Barton Biggs feels we can have just a cyclical bear market and not a secular one, which is relatively upbeat news...
Less Growling From This Bear
Andy Serwer
10/29/2001
Fortune Magazine
Time Inc.
Page 191
(Copyright 2001)
Barton Biggs was right. The market was overvalued. Terribly overvalued, and now, of course, it's all come crashing down. Barton, for those of you who've spent the last five years obsessing over the slow-burn decline of the Washington Redskins, is chairman of Morgan Stanley Investment Management and seemingly a perma-bear. Barton also happens to be one of Wall Street's great writers and a rather literary fellow too. In his latest weekly report, for instance, he quotes Macbeth's Banquo, asking the witches for guidance:
If you can look into the seeds of time, And say which grain will grow, and which will not, Speak then to me, who neither beg nor fear Your favours nor your hate.
I recently visited Barton in his office high atop Rockefeller Center. Barton was, well, Barton, which is to say, analytical and absolutely matter-of-fact. (I wouldn't exactly describe Barton as the warmest guy in the world. You wouldn't want to call him "Bart," for instance. But who cares? Want a friend on Wall Street? Buy a dog.) Anyway, the question is, Where is Barton's head at, now that the Dow is down 23% from its high, the S&P is off 30%, and the Nasdaq has tumbled a gut-wrenching 68%?
"The risks of holding cash have increased significantly," he says. "The market is oversold." What?!?! Is Barton finally bullish?! Well, that would be oversimplifying. A better way to put it is that Barton is less bearish than he was before. And to be fair, his perspective continues to shift--as well it should--as events unfold. After the recent retaliatory strikes by the U.S. in Afghanistan, for instance, he has become less bullish. "The market probably made some sort of bottom in the week after the attack," he says. "But if you look at market history, you almost never have a V bottom. You retest the lows, and I think we likely will this time."
The big question for Barton--for all of us--is whether we are in a "secular" or a "cyclical" bear market . Let me 'splain. A cyclical bear market means we are just in a normal stock market downturn that is part of the ordinary business cycle. What's a secular bear market ? I'll let Barton describe it: " 'Secular' means a deep and prolonged recession, with whiffs of deflation, and a bear market in which the principal equity indexes fall at least 40% from their peaks and from which the next bull market doesn't emerge for years. Secular experiences feature despair and debt liquidation, and they invariably result in major alterations in the social, economic, and financial landscapes. Survival becomes an important consideration in decision- making. The 1930s and the 1970s were secular bear markets. Japan and Nasdaq [right now] are secular." Nice.
If we are in a cyclical bear market , Barton says, equities are a buy now. If we are in a secular bear market , they are not. Thankfully, Barton is in the cyclical camp: "To get to a secular bear market , you need three things. First, a bubble has to burst. We had that. Then you need a bolt from the blue. We had [the terrorist attack]. Then you need policy errors by the government, but I don't think we will have that. The tax cuts, the Fed easing, the stimulus packages are all the right things to do. Keynes had some good ideas sometimes," he says with a wry grin.
So, bottom line, Biggs believes the slump will be deeper now, but that we may recover faster too. There will be an intermediate rally, in which technology, media, and telecom outperform (e.g., Cisco goes from $14 to $30), but after that the sector could be "dead for years." Europe and emerging markets could well do better than the U.S., which "could be the worst big market in the world for a half- decade," he says. It's not all bad, though: "Look, we have been very bearish for a while now, but we are coming off that position," he says. From Barton, that's positively upbeat. |
