Wall Street strategists: Too clever by half?
By Per Jebsen
NEW YORK, Feb. 13 (Reuters) -- Wall Street strategists are very, very smart -- yet some investors, remembering last year's host of wrong market calls, refuse to be impressed by the dazzling displays of brilliance.
Most often, the highly paid market gurus express their intellects through mastery of numbers, charts, and market jargon, demonstrating an ability to make intriguing comparisons between the price-earnings multiples of today and yesteryear.
Surprising inklings of brilliance, hints of literary and philosophical wit also can creep into their prose. Consider the following captions:
``Gorillas in the Mist'' ... ``Archimedes Has Not Left the Building'' ... ``The Unwitting Creation of an Uber V Forecast'' ... ``No longer Buck Naked, But Still No Armani'' ... ``An Anti-Lake Wobegon View of the World.''
A rube might, at first glance, assume that these were poems or perhaps film school projects. Instead, the captions are from the weekly output of Steve Galbraith, Morgan Stanley's (NYSE:MWD - news) new chief U.S. investment strategist.
Lehman Brothers (NYSE:LEH - news) strategist Jeff Applegate last week spoke of how stock prices ``are simply the reified form of profit expectations.'' Credit Suisse First Boston guru Tom Galvin this week titled his strategy piece, ``I Love LUCI,'' a reference both to the venerable TV sitcom and to the Liquid U.S. Corporate Bond Index.
Some incorrigible souls reject these intellectual pyrotechnics, having written off all strategists for the sins of the many who made predictions such as that the Standard & Poor's 500 Index (^SPX - news) would rise several hundred points last year, when in fact it fell 13 percent.
``You can't turn on the television or pick up a newspaper without it being full of these birds,'' said Martin Whitman, chairman of the Third Avenue Funds, a mutual funds group.
``They're in the business of giving comfort but they don't really know anything,'' he said. ``Who can predict the market? Nobody, really.''
The stature of Wall Street strategists has been diminished by the demise of the great '90s bull market, which caused the bullish forecasts of market seers such as Goldman Sach's (NYSE:GS - news) Abby Joseph Cohen, UBS Warburg's Ed Kerschner, CSFB's Galvin and Lehman's Applegate to prove less than prescient.
``Their crystal ball doesn't seem to be all that translucent,'' said William Rutherford, president and chief executive of Rutherford Investment Management. ``I'd prefer some hard facts, and they have opinions ... they're frequently not very helpful opinions.''
Aficionados demur that the strategists are in more than the business of saying stocks will trade at such and such level on a given day -- and that their opinions contain valuable insights into the market's direction.
For Galbraith, who took over from Morgan Stanley's veteran stock picker Byron Wien at the start of December, references that might seem opaque often tie in neatly with particular themes above investing.
Gorillas in the Mist, the title of a 1988 movie starring Sigourney Weaver that shows apes to better advantage than humans, refers to how category leaders are growing ever stronger while their competitors lag. Archimedes, the ancient Greek mathematician and engineer whose fame in part rests on solving a problem of leverage, signifies U.S. companies' stubbornly high debt and hence earnings volatility. An Uber V Forecast, which has overtones of German philosopher Friedrich Nietzsche, describes the current, mistaken consensus projection of sharp earnings recovery in the fourth quarter.
Talk of reified profit expectations and mention of classical thinkers has purposes beyond idle wordsmithery.
Strategists such as Galbraith, Applegate or Galvin wield their erudition to impress an elite audience of wealthy investors and key money managers -- and to garner favorable mention for their employers in the media and elsewhere. The gurus come in handy as speakers at industry luncheons and panels, or for hobnobbing with clients at fancy shindigs.
``They are to the securities world what the news anchors are to the cable and TV networks, said Marshall Front, chairman of Front Barnett Associates, which has $2.3 billion of assets. ''They're the point people for a lot of news and information."
Indeed, it is dangerous for strategists not to make themselves heard above the din and clamor of Wall Street research. Former Merrill Lynch (NYSE:MER - news) chief strategist Christine Callies was replaced last year by quantitative expert Rich Bernstein in part because her bosses concluded she had failed to attract enough outside attention.
Don't dismiss strategists out of hand, supporters say.
Wall Street gurus are ``interesting to read, not as interesting as something that's real literature, but some of the writers are really quite clever,'' said Front Barnett's Front.
``Would I base my investment approach on these utterances? No,'' he said. ``But they have interesting insights and occasionally there's a nugget that's worth pondering.''
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