New Jersey Lottery May Trump Turnpike for Corzine Asset Sale
Rehlaender Bets on Asia Real Estate After Europe Made Him No. 1
Loss at Goldman Hedge Fund Racks Duo at Secretive Global Alpha
Wednesday, January 31, 2007
Tuesday, January 30, 2007
Bernanke's Conundrum: Job Market Refuses to Slow With Economy
Bernanke's Conundrum: Job Market Refuses to Slow With Economy
Bloomberg, 2007-01-30
By Scott Lanman
Call it the Federal Reserve's new conundrum: If the U.S. economy has slowed as much as some data suggest, why is the labor market still so strong?
Chairman Ben S. Bernanke and his colleagues are debating the significance of an unemployment rate that's near a five-year low and 2006 job growth that's almost as strong as the prior year's. Either the labor market is lagging behind the slowdown by a few months, or the economy is stronger than official numbers suggest.
Better-than-forecast growth would increase the danger that the Fed, whose policy makers meet today and tomorrow to set interest rates, will lose ground in its fight against inflation. San Francisco Fed President Janet Yellen, calling the situation a ``puzzle,'' says there's a ``serious risk'' of faster price increases.
``The labor market has proved surprisingly tight in the face of what has been a decent slowing in growth,'' said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York, who predicts the Fed will raise interest rates by year-end. It's the ``key issue in the inflation outlook.''
Minutes from the Fed's last Open Market Committee meeting cited the labor market as members' chief inflation concern, and economists expect a similar signal in the Fed's statement tomorrow. The strength in employment is dashing some investors' hopes of a rate cut anytime soon.
Last month, policy makers left their benchmark lending rate at 5.25 percent for the fourth straight meeting after ending two years of increases in August, betting that economic growth was slowing enough to bring inflation down. All 107 economists surveyed by Bloomberg News forecast the Fed will again leave the rate unchanged.
`Gangbusters'
There is little dispute among Fed officials and economists about the demand for labor. Yellen, 60, told an audience in Scottsdale, Arizona, on Jan. 17 that the labor market is ``going gangbusters,'' language she repeated in Reno, Nevada, five days later.
Employers last month added 167,000 workers, capping a year in which growth averaged 153,000 a month compared with 165,000 a month in 2005. The December unemployment rate of 4.5 percent was the lowest year-end level since 2000 and was down from 4.9 percent a year earlier.
The chief U.S. economic-growth indicator has been giving the opposite signal. Expansion in gross domestic product slowed to a 2 percent annual pace in the third quarter from 2.6 percent in the three months through June and 5.6 percent in the first quarter.
Expanding Economy
The signal may change this week. The government's initial estimate of fourth-quarter GDP, to be published tomorrow, will show growth accelerated to a 3 percent rate at the end of 2006, according to the median estimate in a Bloomberg survey of economists.
Economists raised their predictions this month after higher- than-forecast retail sales and a narrower trade deficit bolstered the notion that the economy may be in better shape than earlier figures indicated.
``This disconnect story looked much more compelling several weeks ago, when the fourth quarter looked weaker,'' said former Fed Governor Laurence Meyer, now vice chairman of forecasting firm Macroeconomic Advisers LLC in Washington.
Labor Costs
A report tomorrow from the Labor Department may show its employment cost index, a measure of compensation costs, rose 1 percent from October to December for the second straight quarter, the fastest pace in more than two years. That comes as average hourly earnings last month jumped 4.2 percent from a year earlier, a gain last exceeded in 2000.
Yellen says she doesn't consider such readings troubling. Over the past year, increases in the employment cost index have been ``remarkably restrained,'' she said in her January. 22 speech. Overall, the labor market shows ``at best a mixed picture'' and the situation is more likely to be ``benign,'' she said.
One economist who agrees is Jim O'Sullivan of UBS Securities LLC in Stamford, Connecticut.
``We do think ultimately that growth is going to weaken enough to push unemployment up,'' he said. ``I don't think there's any doubt that if real GDP stayed as weak as 2 percent, that the unemployment rate will start going up.''
UBS expects the jobless rate to rise to 5.1 percent in the fourth quarter and real GDP to increase at a 2.2 percent rate for the full year.
This would ease the Fed's main inflation concern. Other economists reckon unemployment is likely to fall.
`Tight Resources'
``If the unemployment rate falls further, as I'm thinking, later on this year, that will create additional tight resources; workers will demand greater wages; and that can push up inflation in the future,'' said Christopher Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``That's why the Fed would want to restart its rate hikes.''
Some economists say the job market's strength may not be a puzzle at all; instead, it could be evidence that borrowing costs are still low enough to stimulate investment. In fact, this conclusion is shared by analysts with opposing views on whether there's a tradeoff between inflation and unemployment.
``When the Fed gets easy, typically, but not always, you'll see a tightening labor market and a more rapidly growing economy,'' said Brian Wesbury, chief economist at First Trust Advisors LP in Lisle, Illinois, and a former economist for Republicans in Congress.
Assistance From Fed
Jared Bernstein, an economist at the union-backed Economic Policy Institute in Washington, said the Fed's rate stance is ``absolutely'' helping the labor market by not being too restrictive.
The extent to which the job market's tightness generates inflation may depend on something outside the Fed's control: productivity. Richmond Fed President Jeffrey Lacker, the only official to publicly favor higher interest rates in the second half, said on Jan. 19 that productivity growth will keep any wage-inflation in check.
Bernanke, 53, doesn't see a productivity slowdown yet. He said in an August speech that ``strong'' growth in productivity will probably go on for ``some time'' as companies make better use of computers to raise workers' per-hour output.
``The key unknown is projections of what productivity is going to be,'' said New York University economics professor Mark Gertler, who taught Lacker in the early 1980s at the University of Wisconsin and has collaborated on research with Bernanke. ``The economy can weather high wage adjustments if they're accompanied by high productivity growth.''
Bloomberg, 2007-01-30
By Scott Lanman
Call it the Federal Reserve's new conundrum: If the U.S. economy has slowed as much as some data suggest, why is the labor market still so strong?
Chairman Ben S. Bernanke and his colleagues are debating the significance of an unemployment rate that's near a five-year low and 2006 job growth that's almost as strong as the prior year's. Either the labor market is lagging behind the slowdown by a few months, or the economy is stronger than official numbers suggest.
Better-than-forecast growth would increase the danger that the Fed, whose policy makers meet today and tomorrow to set interest rates, will lose ground in its fight against inflation. San Francisco Fed President Janet Yellen, calling the situation a ``puzzle,'' says there's a ``serious risk'' of faster price increases.
``The labor market has proved surprisingly tight in the face of what has been a decent slowing in growth,'' said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York, who predicts the Fed will raise interest rates by year-end. It's the ``key issue in the inflation outlook.''
Minutes from the Fed's last Open Market Committee meeting cited the labor market as members' chief inflation concern, and economists expect a similar signal in the Fed's statement tomorrow. The strength in employment is dashing some investors' hopes of a rate cut anytime soon.
Last month, policy makers left their benchmark lending rate at 5.25 percent for the fourth straight meeting after ending two years of increases in August, betting that economic growth was slowing enough to bring inflation down. All 107 economists surveyed by Bloomberg News forecast the Fed will again leave the rate unchanged.
`Gangbusters'
There is little dispute among Fed officials and economists about the demand for labor. Yellen, 60, told an audience in Scottsdale, Arizona, on Jan. 17 that the labor market is ``going gangbusters,'' language she repeated in Reno, Nevada, five days later.
Employers last month added 167,000 workers, capping a year in which growth averaged 153,000 a month compared with 165,000 a month in 2005. The December unemployment rate of 4.5 percent was the lowest year-end level since 2000 and was down from 4.9 percent a year earlier.
The chief U.S. economic-growth indicator has been giving the opposite signal. Expansion in gross domestic product slowed to a 2 percent annual pace in the third quarter from 2.6 percent in the three months through June and 5.6 percent in the first quarter.
Expanding Economy
The signal may change this week. The government's initial estimate of fourth-quarter GDP, to be published tomorrow, will show growth accelerated to a 3 percent rate at the end of 2006, according to the median estimate in a Bloomberg survey of economists.
Economists raised their predictions this month after higher- than-forecast retail sales and a narrower trade deficit bolstered the notion that the economy may be in better shape than earlier figures indicated.
``This disconnect story looked much more compelling several weeks ago, when the fourth quarter looked weaker,'' said former Fed Governor Laurence Meyer, now vice chairman of forecasting firm Macroeconomic Advisers LLC in Washington.
Labor Costs
A report tomorrow from the Labor Department may show its employment cost index, a measure of compensation costs, rose 1 percent from October to December for the second straight quarter, the fastest pace in more than two years. That comes as average hourly earnings last month jumped 4.2 percent from a year earlier, a gain last exceeded in 2000.
Yellen says she doesn't consider such readings troubling. Over the past year, increases in the employment cost index have been ``remarkably restrained,'' she said in her January. 22 speech. Overall, the labor market shows ``at best a mixed picture'' and the situation is more likely to be ``benign,'' she said.
One economist who agrees is Jim O'Sullivan of UBS Securities LLC in Stamford, Connecticut.
``We do think ultimately that growth is going to weaken enough to push unemployment up,'' he said. ``I don't think there's any doubt that if real GDP stayed as weak as 2 percent, that the unemployment rate will start going up.''
UBS expects the jobless rate to rise to 5.1 percent in the fourth quarter and real GDP to increase at a 2.2 percent rate for the full year.
This would ease the Fed's main inflation concern. Other economists reckon unemployment is likely to fall.
`Tight Resources'
``If the unemployment rate falls further, as I'm thinking, later on this year, that will create additional tight resources; workers will demand greater wages; and that can push up inflation in the future,'' said Christopher Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``That's why the Fed would want to restart its rate hikes.''
Some economists say the job market's strength may not be a puzzle at all; instead, it could be evidence that borrowing costs are still low enough to stimulate investment. In fact, this conclusion is shared by analysts with opposing views on whether there's a tradeoff between inflation and unemployment.
``When the Fed gets easy, typically, but not always, you'll see a tightening labor market and a more rapidly growing economy,'' said Brian Wesbury, chief economist at First Trust Advisors LP in Lisle, Illinois, and a former economist for Republicans in Congress.
Assistance From Fed
Jared Bernstein, an economist at the union-backed Economic Policy Institute in Washington, said the Fed's rate stance is ``absolutely'' helping the labor market by not being too restrictive.
The extent to which the job market's tightness generates inflation may depend on something outside the Fed's control: productivity. Richmond Fed President Jeffrey Lacker, the only official to publicly favor higher interest rates in the second half, said on Jan. 19 that productivity growth will keep any wage-inflation in check.
Bernanke, 53, doesn't see a productivity slowdown yet. He said in an August speech that ``strong'' growth in productivity will probably go on for ``some time'' as companies make better use of computers to raise workers' per-hour output.
``The key unknown is projections of what productivity is going to be,'' said New York University economics professor Mark Gertler, who taught Lacker in the early 1980s at the University of Wisconsin and has collaborated on research with Bernanke. ``The economy can weather high wage adjustments if they're accompanied by high productivity growth.''
Junk Bonds are Overvalued, Defaults to Rise, NYU's Altman Says
Junk Bonds are Overvalued, Defaults to Rise, NYU's Altman Says
Bloomberg, 2007-01-25
By Caroline Salas
High-yield, high-risk bonds are overvalued and may tumble as default rates in the U.S. more than triple this year, said Edward Altman, a New York University professor who in the 1960s created a widely used mathematical formula that measures the risk of bankruptcy.
Altman predicts 2.50 percent of the $1.1 trillion junk bond market will default this year, up from 0.76 percent at the end of 2006. The rate will climb to 2.72 percent in 2008, he said last night at a Fixed-Income Analysts Society Inc. event in New York.
With companies having little trouble meeting interest payments, investors have pushed yield premiums on speculative- grade bonds to the lowest in a decade. Junk bonds yield 2.63 percentage points more than Treasuries on average, down from 3.54 percentage points a year ago, according to data compiled by Merrill Lynch & Co..
Even with a ``modest spike'' in defaults, ``it's hard to see how this market is going to do well,'' Altman, 65, said. Some investors predict default rates will remain below 1 percent this year and ``they have to say that'' to justify why they are buying bonds at such narrow yield spreads, he said.
Junk bonds are rated below Baa3 at Moody's Investors Service and below BBB- at Standard & Poor's. The securities returned 11.8 percent last year, including reinvested interest, their second- best performance since 1997, Merrill Lynch index data show. Bonds rated CCC and lower did the best, gaining 18.6 percent.
Z-Score
Altman in 1968 created the Z-score, a mathematical formula that measures a company's bankruptcy risk. Ratios such as working capital, or the amount of money available to run a business, to total assets are used in determining the Z-score. The lower the score, the higher the risk of bankruptcy.
Money from hedge funds and private equity firms are giving the riskiest borrowers access to capital and keeping default rates low, said Altman, who predicted in January 2005 the rate would rise to 4.27 percent last year from 3.37 percent.
``Just about everybody who forecast defaults was wrong,'' said Altman. ``I don't know if I am eating humble pie.''
Cheap debt has helped fuel a record amount of leveraged buyouts, where takeover firms use a combination of their own funds and debt issued in the target's name to fund the acquisition. Private equity firms and management announced more than $700 billion of takeovers last year, a record.
``We're able to borrow at unusually low spreads,'' Steven Rattner, co-founder of buyout firm Quadrangle Group LLC, said in an interview at the World Economic Forum in Davos, Switzerland. ``I'm not sure I'd want to be the buyers of that high-yield paper. The world isn't pricing risk appropriately.''
Record Sales
Companies sold a record $184 billion of junk bonds last year, and loans with below-investment-grade ratings reached an all-time high of $682 billion, according to data compiled by Bloomberg.
``There's an incredible amount of liquidity, primarily coming from non-bank institutions,'' Altman said. He estimated hedge funds account for as much as 40 percent of all trading in high-yield bonds.
Sales of the riskiest junk bonds, those rated CCC, may spur defaults, Altman said. Junk bonds that were rated B- or lower when they were issued accounted for 42 percent of high-yield sales last year, according to S&P.
Open Solutions Inc., a provider of software for financial- services companies, last week sold $325 million of 9.75 percent eight-year notes to finance its $1.4 billion takeover by the Carlyle Group and Providence Equity Partners Inc. The debt is rated Caa1 by Moody's and CCC+ by S&P.
`Very Disturbing'
``These chickadees are going to come home to roost,'' Altman said. ``But they're very happy eating in their barnyard, and they haven't. Which is very disturbing.''
The percentage of bonds considered in distress fell to a record low of 1.3 percent this month from 1.6 percent in December, S&P said this week in a report. Seventy companies had bonds trading at distressed levels, down from 97 in December, according to S&P, which defines distressed bonds as those with yields more than 10 percentage points above Treasuries.
Merrill Lynch's index of distressed bonds has shrunk to a face value of $6.5 billion from $27.4 billion at the end of 2005 and $161 billion in 2002.
``Every time there is a big bankruptcy we do open a bottle of fine wine in my household,'' said Altman. ``It's been a real dry spell. I am hoping for a more liquid situation going forward.''
Bloomberg, 2007-01-25
By Caroline Salas
High-yield, high-risk bonds are overvalued and may tumble as default rates in the U.S. more than triple this year, said Edward Altman, a New York University professor who in the 1960s created a widely used mathematical formula that measures the risk of bankruptcy.
Altman predicts 2.50 percent of the $1.1 trillion junk bond market will default this year, up from 0.76 percent at the end of 2006. The rate will climb to 2.72 percent in 2008, he said last night at a Fixed-Income Analysts Society Inc. event in New York.
With companies having little trouble meeting interest payments, investors have pushed yield premiums on speculative- grade bonds to the lowest in a decade. Junk bonds yield 2.63 percentage points more than Treasuries on average, down from 3.54 percentage points a year ago, according to data compiled by Merrill Lynch & Co..
Even with a ``modest spike'' in defaults, ``it's hard to see how this market is going to do well,'' Altman, 65, said. Some investors predict default rates will remain below 1 percent this year and ``they have to say that'' to justify why they are buying bonds at such narrow yield spreads, he said.
Junk bonds are rated below Baa3 at Moody's Investors Service and below BBB- at Standard & Poor's. The securities returned 11.8 percent last year, including reinvested interest, their second- best performance since 1997, Merrill Lynch index data show. Bonds rated CCC and lower did the best, gaining 18.6 percent.
Z-Score
Altman in 1968 created the Z-score, a mathematical formula that measures a company's bankruptcy risk. Ratios such as working capital, or the amount of money available to run a business, to total assets are used in determining the Z-score. The lower the score, the higher the risk of bankruptcy.
Money from hedge funds and private equity firms are giving the riskiest borrowers access to capital and keeping default rates low, said Altman, who predicted in January 2005 the rate would rise to 4.27 percent last year from 3.37 percent.
``Just about everybody who forecast defaults was wrong,'' said Altman. ``I don't know if I am eating humble pie.''
Cheap debt has helped fuel a record amount of leveraged buyouts, where takeover firms use a combination of their own funds and debt issued in the target's name to fund the acquisition. Private equity firms and management announced more than $700 billion of takeovers last year, a record.
``We're able to borrow at unusually low spreads,'' Steven Rattner, co-founder of buyout firm Quadrangle Group LLC, said in an interview at the World Economic Forum in Davos, Switzerland. ``I'm not sure I'd want to be the buyers of that high-yield paper. The world isn't pricing risk appropriately.''
Record Sales
Companies sold a record $184 billion of junk bonds last year, and loans with below-investment-grade ratings reached an all-time high of $682 billion, according to data compiled by Bloomberg.
``There's an incredible amount of liquidity, primarily coming from non-bank institutions,'' Altman said. He estimated hedge funds account for as much as 40 percent of all trading in high-yield bonds.
Sales of the riskiest junk bonds, those rated CCC, may spur defaults, Altman said. Junk bonds that were rated B- or lower when they were issued accounted for 42 percent of high-yield sales last year, according to S&P.
Open Solutions Inc., a provider of software for financial- services companies, last week sold $325 million of 9.75 percent eight-year notes to finance its $1.4 billion takeover by the Carlyle Group and Providence Equity Partners Inc. The debt is rated Caa1 by Moody's and CCC+ by S&P.
`Very Disturbing'
``These chickadees are going to come home to roost,'' Altman said. ``But they're very happy eating in their barnyard, and they haven't. Which is very disturbing.''
The percentage of bonds considered in distress fell to a record low of 1.3 percent this month from 1.6 percent in December, S&P said this week in a report. Seventy companies had bonds trading at distressed levels, down from 97 in December, according to S&P, which defines distressed bonds as those with yields more than 10 percentage points above Treasuries.
Merrill Lynch's index of distressed bonds has shrunk to a face value of $6.5 billion from $27.4 billion at the end of 2005 and $161 billion in 2002.
``Every time there is a big bankruptcy we do open a bottle of fine wine in my household,'' said Altman. ``It's been a real dry spell. I am hoping for a more liquid situation going forward.''
Saturday, January 13, 2007
Cohen, Granville, Acampora Don't Move Markets Anymore, Do They?
Cohen, Granville, Acampora Don't Move Markets Anymore, Do They?
Bloomberg, 2006-11-29
By Daniel Hauck
Joseph Granville and Ralph Acampora aren't moving the U.S. stock market as they used to, and no one has come along lately to take their place.
When Granville told newsletter readers to ``Sell Everything'' on Jan. 6, 1981, the Dow Jones Industrial Average fell 2.4 percent the next day. The average rose after a similar forecast on Oct. 26 this year. Acampora helped boost the Dow to a 1.1 percent gain on Jan. 8, 1999, by saying a rally was beginning. This year, the average fell when he wrote in an Oct. 30 report that the worst was over for stocks in 2006.
Forecasts from fellow 1980s and 1990s pundits Elaine Garzarelli and Abby Joseph Cohen don't have the impact they once did either. And bearish projections from top-ranked strategists Francois Trahan of Bear Stearns & Co. and Merrill Lynch & Co.'s Richard Bernstein this year failed to dent stocks' rally.
``It's gotten a lot more difficult to make that call,'' said Warren Simpson, who helps manage more than $3 billion at Stephens Capital Management in Little Rock, Arkansas. ``It's kind of passe, isn't it? There's too much risk.''
Making accurate forecasts is harder than it was 20 years ago because the rise of hedge funds has created a bigger pool of money, muting the impact of any one strategist, said Cummins Catherwood, who helps manage $700 million at Walnut Asset Management in Philadelphia.
Pundits also are dealing with a more fickle audience that is ``privy to much more information than they used to be,'' said Simpson. ``In the old days, you were dependent on your broker to tell you what the market was doing. Now people have it on their desks all over the country.''
`Sell Everything'
Investors now have more and faster information about markets from the Internet. Microsoft MSN Money, Yahoo Finance and AOL Money each attracted more than 10 million people in the U.S. in October, according to ComScore Networks Inc., a market researcher in Reston, Virginia.
Granville, 83, and Acampora, 65, helped pioneer technical analysis, or the study of price charts to make buying and selling decisions. Their influence diminished after they maintained for too long the positions that made them famous.
Granville, who got his start at what was then the brokerage E.F. Hutton in 1957, correctly forecast the bear market of 1977- 78 before his ``Sell Everything'' call.
``Joe was extremely powerful,'' said Robert Stovall, global strategist at Wood Asset Management Inc. in Sarasota, Florida, who worked with him at E.F. Hutton. ``If he gave the thumbs down to a market, it was like the emperor in the coliseum. The market would go down.''
Granville's Call
Granville later failed to foresee the rally that started in 1982 and lasted for five years. He also called for losses in 1995 before the so-called Internet bubble began.
Not all his most accurate calls were long ago. On March 11, 2000, a day after the Nasdaq Composite Index peaked at 5048.62, he wrote that investors in technology stocks ``will soon be burned.'' The index, which now gets 42 percent of its value from computer-related shares, sank 78 percent through Oct. 9, 2002.
Now he predicts the Dow average will fall as low as 7100 within six to 18 months. He draws on the observation that only five of the Dow's 30 members reached new 52-week highs when the Dow closed above 12,000 on Oct. 19 and none set records.
``When I make a prediction or a statement, it's coming from somebody who's gone through 50 years of markets,'' he said in an interview from Kansas City, Missouri, where he's based.
Dow 10,000
Acampora, a 40-year Wall Street veteran, became known for his forecasts during the 1990s at what's now Prudential Equity Group LLC. When the Dow stood at 7600 in June 1997, he correctly predicted it would reach 10,000, a level breached in March 1999.
After that happened, he said the average would climb to 18,500 by 2006. The Dow industrials closed above 12,000 for the first time on Oct. 19.
He hasn't yet released his official forecast for 2007, though he said the current four-year advance in the Dow average may be extended at least through 2008. He wrote in a note last month that 21 stocks in the Dow are ``attractive technically'' and ``buys for the long-term.''
Knight Capital Group Inc., the second-biggest matchmaker for trades on the Nasdaq Stock Market, hired Acampora in October 2005 after Prudential closed the technical research department he headed. This year, he ranked third among technical analysts in Institutional Investor magazine's annual fund-manager survey.
Acampora's Following
``Acampora currently has more of a following, more credibility, than Granville,'' said Stovall, who also worked with Acampora at Prudential. ``But they're both very serious students and the early Granville books written in the early 1960s added a lot to technical analysis.''
Garzarelli, who is 55 according to Marquis Who's Who, correctly predicted the 1987 crash as a Lehman Brothers Inc. strategist. In a June 2005 Bloomberg article, she estimated the S&P 500 would surge 25 percent in the next year. The index rose 2 percent in the 12 months, and her call didn't move the market.
``I don't have a platform,'' Garzarelli said in an interview from Springfield, Pennsylvania. She said her work, Granville's and Acampora's gets less attention from the media because they no longer are at ``major'' firms.
Since 1995, Garzarelli has headed her own firm. She uses a 14-indicator model to predict the market's moves, and expects the S&P 500 to reach a record in 2007.
Market Forecasting
Cohen, Goldman Sachs Group Inc.'s chief U.S. investment strategist in New York, made her name with bullish forecasts amid the Internet bubble. She was the top-ranked strategist in Institutional Investor's survey in 1998 and 1999.
She lost influence after underestimating the plunge that began in March 2000. In this year's survey, she wasn't listed among the top seven strategists.
Cohen, 54, was traveling and unavailable for comment, according to a Goldman spokesman, Ed Canaday. Her role has changed since the 1990s, Canaday said, as she focuses more on a ``longer-term, macro view'' than predicting daily market moves.
This year, Cohen has been a more accurate forecaster than Bear Stearns's Trahan and Merrill's Bernstein, the strategists now at the top of Institutional Investor's poll.
She said on June 13 that stocks had fallen too far and the S&P 500 would rebound to 1400 by year end. The index set its low for the year that day and has since risen 13 percent to 1386.72. Trahan has a year-end forecast of 1200, while Bernstein said at the start of 2006 that the index would slip 1.9 percent to 1224.
Pundits ``make calls and they're right sometimes,'' Stephens Capital's Simpson said. ``When they're wrong people don't listen to them as much anymore.''
Bloomberg, 2006-11-29
By Daniel Hauck
Joseph Granville and Ralph Acampora aren't moving the U.S. stock market as they used to, and no one has come along lately to take their place.
When Granville told newsletter readers to ``Sell Everything'' on Jan. 6, 1981, the Dow Jones Industrial Average fell 2.4 percent the next day. The average rose after a similar forecast on Oct. 26 this year. Acampora helped boost the Dow to a 1.1 percent gain on Jan. 8, 1999, by saying a rally was beginning. This year, the average fell when he wrote in an Oct. 30 report that the worst was over for stocks in 2006.
Forecasts from fellow 1980s and 1990s pundits Elaine Garzarelli and Abby Joseph Cohen don't have the impact they once did either. And bearish projections from top-ranked strategists Francois Trahan of Bear Stearns & Co. and Merrill Lynch & Co.'s Richard Bernstein this year failed to dent stocks' rally.
``It's gotten a lot more difficult to make that call,'' said Warren Simpson, who helps manage more than $3 billion at Stephens Capital Management in Little Rock, Arkansas. ``It's kind of passe, isn't it? There's too much risk.''
Making accurate forecasts is harder than it was 20 years ago because the rise of hedge funds has created a bigger pool of money, muting the impact of any one strategist, said Cummins Catherwood, who helps manage $700 million at Walnut Asset Management in Philadelphia.
Pundits also are dealing with a more fickle audience that is ``privy to much more information than they used to be,'' said Simpson. ``In the old days, you were dependent on your broker to tell you what the market was doing. Now people have it on their desks all over the country.''
`Sell Everything'
Investors now have more and faster information about markets from the Internet. Microsoft MSN Money, Yahoo Finance and AOL Money each attracted more than 10 million people in the U.S. in October, according to ComScore Networks Inc., a market researcher in Reston, Virginia.
Granville, 83, and Acampora, 65, helped pioneer technical analysis, or the study of price charts to make buying and selling decisions. Their influence diminished after they maintained for too long the positions that made them famous.
Granville, who got his start at what was then the brokerage E.F. Hutton in 1957, correctly forecast the bear market of 1977- 78 before his ``Sell Everything'' call.
``Joe was extremely powerful,'' said Robert Stovall, global strategist at Wood Asset Management Inc. in Sarasota, Florida, who worked with him at E.F. Hutton. ``If he gave the thumbs down to a market, it was like the emperor in the coliseum. The market would go down.''
Granville's Call
Granville later failed to foresee the rally that started in 1982 and lasted for five years. He also called for losses in 1995 before the so-called Internet bubble began.
Not all his most accurate calls were long ago. On March 11, 2000, a day after the Nasdaq Composite Index peaked at 5048.62, he wrote that investors in technology stocks ``will soon be burned.'' The index, which now gets 42 percent of its value from computer-related shares, sank 78 percent through Oct. 9, 2002.
Now he predicts the Dow average will fall as low as 7100 within six to 18 months. He draws on the observation that only five of the Dow's 30 members reached new 52-week highs when the Dow closed above 12,000 on Oct. 19 and none set records.
``When I make a prediction or a statement, it's coming from somebody who's gone through 50 years of markets,'' he said in an interview from Kansas City, Missouri, where he's based.
Dow 10,000
Acampora, a 40-year Wall Street veteran, became known for his forecasts during the 1990s at what's now Prudential Equity Group LLC. When the Dow stood at 7600 in June 1997, he correctly predicted it would reach 10,000, a level breached in March 1999.
After that happened, he said the average would climb to 18,500 by 2006. The Dow industrials closed above 12,000 for the first time on Oct. 19.
He hasn't yet released his official forecast for 2007, though he said the current four-year advance in the Dow average may be extended at least through 2008. He wrote in a note last month that 21 stocks in the Dow are ``attractive technically'' and ``buys for the long-term.''
Knight Capital Group Inc., the second-biggest matchmaker for trades on the Nasdaq Stock Market, hired Acampora in October 2005 after Prudential closed the technical research department he headed. This year, he ranked third among technical analysts in Institutional Investor magazine's annual fund-manager survey.
Acampora's Following
``Acampora currently has more of a following, more credibility, than Granville,'' said Stovall, who also worked with Acampora at Prudential. ``But they're both very serious students and the early Granville books written in the early 1960s added a lot to technical analysis.''
Garzarelli, who is 55 according to Marquis Who's Who, correctly predicted the 1987 crash as a Lehman Brothers Inc. strategist. In a June 2005 Bloomberg article, she estimated the S&P 500 would surge 25 percent in the next year. The index rose 2 percent in the 12 months, and her call didn't move the market.
``I don't have a platform,'' Garzarelli said in an interview from Springfield, Pennsylvania. She said her work, Granville's and Acampora's gets less attention from the media because they no longer are at ``major'' firms.
Since 1995, Garzarelli has headed her own firm. She uses a 14-indicator model to predict the market's moves, and expects the S&P 500 to reach a record in 2007.
Market Forecasting
Cohen, Goldman Sachs Group Inc.'s chief U.S. investment strategist in New York, made her name with bullish forecasts amid the Internet bubble. She was the top-ranked strategist in Institutional Investor's survey in 1998 and 1999.
She lost influence after underestimating the plunge that began in March 2000. In this year's survey, she wasn't listed among the top seven strategists.
Cohen, 54, was traveling and unavailable for comment, according to a Goldman spokesman, Ed Canaday. Her role has changed since the 1990s, Canaday said, as she focuses more on a ``longer-term, macro view'' than predicting daily market moves.
This year, Cohen has been a more accurate forecaster than Bear Stearns's Trahan and Merrill's Bernstein, the strategists now at the top of Institutional Investor's poll.
She said on June 13 that stocks had fallen too far and the S&P 500 would rebound to 1400 by year end. The index set its low for the year that day and has since risen 13 percent to 1386.72. Trahan has a year-end forecast of 1200, while Bernstein said at the start of 2006 that the index would slip 1.9 percent to 1224.
Pundits ``make calls and they're right sometimes,'' Stephens Capital's Simpson said. ``When they're wrong people don't listen to them as much anymore.''
Subscribe to:
Posts (Atom)
