Wall St guru sees more market gloom and new Fed boss
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Monday January 7, 3:18 pm Eastern Time
Wall St guru sees more market gloom and new Fed boss
By Haitham Haddadin
NEW YORK, Jan 7 (Reuters) - Wonder what's in store for
2002?
How about more stock market gloom, global economies in
recession, and a raft of resignations by top officials including Fed chief Alan Greenspan and Japanese Prime Minister Koizumi.
That's what veteran Wall Street strategist and long-time market bear Byron Wien of Morgan Stanley (NYSE:MWD - news) said on Monday in his traditional start-of-year peak into his crystal ball.
Wien has issued his colorful annual forecasts in notes to clients since joining Morgan Stanley in 1985 as top U.S. strategist.
Many of the famous fortune teller-style prognostications known as the ``10 surprises'' have proven prescient -- like his 2000 prediction that the Internet bubble would burst.
This year's predictions again run the gamut from market gloom to offbeat political forecasts:
-- No major terrorist attacks in the United States.
-- S&P 500 closes lower; Greenspan resigns.
-- Bonds outperform stocks for the third year a row.
-- Japan mired in recession; PM Junichiro Koizumi resigns.
-- Russia star of emerging markets for the second year.
-- No military action in Iraq; Oil above $30 a barrel.
-- People start traveling again; boon for airlines, hotels.
-- High-tech and telecom equipment orders improve.
-- Pension liabilities cause blue-chip profit shortfalls.
-- Democrats take control of both houses of Congress.
For 2002, the legendary stock picker said he recommends investors snatch up travel-related stocks including AMR Corp. (NYSE:AMR - news), parent of American Airlines; Delta Air Lines (NYSE:DAL - news); aerospace giant Boeing Co. (NYSE:BA - news); Starwood Hotels & Resorts (NYSE:HOT - news); and Hilton Hotels Corp. (NYSE:HLT - news).
These stocks will ``reward contrarian investors,'' Wien said. ``As terrorism recedes as a threat, everyone starts traveling again, and airline pricing becomes more disciplined.''
Although there are a number of close calls, ``there is no major terrorist event in the United States involving a serious loss of life,'' said Wien, who is now the investment bank's senior investment strategist.
``Al Qaeda efforts in the U.S. appear to have been subdued,'' said Wien, referring to the militant group headed by Saudi exile Osama bin Laden, seen by Washington as the mastermind of the Sept. 11 air attacks on the United States.
Minor incidents that do occur are the work of ``independent crazies unaffiliated with any global organization,'' adds Wien.
S&P FALLS; GREENSPAN, ASHCROFT, KOIZUMI STEP DOWN
Turning to the economy, Wien said that signs of strength in the U.S. economy are elusive -- strength early in the year is a result of inventory rebuilding and will prove to be short-lived.
``The economy does a double dip and slips back into recession. The squeeze on corporate profits continues because of rising costs and a lack of pricing power,'' he said.
Because of the stock market's high valuation going into the year, the Standard & Poor's 500 (^SPX - news) index will close lower in 2002 for the third straight year, Wien added.
The broad market gauge has risen more than 21 percent from three-year lows reached in late September in the wake of the attacks on the World Trade Center and the Pentagon. Other indexes have soared even more, such as the tech-laden Nasdaq Composite (^IXIC - news) which is up more than 44 percent.
Alan Greenspan, Wien said, will resign as Federal Reserve chairman, saying it's time for a younger person and, after 15 years, ``enough is enough.'' Under Greenspan, the central bank has slashed interest rates drastically last year in a bid to revive the economy.
The weak economy and lackluster stock market will become important factors in the November congressional elections in the United States, and the Democrats will take decisive control of both houses of Congress, Wien forecasted.
Another top U.S. official will also step down, Wien said. Under pressure from civil rights advocates, Attorney General John Ashcroft resigns, saying the country didn't understand his brand of ``tough love,'' said Wien, who has a passion for writing and often uses colorful language in research notes to clients.
``His move comes after he attacks the Hollywood film studios, declaring that Harry Potter and wizardly forces in the Lord of the Rings were weakening the religious foundations of the country,'' Wien said. ``President Bush says he's sorry to see Ashcroft go, but 'enough was enough.'''
More trouble is in store for Japan, he said. The recession will continue in the world's second largest economy in spite of various initiatives. This will prompt Prime Minister Koizumi's resignation as unemployment rises and confidence in both the banking system and his government declines.
``He resigns, the yen rises to 160, and the Nikkei 225 (stock market index) drops to 8,000,'' Wien said.
OIL TOPS $30
Wien said Baghdad will refuse to allow weapons inspectors back as U.S. President George W. Bush demands. But he added that he sees no U.S. military action in Iraq despite pressure from some hawks in the Bush administration.
Meanwhile, the price of crude, currently just over $21 a barrel, moves back up to above $30 as a result of output cuts by top producers and a modest increase in demand, Wien said.
This will result in big gains in the stocks of independent oil and gas producers and drillers Apache Corp. (NYSE:APA - news), Devon Energy (AMEX:DVN - news), and Transocean Sedco Forex Inc. (NYSE:RIG - news).
In the battered high-tech sector, Wien said technology and telecom equipment orders improve as inventories bottom and product innovations pour out of well-financed companies. High valuations hold some old leaders back, but three issues do well: Lucent Technologies (NYSE:LU - news), Nortel Networks (Toronto:NT.TO - news) (NYSE:NT - news), and JDS Uniphase (Toronto:JDU.TO - news) (NasdaqNM:JDSU - news), Wien noted.
The 69-year-old Wien recently handed over top stock picking responsibilities to strategist Steve Galbraith, becoming the investment bank's senior investment strategist, while Galbraith became chief investment officer of U.S. equity research.
Stock picks by Wien has netted investors some handsome profits over the years. Known for his contrarian streak, he hit a bulls-eye in 2001 when he predicted the U.S. economy will dip into recession in the first half of the year and earnings for S&P 500 companies fall instead of rise as the consensus held.
He had said the S&P 500 would sink to new two-year lows in the spring of 2001, an event which unfolded to the letter. But Wien missed out when he said the index would end 2001 up modestly, when in fact it finished with a loss of 13 percent. |
