-0.8 C
New York
Wednesday, February 21, 2024

The Wall Street Clown Show

For a free subscription to Phil’s Stock World, click here (it’s easy, no credit card required)

The Wall Street Clown Show

wall street clownsCourtesy of Michael Panzner at Financial Armageddon

It’s been a while since I laughed out loud while going through the news, but that’s just what happened when I read the following Reuters report, "JPMorgan’s Lee Sees S&P 500 Retest of ’07 Record." As a service to loyal Financial Armageddon visitors, I thought I’d do them the favor by highlighting all the ridiculous bits:

The benchmark S&P 500 index should surge back to its October 2007 record above 1,500 by the end of 2012, provided the U.S. economy sees a V-shaped recovery, JPMorgan Chase Chief U.S. Equity Strategist Thomas Lee said on Wednesday.

My take: And I should be the next president of the United States, provided I have enough write-in votes when the 2012 election results are tallied. In reality, the notion of V-shaped recoveries — especially after what we’ve been through — is one of Wall Street’s favorite (unfulfilled) fantasies. Otherwise, for reality-based insights on the impact of financial meltdowns, read "The Aftermath of Financial Crises," by professors Carmen Reinhart and Keneth Rogoff).

"The global economy is in the midst of a synchronized recovery," Lee said at the Reuters Investment Outlook Summit. "If we end up with a V-shaped recovery, we could go back to our record high of 1,500 in 2011-2012," he added, referring to the S&P 500.

The S&P 500 fell 0.4 percent to 908 on Wednesday.

My take: "Synchronized recovery"? Say what?! Not according to data published just weeks ago by economics professors Barry Eichengreen and Kevin O’Rourke, in a post at voxEU.org entitled, "A Tale of Two Depressions." Below is just one of their highly illuminating graphs (no sign of a rebound here, that’s for sure):


Lee also reiterated his year-end 2009 target of 1,100 for the S&P 500, saying the United States will likely come out of its recession some time this summer, followed by the rest of the developed world.

In October 2007, the S&P 500 hit a record closing high of 1,565.15, before falling back. In March of this year, it slumped to a 12-year closing low, but has since rebounded by about 40 percent on hopes the recession that begun in December 2007 was moderating.

My take: In March 2008, Lee was counting on a "short recession," had penciled in a year-end price target of 1450 for the S&P 500, and was expecting "financials to lead the market higher," according to CNBC. So far, at least, there’s no real sign that this allegedly "brief" downturn has ended, and anyone who bet on the JPMorgan "strategist’s" prior call on U.S. equities managed to lose his or her shirt last year, because the broad market finished down 38% at 903.25, while the S&P Financials regurgitated more than half their value.

Lee added that a market correction in the wake of the recent run-up would be "healthy," and could lure back investors who opted to sit out the recent rally.

"This rally has left many investors uninvested or underinvested. The pullback is the entry point to really see more meaningful money put to work," said Lee, who has been named a top analyst in Institutional Investor magazine’s annual all-star poll.

My take: not content to lead the lambs to the slaughter like he did last year, Lee is determined to fully eviscerate his followers without any real justification other than a reliance on the greater fool theory. Otherwise, in an interesting Freudian slip, Lee more-or-less acknowledges that the recent "green shoots" rally has not had much in the way of "meaningful money" behind it.

He favors the financials, industrials, technology and consumer discretionaries sectors, in that order, saying the sectors would be the biggest beneficiaries of an economic recovery.

Within financials, he favors asset managers.

The S&P financial index is up 84 percent since the broader market’s 12-year low on March 9.

"We are still favoring cyclicals over defensives," said Lee. Even so, he was mindful of potential risks to the recovery.

"The biggest risk is that we’re implicitly assuming the consumer is stabilizing. There’s a lot of potential shocks. If oil goes to $100 a barrel, you can’t have a recovery," said Lee, adding the other risk would be if savings rates somehow overshoot.

My take: even though reports clearly indicate that consumers are terrified about the future and are continuing to scale back, the housing market remains in the doldrums (or in the tank, depending on where you live), and personal consumption rates, savings rates, and debt levels are still on the wrong side of long-term averages, Mr. Lee assumes "the consumer is stabilizing." Why stop there? As long as we’re talking BS, why not go a step further and "assume" that the consumer is flush with cash and starting to spend money like a drunken sailor?

One would have thought that after having been SOOOOO wrong about the events of the past two years, those who call themselves "strategists" would have sought out a more productive line of work.

Instead, all we keep seeing are endless reruns of the Wall Street Clown Show.

Stay tuned for plenty more?


Notify of
Inline Feedbacks
View all comments

Stay Connected


Latest Articles

Would love your thoughts, please comment.x