Well you know this means WAR,Tug-of-War between the daBulls & daBears.
Scott:
Here is an interesting interview that covers both sides of the spectrum,I think Bernstein the 'bear' seems unsure of himself and at this point going by his argument he looks like a scared and reluctant bear quite unsure of himself.Well you guys decide.
Source:NRB 8/27/98
The Bull & The Bear Do Battle
SUSIE GHARIB: We have two guests this evening with different points of view. Mike Holland is bullish and says he's "as optimistic as I've been in five years." He's been a top strategist at Wall Street firms like Salomon Brothers and First Boston. He now runs his own investment firm, Holland and Company here in New York City. Richard Bernstein is bearish. He's the chief quantitative strategist at Merrill Lynch and turned bearish on the markets only recently. Good evening, gentlemen. Nice to have you with us. Thanks for joining us.
BOTH: Susie, good to be here. Thanks.
GHARIB: Mike, let me start with you. There are so many negative forces and negative elements in the markets that I could point to. Not to mention that today, on the New York Stock Exchange, about 1,000 new lows which is, a record. Why are ...
MIKE HOLLAND, CHAIRMAN, HOLLAND & COMPANY: What am I missing? (LAUGHTER)
What is wrong with me!
GHARIB: Yes! What's wrong with this picture.
HOLLAND: Well, partly, just what you said, is part of the reason. When things are cheap, it's usually an interesting time to think about buying. Whether it's cars or stocks. I think that I am led, first of all, by the bond market. I think that as much of a great move as we've had upward in price and down in yields, I think we actually are going further. I think we are going below 5 percent. I think profits in the U.S. are going to look tremendous relative to the rest of the world. I'm not, gain-saying, the world has a lot of problems. And there are companies in the U.S. that will have problems, as well. I think the biggest, strongest companies in the U.S. Two-thirds of this economy, don't forget, are consumer expenditures. I think we're going to have a great consumer outlook given the decline in interest rates, and the decline in commodity prices.
GHARIB: Rich, it's kind of interesting because up until about a few months ago, you were very, very bullish. And now you've turned bearish. And you're talking about a profits recession, which is just the opposite of what Mike was saying.
RICHARD BERNSTEIN, CHIEF QUANTITATIVE ANALYST, MERRILL LYNCH: Correct. I think I agree with Mike in terms of the bond market and we think the bond is extremely attractive. Even now, with the rallies we've seen. And that's why we altered our asset allocation back at the beginning of June, overweighting bonds for the first time for 3 1/2 years.
GHARIB: But why are you bearish?
BERNSTEIN: The bearish side is we think that earnings are going to be very weak. In fact, as you mentioned, we think we're going to be in a profits recession this year. The negative of earnings will outweigh the positive of falling long-term interest rates. That's our view.
GHARIB: How much further do we have to go on the Dow and the NASDAQ? I mean, a lot of the bears who I was talking to today say, lot more to go. But even some of the bulls were nervous.
BERNSTEIN: Right. Well, I think the trend is definitely down, from my point of view. I think the problem right now is that the Fed's hands are tied. Really, we'd like to see central banks easing. We want to see them putting liquidity into the global markets, into the global economies. But the U.S. economy is strong. Bank of England has a problem with inflation. You're not going to see central banks easing anytime soon. You know, is the Fed really concerned that Malaysia is having trouble when our domestic demand, as Mike pointed out, is very strong. The U.S. consumer is strong. Why should they worry about Malaysia.
GHARIB: How much further does it all-going to go? Which way-up or down?
HOLLAND: Oh, I hope it's up. And I actually believe, Susie, all kidding aside, that between now and the end of the year, we have a chance to go at least 10 percent higher.
GHARIB: From where we are right now, at the 8200 level.
HOLLAND: From where we are right now. Yes. And the divergence. I've listened to Rich for years. He's been right so often. I'm always worried when smart people have a different opinion than I do. In this case, I think that we have a very significant difference of opinion. In part, for me, because I think the consumer is going to reap the benefits of the problems that we have in Russia.
GHARIB: Well, let's talk about the consumer. There is a lot of negative sentiment out there. I mean, I see all the points that you are saying. But at what, how can you be so sure that sentiment is going to stay on the positive side? Is it turning?
HOLLAND: Can't be sure, but we've had a massive tax cut throughout the year, and we continue to get it. The tax cut I'm talking about is declining interest rates. All these refinancing of mortgages. It's putting cash in people's pockets. And every time these commodity prices go down, what that means is when you and drive up to the gas pump, we pay less than $1. We buy any of our commodities for a lower price. I mean, it's more cash in our pockets. Real wages in the U.S. are going up dramatically.
GHARIB: All right. And a lot of that cash is going to money managers.
BERNSTEIN: Absolutely.
GHARIB: I mean, this is the bullish market.
BERNSTEIN: Absolutely.
GHARIB: We have money managers flushed with cash. It's sitting on the sidelines. It's going to go into the market. I mean, how do you account for that?
BERNSTEIN: Right. Well I think the problem may be, you know, over the next several months here. There's a shortage of investments. You know, we talked a lot about the leadership in the stock market being very narrow. Those have mostly been consumer stocks. Largely because of what Mike's talking about. I think you're going to find that a lot of that money is going to continue to flow into the bond market. I think we shouldn't assume that because there's liquidity, it has to go into equities. It could easily go into bonds. In fact, we've talked a lot about the bond vigilantes coming back. The guys in the '80s that used to raise long-term interest rates, force the Fed to raise rates. They're going to come back. They're going to rally long-term bonds. Push interest rates down. Force the Fed to actually ease.
GHARIB: OK, real quickly, we just have a few seconds left. From each of you. You've got some cash. You're saying put it in bonds. Where are you saying to put it?
HOLLAND: Blue chip stocks and bonds, treasury bonds.
GHARIB: All right. Any particular stocks that you like right now?
HOLLAND: Love the technology, love the financials. They've both been killed in this market. I love the blue chip technologies and financial.
GHARIB: You're saying putting some money in stocks. But would you put them in those?
BERNSTEIN: I wouldn't put them in financials and technology, I hate to disagree there. I would put them in the biggest and the best. Mostly consumer non-durables or high quality retailers is what I'd look at.
GHARIB: All right. Thank you very much. We appreciate having your perspective, especially on a day like this.
BOTH: Thanks.
GHARIB: Thank you, gentlemen. We've been speaking with Mike Holland of Holland & Company, and Rich Bernstein of Merrill Lynch. Our bull and bear guests this evening.
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