks, advising clients to invest no more than 10% of their funds in selected cats and dogs. Among his picks: Allis-Chalmers, Global-Marine and LTV, certainly no one else’s candidates for top performance.

“The washed-out bear stocks will be the minority that do well in a bear market,” he says. “Why? Because they’ve already had their bear market. You can’t break your leg falling from a one-story building.”

No such homilies or self-serving garrulousness comes from Martin Zweig, whose low-key promotions prefer to call him “Dr.” (He holds a Ph.D. in finance from Michigan State University.) Zweig, who produces a newsletter called the Zweig Forecast, is one of the pure mathematical technicians on Wall Street. “Interest rates and monetary conditions are the dominant things I follow,” he says.

Right now, they’re telling him that “risk in the stock market is high, but I’m not a bear; it’s too soon to be bearish.”

Zweig’s market forecasts have hewed closely to the interest rate and monetary line, and he often recounts his string of forecasts by referring to the prevailing Federal Reserve philosophy of the day.

“In 1980, early in the year, I got really bearish. The Fed was so tight it was unbelievable. Then the Hunts had their silver fiasco (in March, 1980), the Fed loosened, and my indicators got better,” he says. “Then I was out of the market completely in fall and summer of ’81. (Mark) Hulbert ranked me No. 1 that year. I’d been more bullish at the end of the summer, but the Fed tightened up (the money supply) twice in six months.”

Although he was nervous about the condition of the economy in early 1982, his market readings had revealed a lot of skepticism, a bullish signal. He also figured that the 777-point Dow of the summer of ‘82, when adjusted for inflation since 1966, was really closer to 240. “Dividend yields were high, price-earnings multiples low. I felt stocks were dirt cheap.”

Now Zweig, ever cautious, is advising clients to keep only 24% of funds in the stock market. “This is about as high as I’m going to go,” he says. Where to park assets in the meantime? “To me, cash is the haven. As for hard assets, I moved into gold stocks late last year, did real well but sold them about a month ago, after they’d doubled. I felt they’d gone up too fast. And I don’t know anything about real estate. I stick with things that are liquid.”