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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (37305)	5/26/2001 2:58:51 PM
From: T L Comiskey	Read Replies (1) \| Respond to of 65232

From the SF Examiner............. Return of the Analyst By Martha Smilgis Special To The Examiner Fasten your seat belts. Fear has run its course. The stock market is accelerating. Sure, the ride will be a bumpy, but after we break through the second-quarter earnings barrier, blue skies are ahead. Blue enough, anyway, for investors to see which companies will generate decent earnings once more. With renewed faith and increased investment into equities, analysts -- those emissaries of optimism skillfully deployed by their employers, the Wall Street Manipulators -- are destined to reappear on media business screens. Although scorned by the press and vilified by investors, there's no chance these rascals will pass up an opportunity to again empty investors' pockets. Cynics even dispute their disappearance, convinced the Manipulators merely disguised them as "strategists" and "economists." Most recently, these somber CPA and Ph.D. types were dispatched to the media to instill confidence in the future of the American economy. Certainly, the task of these older, wiser hand-holders was to help wounded investors through the down times. But with increasing strength in the market, the opportunistic analysts will return in force. In the market, as in life, those who forget the past are destined to suffer. The following is some cautionary advice to keep investors on guard. Although the Manipulators prefer to hire MBAs, the job of analyst is in a "non-entry field." That means no government or industry licensing is required. (Scary, considering elevator operators and even asphalt mixers have to pass an exam.) Moreover, a specialization, such as biochemistry, can actually elevate a neophyte number cruncher to a senior biotech analyst overnight. These days, instead of just traditional research, quantitative analysis is the rage. What this means is that hotshot analysts bring added math skills to momentum evaluation, a technique they unfortunately demonstrated in the bubble of 2000. When a stock soars, analysts swarm all over it like locusts. But when the same stock plunges, they peel away because their handlers -- the Manipulators -- can't make money. This was especially evident with small-cap companies, often IPOs, cheered on by analysts paid by the underwriting firms that brought the companies public. The one positive aspect of the tech debacle was the obvious absurdity of analyst cheerleaders and their hyperbolic price targets. The most notorious were perhaps Henry Blodget of Merrill Lynch and Mary Meeker of Morgan Stanley. Once reigning King of the Internet, Blodget has still managed to retain his status as No. 1 Net analyst in a recent poll. Mary Meeker, however, disappeared from the radar screen after quietly acknowledging regret over enthusiastic BUY orders on Morgan Stanley's IPOs. Many of them subsequently crashed to earth, down 96 percent in some cases. (In 1999-2000, Morgan Stanley took $479.6 million in IPO fees. Meeker's reported salary was near $15 million.) But analysts' greatest failing is their inability to forecast earnings growth. In March 2000, many predicted nine large-cap tech companies with P/Es more than 100 would grow 20 to 50 percent annually during the next 10 years. They also predicted a 25 percent growth in the telecom and tech sectors -- now abruptly revised to minus 5 percent for tech and minus 13 percent for telecom for this year. If they are so far off the mark in the short term, how can they possibly predict five years out with any credibility? They can't. And they didn't even do a decent job of warning investors about the collapse of the tech sector. Their lame excuse for the paucity of their "downgrades" is that such calls will send the stocks plummeting. Duh? According to tech entrepreneur John Wilczak, "an analyst is essentially an investigative reporter who can run numbers. What distinguishes a good analyst from a mediocre one is the level of his detail." Of course, there are smart number crunchers with unbiased viewpoints among the group. Most recently, Holly Becker, the Internet analyst at Lehman Brothers, broke with the pack to upgrade Yahoo! The pulverized stock rallied 23 percent, though still down 91 percent from its 52-week high. Cynics maintain Becker had more freedom than most because Lehman Brothers puts little investment into the Internet sector. Maybe this time analysts will serve as contrarian indicators for investors. Consider that in March 2000 their upgrades to downgrades were 2.5 to 1 -- a perfect sell sign. By January 2001 downgrades had risen to 2.5 to 1 -- a perfect time to buy. Another contrarian rule: when more than six analysts issue a STRONG BUY, investors should consider selling. Every other recommendation -- HOLD, NEUTRAL, OUTPERFORM -- is a euphemism for SELL PRONTO!