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Still Bullish After All These Years


SusanJBear

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I dream of the day Abby Bozo Cohen (AKA Justa Colon) is out on the street, out of a job, and/or dragged before Congress to testify about her stockhyping.

 

Until then, we have to hold our noses and read her bullish predictions, along with the other bulls.

 

Only Richard Bernstein of ML and Doug Cliggott even suggest the S&P will be down where it is from now by the end of '03. Bernstein has been quoted a lot recently in EWI pubs. I've watched Cliggott over the last few years and have noted that he often gets the general direction right, if not the exact target.

 

Still Bullish After All These Years

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Goldi:

 

In early September, Barrons had a piece on forever bullish Wall Street strategists. It also mentioned Doug Cliggot. Here are a few paragraph on Cliggot's view.

 

...The group, nonetheless, remains upbeat with most expecting the S&P to hit at least 1000 in the next 12 months, an 11% gain from current levels. The one naysayer is Doug Cliggott, the former J.P. Morgan strategist who made the bold prediction in late 2001 that the S&P would fall to 950 and the Dow Jones Industrial Average would decline to 8,500. Cliggott says the S&P could drop below 700 owing to a lackluster economy and the index's high valuation based on reported profits, as opposed to so-called operating earnings that exclude the large writeoffs that have been taken by Corporate America.

 

Cliggott also has a downbeat economic view but thinks it will be reflected in stock prices. "It seems to me that the best-case scenario a year from now is that equity prices remain where they are, with the S&P at about 900, and we could easily see the S&P with a six in front of it," says the strategist, who left J.P. Morgan in February to form New York-based B&P Research, an arm of a Swedish asset manager, Brummer & Partners. "Our view is that the economy and earnings won't be doing much better next year than this year."

 

Cliggott differs from his more bullish brethren because he focuses on actual corporate profits, not one of the many definitions of operating earnings accepted by most strategists and institutional investors.

 

Corporate charge-offs have been enormous in the past 18 months due to huge writedowns of goodwill by companies like WorldCom, JDS Uniphase and AOL Time Warner and all the restructuring and other charges taken by such companies as Lucent Technologies, Nortel Networks and Verizon Communications.

 

In 2001, for instance, operating profits per share for the S&P 500 totaled $38.85, but reported profits after writeoffs were under $25. This year, operating profits are estimated at about $49, including a $3 benefit from the end to goodwill amortization. But including projected writeoffs, reported earnings may total just $36.

 

Cliggott says that to continually exclude these sizable charges over an economic cycle amounts to a form of "mulligan golf," a game in which players exclude bad strokes from their score. He argues that since corporate writeoffs are large and ongoing, they ought not be excluded from profit calculations.

 

By Cliggot's math, reported S&P profits could be $36 in 2002 and $40 next year. Put a P/E of 16 on $40 in earnings produces an S&P level of 640. That multiple seems reasonable, he says, because it's around the long-term average. Even if a P/E of 18 is accorded $50 of "operating profits," it results in an S&P of just 900, he adds.

 

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Yesterday, WSJ had two articles on reaction of some individual investors to the on going bear market. Today, there is another one from Washington Post on Accepting the Bear Facts. It looks like most of them are beginning to question when and if the market will come back so they could break even. While they are not putting any fresh money in stocks or stock funds, they have not yet exited the market in significant number. How long do you guys think it will take for most of them to concede the lose and get out? The general steps for facing the reality of losing money is confusion, shock, denial, anger, helplessness, bargaining, and final acceptance. I tend to think that most of them are between helplessness and bargaining stage.

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