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Strategies & Market Trends : Cents and Sensibility - Kimberly and Friends' Consortium -- Ignore unavailable to you. Want to Upgrade?

To: Paul McWhinnie who wrote (90409)	3/30/2000 12:52:00 AM
From: puborectalis	Read Replies (1) \| Respond to of 108040

Abby Joseph Cohen, OPEC storm Wall Street By Don Luskin Metamarkets.com, March 29, 2000 New Economy? Hardly. Today's market is a blast from the past, a true golden oldies hit-parader. With oil at its highest price since the Gulf War and the sheiks in oligarchic session, OPEC (Organization of the Petroleum Exporting Countries) watching is back! How many of you are old enough to remember the oil crisis, when markets hung on every word emanating from OPEC, every gesture made by robed men wearing dark glasses, issuing from their stretch limos in front of the poshest hotels in the world? What glorious 1970s nostalgia -- even better than the Broadway revival of Saturday Night Fever. And what a pleasant pastime it is, compared to the drudgery of deconstructing the thickness of Federal Reserve Chairman Alan Greenspan's briefcase to look for rate-hike clues. But Tuesday's main event was 1980s nostalgia. How many of you remember that morning in January in 1980 -- or was it 1981? -- when the perennially bullish guru of the moment, Joseph Granville, suddenly reversed himself by turning bearish? Markets collapsed for all of a day, and then resumed their march skyward. In gender-correct 2000, Joseph has become Abby Joseph -- Goldman Sachs (NYSE: GS) star strategist Abby Joseph Cohen -- another perennial bull who said this morning she was reallocating her model portfolio from 70 percent equities to 65 percent. She took the 5 percent out of equities and put it into cash. Ms. Cohen has been renowned for sticking to a bullish, and winning, stance throughout the 1990s, even as many others started talking about bubbles and panics and downturns as far back as 1996. When the analyst that has been appointed the leader of the bull brigade says it's time to take some money off the table, people sit up and take notice. Why did Ms. Cohen reduce her stock allocation? Turns out it's simply the output from her asset allocation model, a quantitatively driven formula that creates ideal risk-adjusted portfolio weightings between stocks, bonds, cash, and commodities. Today the model suggested a return to what she calls "normal weights" -- and no longer overweight technology stocks. It's not such a remarkable call when you consider that the Dow Jones Industrial Average has whooshed back up over 11,000, the S & P 500 is at new highs, technology stocks have risen stratospherically, and the Fed seems committed to a tightening policy. But never mind why she says it. It's sufficient that she says it at all -- in the short term. That's because markets are driven not only by expectations about reality, but also by expectations of other investors' expectations -- and so on in infinite regress. Talking heads, even the most influential -- whether they be a Joseph or an Abby Joseph -- have only a fleeting effect on the market in the longer term, even though their effect can be significant for a day or so. Investors that follow Ms. Cohen's comments may sell, and others figuring that followers will sell, will sell too. But even with markets closing at the lows of the day, the effect of the remark today was actually less than many people feared before the opening. If there was a collapse, I definitely missed it. In the longer term, the market is full of opinions, and one more opinion, without any particular factual change to back it up, is soon absorbed into the mix and forgotten. As one visitor to a discussion board at Metamarkets.com wrote this morning, "As long as Alan G-spot doesn't mess with Nasdaq margin requirements, let Abby encourage her listeners to experience the wealth effect. She hopes they spend it at old economy companies and boost their earnings. "Both she and Greenspam use that 8-ball you may have seen in a recent TV ad," the person said. That 8-ball crack is not too far off the mark -- the Fed [Federal Open Market Committee, or FOMC] is known to use a model for the relative valuation of stocks and bonds in many ways similar to Ms. Cohen's. The difference is that while Ms. Cohen's call merely suggests that stocks may no longer have a risk-adjusted advantage over bonds for the time being, Mr. Greenspan has the ability to make his "predictions" a reality. And the effects won't go away after a day or two.