Laszlo Birinyi, formerly a Fundy, now a Techie, began the year on a strongly bullish note:
January 3, 1999
MARKET INSIGHT
Seeing More Fire in the Eyes of the Bull
By KENNETH N. GILPIN
As 1999 begins, it is hard to make the case that
stocks will continue to race ahead.
Prices are high, earnings are declining and the economy
seems to be running out of gas. Many people who don't
believe in lengthy corrections -- let alone bear
markets -- have never lived through one.
Of course, those were just the sort of arguments making
the rounds this time last year.
Laszlo Birinyi Jr. does believe in corrections, has
lived through a bear market and has heard the arguments
before. But in fairly stark contrast to most of his
colleagues, he is wildly bullish for the second year in
a row.
Birinyi, who runs his own stock market research firm
and serves as global strategist for Deutsche Bank
Securities, was pretty much right a year ago. He took
some time last week to discuss his forecast for 1999.
Q. By the end of this year you are projecting some
fairly eye-popping numbers for the major averages: over
12,000 on the Dow Jones industrial average, 1,500 on
the Standard & Poor's 500 and 2,800 on Nasdaq. Why?
A. I like the market for one major reason: I continue
to see strong buying on weak days, which is the market
telling me the outlook is positive. To me, people who
are buying stocks on down days are smart money people.
Q. But aren't prices already much too high?
A. Price-earnings multiples don't trouble me too much,
because they apparently don't trouble investors. During
this decade, the best earnings comparisons on a
year-over-year basis occurred in 1994, which was also
the worst year of the decade.
Earnings are important, but there are times when the
correlation with stock prices is faulty. What I am
suggesting is that by looking at the flow of funds, we
are seeing strong sentiment and I think that is a very
underrated factor. The basic rule of the business is:
Don't fight the tape. And what the tape is telling an
old trader is that people are continuing to put money
into stocks.
Q. But what about the economy? Capital spending is
slowing, Asia is still in the dumps and Latin America
seems on the verge of recession. We got through all
that last year. Can we do it again?
A. I think the economy is a bit better than people
anticipate. We see stocks that are economically
sensitive, like Caterpillar and International Paper,
attracting money. That tells me the economy is more
likely to surprise on the upside than the downside.
But I always like what John Maynard Keynes had to say
about the stock market. He said the critical issue is
not the business cycle, but the psychological cycle.
Q. Well, what would get you worried?
A. I would get upset if we get carried away. Last year,
more money went into money market funds than equity
funds. That tells me individuals are still a little bit
in check. If I start to see money from money market
funds flowing into stock funds, then I think we might
be a bit too euphoric.
Q. A year ago your favorite stock was America Online,
which has gained more than 500 percent. What about this
year?
A. We still like America Online. There has been a net
inflow into that stock of almost $6 billion this year,
including a substantial amount during the correction
last summer.
Q. Any other favorites?
A. There are a number of stocks, especially in
technology, like Intel and IBM. If you look around, at
least in the business world, very few people are giving
out fax numbers. But they are giving out e-mail and Web
site addresses. If there was a dominant fax machine
manufacturer, that company would be a good stock to
short.
Our favorite brokerage stock is Charles Schwab, which
at the moment has a bigger market capitalization than
Merrill Lynch, if you can believe that. But we also
like Time Warner, Bristol-Myers Squibb, Philip Morris
and Wal-Mart. I think the sleeper sector of the year
could be energy.
Q. Those are all big companies. People keep saying
small-company shares will outperform. You don't share
that view, do you?
A. I think big-cap stocks will continue to dominate.
The market value of the entire Russell 2000 index is
roughly equal to the market cap of General Electric
plus Microsoft. In the mid-1970s, small-cap stocks had
a couple or three years when they did extraordinarily
well. But since then that has not been the case. And
the reason is the individual investor, who is now the
market's driving force. Individuals are much more
focused on things they know, use and buy.
Q. And the United States is where to invest?
A. I like this market above all others. You still have
the Asian problem, which makes other places less
enticing. And people will have questions about Europe
as the monetary union is implemented.
Copyright 1999 The New York Times Company
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