Market Monitor --Frank Cochrane, President of Investment Timing Consultants
JEFF YASTINE: Our Market Monitor guest this week is Frank Cochrane, the president of Investment Timing Consultants, an investment advisory firm based in Farmington Hills, Michigan.And welcome back to NIGHTLY BUSINESS REPORT, Frank.
FRANK COCHRANE, PRESIDENT, INVESTMENT TIMING CONSULTANTS: Thank you very much, Jeff.
YASTINE: You were quite bearish the last time you were on the show, that was November 9 of last year where you were talking to Paul. Are you as bearish now as you were then?
COCHRANE: In fact, I think the next six months will be a major problem for the markets. What's happening right now is we're seeing a lack of confidence as far as investors are concerned, and for very good reason. The accounting woes, what they're hearing from the analysts, they wonder if, in fact, that's true or not, and companies such as GE, Tyco, Xerox (NYSE:XRX), saying earnings aren't really what they are, we're restating them, are really lending credence to that. In addition to that, the employment picture is really not that positive. So I think those things coupled with the fact that the economy is on another downturn I think will reinforce that notion.
YASTINE: Now the last time you were on the show you gave Paul some targets, and these were for the fourth quarter of this year, sometime in that period. And you said the Dow at 5500, the S&P 500 at 500 to 600, and the NASDAQ at 600 to 800. So you're talking about a wholesale cutting in half of the major indexes.
COCHRANE: Yes I am, the situation in the Middle East still exists, I believe that the market went through a parabolic upswing from 1994 to, say, the first quarter of 2000. If you follow that, then we're going to witness a parabolic collapse - or a collapsing parabolic. And that will take these averages back down to the break-out level of 1994, which is right around 5000 on the Dow, say, 600 to 800 on the NASDAQ, and right around 500 on the S&P 500. In addition to that, if you look at simple valuation methodology, the P/E on the S&P 500 right now is 35, 30, depending on what number you believe, to get it back to a fair value would take it down to about the 400 level. So I think the earnings are going to either have to come up or prices are going to have to come down. And I think it's going to be the latter.
YASTINE: What about, and I don't want to belabor this, but what about the economic rebound that economic data appears to be pointing to, at least at this time?
COCHRANE: Housing is starting to slip again. Yes, the productivity numbers were strong. But that's going to stab in the heart of employment. You don't need to hire new people if the current skilled worker is working and being productive. So I don't think the economy, I don't think that's going to help in the longer term.
YASTINE: Again, when you were here last you gave us three longer term buys, Northrop Grumman (NYSE:NOC), which is up 25 percent since then, United Technologies (NYSE:UTX), up 21 percent, and Johnson & Johnson (NYSE:JNJ), which is up about 4 percent. Would we hold onto those if we bought them at that time?
COCHRANE: Yes. I really don't like any stocks other than, say, gold stocks at this point time. However, obviously defense stocks will do well, I think, in this environment over the course of the next year. So certainly I would hold those.
YASTINE: All right, so let's talk about what would you be buying here if anything? you'd be buying gold stocks. They've already had a good run. Newmont Mining (NYSE:NEM) is up something like about 50 percent just in the past four or four-and-a-half months.
COCHRANE: Yes. But gold was in a bear market basically for the last 18 years. I think we're starting to see the beginning of something huge. And I'm not talking about buying gold for the next six months, I'm talking about buying gold for a long - low gold stocks for a long period of time. So...
YASTINE: Any particular picks on that?
COCHRANE: Well, I would look at gold mutual funds, certainly. You can look at Newmont Mining, American - Barrick , Gold Fields (NASDAQ:GOLD), any one of those I think you'll do well, just hold onto them. I'm not saying take your entire portfolio and put it in that. I would also raise a lot of cash here. Again, the next six months, I think, are going to be very, very sour for stocks prices as prices move lower. And in addition to that, I might have some short sell recommendations, anything in technology, more or less. But certainly I would look at the QQQs, which the NASDAQ 100 tracking index. IBM (NYSE:IBM), I think, has a very good possibility of going down to the 40 to 45 level. And Dell Computer (NASDAQ:DELL) I think can go down to the 10 to 15 level. So those are stocks that I would sell. I think they're overvalued here. There's too much P in this market and not enough E.
YASTINE: At what level? We have about 30 seconds left or so. At what level would the Dow turn you bullish? When it got down to 5500?
COCHRANE: Yes. I think in the 5000 to 5500 level. What we need to see is major capitulation, we're not even close to that yet. People are waiting for the next rally, a la last Wednesday, to sell into. We are not going to see - we will see rallies along the way, but nothing significant. But yes, those levels that I mentioned earlier would interest me in stocks.
YASTINE: All right, sir, we have to buckle our seat belts, it's going to be a bumpy ride is what you're saying.
COCHRANE: I think sell in May and go away.
YASTINE: OK. Frank, it was good talking to you.
COCHRANE: Great. Thank you very much.
YASTINE: Our guest, Frank Cochrane, president of investment timing consultants. |
