an MSNBC news special on the history of Satan and Satanism the other
night, Dr. Stool's thoughts turned to Jeffrey Applegate, Chief Market
Strategist at Lehman Brothers. Dr. Stool had seen Mark the Shark
Haines interview Applegate a few days earlier on Caint Nobody Buy Channel.
The occasion was the announcement of Lehman's 10 Uncommon Value
picks for 2001-2. Evidently this is an annual event, and it's quite a
big deal to the portfolio sphincters.
says to Applegate, "So how ya doon - not too good I guess, since
your 2000 picks dropped 47%, huh?" Seems eight of the ten were
glares into the camera, horns clearly visible, and says, "I'm
doon jus fine." But his eyes, they was sayin', "I'm gonna
break your legs, you mothahumpa s.o.b."
then Shark says "So what the hell went wrong, you jackass?"
On national TV yet, can you imagine? Or at least that's what Dr. Stool
thought he said. Something about the smirk as the words came dripping
out of the left side of the Shark's mouth.
Applegate says, "Aaay, ya know it wasn't my fault. Nobody coulda
seen what was gonna happen. Everybody else got it wrong too. They wuz
good picks, and they's still good picks, and we stand by 'em, 'cause
we wasn't wrong, and nobody else got it right."
that's what I like, a stand-up guy who takes responsibility for being
a freakin' jackass. But before we get into this turd's track record,
let's just set the record straight on one thing. There most assuredly were
people who got it right, big people, Wall Street Big Shots, not just
the permabear crazies like Dr. Stool, and Fleck and Crash, and David
Tice. Here are five:
McCabe- Chief Somethin or Other - Mohel
Lynch (Pronounced Moil as in Oy, do we got a tip for you)
Bernstein- Chief Quantitative Strategerist - Mohel
Lynch (Oy do we got tips)
Farrell - Senior Chief of Technical Blah Blah (and one of Dr.
Stool's long time heroes)- Mohel
I said, five.
here's the thing. These guys are famous dudes. They get quoted in the
Joinal every freaking week. They get their faces on the cover of
Barrons. Wein and Biggs and McCabe and Farrell, they been around for
five or six hundred years, and everybody on the Street knows
they were bears on tech. Both before and after Applegate's picks. So
if you're going to lie, you creep, at least make it believable.
a brief compendium of what the five wise men had to say for the six
months prior to Applegate's picks. Six months, that should have given
him adequate notice, right?
1/2/00 - Byron Wien says tech will have problems as the
market wakes up on valuations.
Wien thinks that new valuations on companies are a little
- Barton Biggs doesn't think investors should be heavily
weighted in stocks, should be more in fixed income. He is hard
pressed to find internet companies or techs among his top picks
- Biggs says that things are very scary; he doesn't see much
opportunity; says eventually we'll have a succession of failed
rallies and public will give up.
- Wien thinks valuations are too high, especially in
tech. Advises underweighting.
Doug Cliggott says tech prices are too steep.
Richard McCabe says last week's Nasdaq sell-off was not
"a brief, random event, but the beginning of a longer lasting
change. The storms that have swept through the stock market in
recent days have driven home this point" The technology sector
has begun an important corrective trend." He told investors to
reduce their tech holdings.
- Richard Bernstein says everyone is loaded in one sector and
they consider NASDAQ as The market; this is a mistake, NASDAQ
is one sector of the market, and people should diversify.
McCabe says the days of everything going up in technology are
over for many years to come.
Wien expects 25% market drop, with tech possibly breaking the
November lows, i.e. below 3000 on Nasdaq. (at 3774 at the time) He
called for the SPX at 1300. It was 1465 then.
Biggs says we are in the early stages of a gradual leadership
change away from tech to value. He says, tech has finally cracked,
and big cap tech stocks will suffer in the final stages of a bear
market in the tech sector.
Wien says Dow will go below 10,000 and Nasdaq will go below
3000. He says there's further damage in store before we are out of
the woods. He points out there are a number of good tech companies
without earnings that are still vulnerable and that there are a
number of technology stocks with earnings that are still overvalued,
citing that many are at over 100 times earnings.
Cliggott cuts tech weighting from 27% to 20%
Cliggott says tech is still overvalued, pointing out Nasdaq
is still at 100 times earnings.
Cliggott says the rally in Nasdaq is not sustainable. He
expects, over the next 6-9 months, the likelihood of an unattractive
combination of higher inflation rates, rising interest rates, and
slowing corporate earnings, with recession not a zero possibility.
He says there's tremendous optimism among investors about long term
growth from tech companies, however, due to vicious competition,
reality is this growth is only in spurts.
Biggs doesn't believe the Federal Reserve will be able to
engineer a "soft" landing for the economy. He says it has
had too long a boom and there are too many excesses for a soft
landing to be possible.
Bob Farrell calls the Nasdaq rally a bear market rally.
Farrell says that historically, long periods of correction
have followed major concentration in sectors with huge inflows of
money at high prices. He says that the peak in the first quarter was
a major peak, to be followed by a corrective process. He forecasts a
summer recovery, then more fundamental decline that can last several
months or even years.
McCabe tells investors to stay away from the wild tech group
that the market was fascinated with in earlier months.
In Barrons mid year round table, Biggs sees a
"significant institutional bubble" in the Nasdaq, particularly
in the areas of Internet infrastructure and wireless-telecom. He
expects a significant shift from growth to value investing.
Richard Bernstein warns that he remains bearish on
technology. He warned that U.S. firms with high foreign exchange
exposure were starting to underperform, adding that these were
mainly technology companies.
ladies and gentlemen, that's six very famous guys, with three of the
most famous brokerage houses in the world, who were widely
quoted in the financial media 21 times telling people to GET THE
"F..." OUT of Tech, before, and just after, the announcement of Lehman's 10 uncommon
values. Needless to say, the drumbeat went on continuously in
the second half, and thereafter, with a growing chorus of converts.
Applegate claims that no one got it right. Maybe he didn't hear the
wise men. Maybe he did,
and wants you to think that you didn't. So now let's look at his
usual, Dr. Stool will limit the focus to the period of 6 months to
a year prior to today, to be consistent with the forecast horizon of
we get to the picks, let's look at some of Applegate's
prognostications, along with an editorial comment from Doc, here and
Applegate says the summer rally is pausing, and that until the
market's leadership is renewed we'll get churning with no real
His research notes stress upside earning surprises. He also
says "…with labor costs still rising, perpetuating the need
for substitution of labor with capital, and capital spending rising
faster than GDP to meet that need, we still look for Tech to
provide the leadership going forward."
He forecasts that by mid-year of next year (that's now folks) the
S&P would be at 1700.
He says that the rich valuations in the best technology
companies should persist for years to come. He got that right,
the valuations are still rich. Guess he forgot about the earnings.
he says the stock market's positive performance that week, under the
assumption that the Federal Reserve will leave rates unchanged at
its meeting, was a good sign. "To us, the important messages to
be gleaned from this week's market data are that the physical
capacity is still increasing and spurts in tech industrial
production growth are coincident with Fed tightening,"
Applegate writes. "This should mean that prospects remain
good for a long business cycle getting longer."
what the hell does that mean.
also said that demand for technological product is largely
interest-rate insensitive, pointing out that tech spending exploded
during periods of rising rates. Gee, looks like he got that right
too. Rates are coming down, and so is tech spending. Guess he didn't
count on that, though, huh?
- He forecasts a 1600 S&P by year end, and 1,800 by the end
of 2001. Must have been smoking some good stuff. He also said investors
should overweight in technology stocks because they are the
least interest rate sensitive sector of the market. There he goes
Current stock market risk remains "well below where it was
10 and 20 years ago", says Applegate, despite the rising
share of technology stocks in the S&P 500. (Again, the opposite
of the truth.) "Lower risk is
mainly the result of good conduct of public policy." He
continues to see the Federal Reserve's interest rate policy as the
"dominant variable that impacts stock market risk," adding
that the outlook for this policy looks pretty good. "Our
stock market risk model forecasts slightly lower market risk next
The S&P is fundamentally undervalued. "…unless oil
goes to $90, it's hard to make an argument we have a serious
inflation or valuation problem."
He exhorts investors to stick with tech, advocating a 47%
weighting. He cites robust local and global demand, and says tech
stocks are cheap, but that selection is important. He says you
can't make a good case for value stocks, that growth out
performance will return. Investors should plan for it in the
Applegate reduced the cash position in his model portfolio to
ZERO. Forecasts 12% equity returns over 12 months.
Says the market is significantly undervalued.
"Today, 60% of capital spending is on technology,"
Applegate says. "The spending continues, and that has been a
trend in this cycle. I still think overweighting tech is the
right call. The primary leadership in this recovery will be
He forecasts a Fed rate cut and S&P 1675 and Dow at 13,000.
Financials, short-term cyclicals, and tech will be helped by Fed
easing. He says stick with big names that have been down big,
like 50-60%, lately.
Forecasts at least 20% return on equities and earnings
growth of 7% based on prospect of Fed easing. He says that capital
spending is not crumbling, that it's growing at a multiple of GDP.
Most tech stocks are undervalued and demand in rest of the
world is good.
He says that a significant portion of the correction in the
market and in tech sector is behind us and that the S&P
500 is priced 19%-20% below fair value and should move up sharply
after such undervaluation. He says that S&P small cap index and
Russell 2000 are overvalued, primarily due to reduced Treasury
supply. (Huh?) He forecasts that P/E multiple expansion will
propel the market forward and that the economy will not head
12,500 by mid-year; 13,000 by year-end
500: 1500 by mid-year; 1675 by year-end
500 profit growth: 7% by year-end
T-Bond yield: 4.75% by year end
THAT's quite a record!
in late January of this year he said he had a 30% portfolio weighting
in tech. Gee, I wonder how it got from 47% to 30% in two months.
the stock picks. The original 10 from last year first:
10 Uncommon Values 6/29/00
that's even worse than Joe and the Mother.
But wait, it continues. While not as prolific as Joe, Applegate was
certainly as consistent as Fat Bastard. Here are the
rest of his picks form last July through this January.
The Rest….Of The Story…ahhh
Average Holding Period
you have it ladies and gentlemen, 25 more recommendations, 19 losers.
Overall, 35 recommendations, 27 losers, almost tripling the overall
decline in the S&P, a stunning performance, truly
worthy of nomination for the BM prize.
Superior Down 25.6% in 7 Months Dr. Stool has updated this
article, first published in March, to reflect current performance.
Looks like the Mother's still worse than Joe, and neck and neck with
Most of the above crap came from www.netcog.com,
and a variety of data services. If Dr. Stool got it wrong, blame them.
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