GuruVision: Blurred and Burned
SAN FRANCISCO -- After feasting on
turkey last week, the gurus now find their plates laden with heaping portions of crow.
In their most recent weekly commentaries, the gurus huffed about how last week saw the biggest outflows from equity mutual funds since the week of Dec. 15, 1999. They puffed about how growth estimates for the fourth-quarter have fallen at the fastest rates since October 1998.
Yet none of their efforts kept the
house from blowing in today, when the index declined 5.1% to 2734.98, its lowest close since Oct. 19, 1999. Elsewhere, the
Dow Jones Industrial Average
slid 0.4% and the
Regarding growth estimate revisions, Thomas Galvin, U.S. portfolio strategist at
Credit Suisse First Boston
noted the market rose over 20% in the three months following the harsh reductions in growth expectations in Oct. 1998 and predicted "at least half of that move is achievable from
Monday's level given the high levels of pessimism and cash, as well as the aggressive reduction in estimates."
Comparisons to the fall of 1998 seem unfair, if not downright outlandish, unless there's some cataclysm comparable to foreign currency crises/
Long Term Capital Management
debacle that is going to cause the
to ease 75 basis points in the span of a few weeks.
Galvin, attending CSFB's
conference in Scottsdale, could not be reached to determine whether he foresees any such development. Regardless, the strategist's talent for soothsaying has been taking a bit of a beating this week as his commentary, released Monday, focused on semiconductor and retailing stocks.
"If the retail composite is a fair barometer for the Old Economy, then semi-shares are representative of the New Economy," Galvin wrote. "If these Old and New Economy poster children fell before the rest of the tape and are now finding their legs amidst an ocean of hard landing sentiment, is it possible the selling pressure has become exhausted and the next leg is up?"
So far, the short answer is an unequivocal "no."
After falling 6.9% Monday, the
Philadelphia Stock Exchange Semiconductor Index
fell another 8.1% today amid the continued fallout from a series of downgrades and negative analyst comments. Worse, from the perspective of Galvin's followers, the strategist made bullish remarks on specialty-chip makers
Applied Micro Circuits
, which continued to unravel today, falling 5.7% and 3.8%. Galvin also shined on that crazy diamond of the chip sector,
, which slid another 1.3%, extending yesterday's 18% drubbing despite
coming to its defense.
The strategist also recommended
, which fell 8.2%, and
, which slid 5.3% today after a solid gain to begin the week.
On the surface, Galvin's optimism about retail stocks seems better placed. After rising 5.1% yesterday, the
S&P Retail Index
dipped just 0.6% today. However, Galvin's specific retail recommendations included
, which tumbled 20.8% today after a
A CSFB spokesman says the firm has done underwriting for Applied Micro, PMC-Sierra, Ann Taylor and Lattice Semi.
I'm not trying to pick on Galvin, as he's certainly not alone in remaining bullish and, more specifically, not alone in thinking the semis might have bottomed coming into this week. But after dubbing Galvin the new
king of Wall Street following his prescient "buy" call in early May, I now have to wonder if his crown hasn't already lost its luster.
The Other Side of Guru Mountain
One of those who agreed with Galvin's optimism about the semis was Greg Smith, market strategist at
. Smith wrote Monday about being "very impressed that the semiconductor stocks have held up well and had some nice rallies off of pretty depressed lows."
Fortunately for him and for Pru's clients, Smith tempered any enthusiasm about the chips with a cautious nod toward various macro-negatives, including the election uncertainty, continued strength in oil and weakness in the euro. Also, he cited the difficulty in finding companies with "growth at a reasonable price" or "true value plays" without potential problems with earnings.
"The range, breadth and importance of these various issues is pretty much unlike anything we have seen in the last five years," Smith wrote.
That said, the strategist believes the market will not only remain without an "all-clear signal" until the first quarter of 2001, but that even when it does get one, "the days of growth at any price are definitely behind us, and we might wind up with moderate growth at a reasonable price or having a more value-oriented outlook."
No need to wait until next year: That environment is already upon us.
Finally, Don Hays of
Hays Advisory Group
in Nashville forecast the Comp will reach a "major bottom" within the next three to six weeks. Hays, whose prognostications were recently
detailed here, forecast that the bottom will come only after a huge decline by the index that "can be unbelievable in its damage as the lemmings
including some of the Street's favorite gurus take the last plunge."
The "good" news is Hays believes there's a reasonable chance the Fed will ease interest rates in the wake of this plunge. The veteran market watcher also believes the Comp's next "major bottom" will provide a significant buying opportunity with as much as 25% upside for the ensuing four to seven months.
The "bad" news (for those long) is Hays also predicts the Comp's next bottom will only end the second phase of what he foresees ultimately being a three-stage bear market.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
Aaron L. Task.