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Strategies & Market Trends : Strictly: Drilling II -- Ignore unavailable to you. Want to Upgrade?

To: Frank Pembleton who wrote (5141)	12/11/2001 7:32:42 AM
From: Frank Pembleton	Read Replies (1) \| Respond to of 36161

This rebound is 'a sucker's rally' 'Everybody's living for the moment. So is the market' Diane Francis -- Financial Post NEW YORK CITY - The recent stock market rebound is a sucker's rally, according to top Wall Street analyst Doug Cliggott of JP MorganChase. "I would never have expected it to go up as much as it has," he said in an interview yesterday. The market tanked one week after it reopened following the Sept. 11 terrorist attacks, hit bottom Sept. 21 and has rallied dramatically since. MorganChase's portfolio is 50% equities and the rest bonds and cash. The equities include mostly "defensive" buys such as healthcare, food and beverage stocks as well as some cyclicals, such as energy and steel stocks. "But you should have lots of cash," he said. "In three to six months, there will be more oppportunities to buy stocks. Then you should buy the dip. But right now, you should stop losses and take gains to be in cash." However, this award-winning analyst (managing director and Chief Equity Strategist), ahead of the pack before 9-11 but not after, missed the recent rally because he said it makes no sense. "The risk is that we're right about fundamentals and wrong about the market," he said. The facts are that the market has been performing well. From the recent low of Sept. 21, the Dow has gone from 8,235 to around 10,120; the NASDAQ from 1,423 to 2,047; the TSE300 from 6,513 to 7,598. The biggest gains have occurred in the past month -- since the liberation of the Afghan capital of Kabul. Perhaps this is coincidental. Perhaps it is not. Since then, the Dow Jones is up 7%; NASDAQ 14%; TSE300 9%; Germany 11%; Sweden 13%; Japan is flat; and Korea is up 26%. "It's hard to quantify if that [liberation of Kabul] was the reason. There are other reasons why it's up and shouldn't be," he said. Despite the recovery of the past few weeks, current values are back to levels of three years ago, September 1998, after the Long Term Capital crisis and bailout of some speculative hedge funds by the federal government. "You need an explosion of earnings next year to justify where we are," he said. So why the increases, I ask? "First, the market has a lot of students. There are more retail investors than ever. There are more mutual funds than listed stocks," he said. "The second reason is that we know the average recession has lasted 11 months. Because this one started in March, the arithmetic tells you it should be over in February. We also know the average bottom is five months before the end. That's September," he said. But Mr. Cliggot believes that this recession will last longer because of the poor earnings outlooks for most companies. "There's a lot of bad news ahead of us. It's pretty crummy," he said. Traders who believe the only way is up, however, point to Federal Reserve Board easing of money supply and a "wall of money" being wagered in the stock market. "You can go into the stock market with lots of cash and put it up, but at the end all you are really buying is discounted future earnings and my guess at earnings growth for the next year is zero," he said. "A third reason which may explain the rising market is momentum. These are technicians who are trading," he said. "But momentum works until it stops." "The fourth reason, related to momentum, is that there are more mutual funds than stocks. They are exaggerating the momentum moves. This is because they are paid by relative performance and must try to be ahead of the pack wherever they think the pack is going," he said. Mr. Cliggott said he is also perplexed as to why the market has not reacted negatively to the Enron and Argentina financial crises. "I'm between surprised and shocked at how little effect these situations have had. This is why I think the market is pretty dangerous right now," he said. "The world's in a recession and it might not be that easy to get out of." Market believers point to the fact that the U.S. consumer is spending despite the attacks and that while retailers and car companies are deeply discounting prices, their suppliers and they will eventually earn big profits on the selling surge. "The U.S. consumer is going nuts. There were 20 million cars sold in October. This is extraordinary. But the companies are losing money on each sale," he said. "Same in retail. We have been over-stored for years but now we are satiated with goods. No one needs anything. There's no question, 9-11 was good for the consumer. People are spending on movies, cars, condoms, restaurants. They are living for the moment," he said. "And so is the market." nationalpost.com