From george cole on ihub--not pleasant reading at all
Posted by: George Cole
In reply to: None Date:10/9/2002 3:11:19 PM
Post #of 33771
Latest from Alan Newman. MUST READING.
Clueless
Lehman Bros. recently downgraded the airline sector to neutral.
I guess we're happy for the advice not to buy anymore. After all, over the last three
months American, Delta, UAL & Continental had swan dived by a collective average of
69.2%. But to be fair, perhaps we should have only quoted performance over the last
month, a mere 40.6% hit. Talk about your Johnny come latelies, we can only wonder
what Lehman brings to the party besides spiked punch. But if that is true for Lehman,
shouldn't the same be true of others? So we checked some recent price targets just
to see. In May, JPMorgan placed a $32 tag on AMR, a mere 588% gain from here. The
same month, they pegged Delta for $44, only a 347% leap of faith, pegged Continental
at $24, which would be a four bagger, and pegged UAL for $24, which would be an
amazing ten+ bagger. Whew! Were there other spikers as well? You can bet on it.
Speaking of folks with unrealistic expectations, how can we leave out Wall St.
strategists, who are collectively as clueless as they come? Other than the lone vivid
picture of sanity illustrated by Merrill Lynch's Richard Bernstein, who last week lowered
his year end SPX target to 860, strategists have painted only rosy scenarios out as far
as the eye can see. As prices again sank into new lows last week, allocations to
stocks rose to more than 70%, about as high as we have seen them in the last three
years.
There is apparently no circumstance that will turn strategists bearish.
While the economy rolled on and while it sank into recession, they were bullish.
While earnings rose rapidly and while they cratered, they were bullish.
While prices rose and while prices collapsed, they were bullish.
The obvious question is, "if they are always bullish, then why do we need strategists
in the first place?"
Amazingly, despite new lows last week, Investment advisers/newsletter writers are
still no more bearish than they are bullish. Those who are comparing the current
market to 1974 and extrapolating a similar autumn bottom do so without the benefit of
a similar bottom in sentiment. In the prior bear market, bears outnumbered bulls for
42 of the first 44 weeks of the year and for much of that time, there were twice as
many bears than bulls. But in the most recent four (!!!) years, there have been only
seven weeks in which bears outnumbered bulls and only by narrow margins.
Worst of all, mutual fund cash levels at 4.9% are proof that Wall St. cannot
manufacture anything more than a bear market rally. Both relative and absolute cash
levels have declined sharply from October 2001, even as all the major indexes have
gone on to new lows.
Long term optimism and complacency on the scales we see now has never taken place
before in stock market history during a bear market. No matter how one-sided short
term sentiment now appears, the short term is a fickle beast and can be unwound in a
flash, so is likely to fuel nothing more than a modest rally. However, any rally will
probably juice longer term sentiments even more. A paradox? To be sure, but that is
what a mania is all about. And make no mistake, the mania is still alive.
Alan M. Newman, Editor
HD Brous & Co., Inc.'s Crosscurrents |
