Some heavyweight money managers have made some pretty bold comments recently, unintentionally sparking a debate about the mindset of traders in the aftermath of Sept. 11.
During a speech in New York last week, Leon Cooperman, founder and principal of the $3.5 billion Omega Advisors hedge fund, expressed serious pessimism. "I am not looking for the so-called rising tide that lifts all ships," Cooperman was quoted as saying, after expressing concerns about the plight of the dollar and the federal government's reversion to budget deficits.
Sir John Templeton, founder of the Templeton Group (now part of Franklin Templeton Investments, which had about $250 billion under management at the end of 2001), was even more skeptical in an interview Tuesday evening on
. Templeton said he "would have a smaller fraction in stocks -- smaller fraction of my total assets than ever before," as
Bill Fleckenstein detailed.
On the other hand, Kenneth Fisher, head of the $12 billion Fisher Investment fund and a
columnist since 1984, reversed his long-held bearish view last week, and suggested a "major bottom" was at hand, as
The fact that Cooperman is based in New York City and Fisher in Woodside, Calif., led Jim Bianco, president of Bianco Research in Barrington, Ill., to wonder: "Does one's proximity to Ground Zero have a bearing on one's investment outlook?"
Bianco asked that (rhetorical) question prior to the bearish comments by Templeton, whose firm is based in Philadelphia, which isn't that far from Manhattan or from Somerset County, Pa., where hijacked Flight 93 crashed.
Many are wondering again about Wall Street's proximity to Ground Zero as the market has seemingly reacted to heightened concerns about potential terrorist threats this week.
"Monday and Tuesday's behavior reeked of concern over terrorism
and how do you want to structure a portfolio based on that risk profile," said Barry Hyman, chief investment strategist at Ehrenkrantz King & Nussbaum.
Indeed, while stocks tumbled early in the week, big winners included 'safe haven' bets such as U.S. Treasuries and gold (although gold shares reversed from Wednesday's
"The 'what if?' scenario shouldn't dominate the investment story, but it will make it somewhat harder for another substantial rally" in equities, Hyman said.
Wednesday's early weakness was attributed to the Brooklyn Bridge's brief closure after a suspicious package was found. Conversely, the market's late-day turnaround apparently was spurred by rumors of Osama bin Laden's death or capture. (Fortunately, the package proved harmless; unfortunately, the rumors about bin Laden proved unfounded.)
Of course, there are some who think this is all just bull -- and I'm not talking about optimism about the market.
Excuses, Excuses, Excuses
Those skeptical of the terror-alerts-weigh-on-markets theme rightfully note the threat of attacks always have been with us, and certainly in the forefront of investors' minds since Sept. 11. "I'm not trying to sound callous
but I don't know if we can be surprised by anything anymore," said one New York-based market player, who requested anonymity.
Furthermore, trading volume has been light this week, leaving the market subject to rumors, both positive and negative. Volume is expected to dwindle more as the Memorial Day Weekend approaches.
Finally, there's the mindset that "those kind of rumors aren't in and of themselves enough to move the market," as Brett Gallagher, who oversees about $4 billion as head of U.S. equities at Julius Baer Asset Management, commented. "You need other imbalances."
Specifically, Gallagher referred to the fact that equities still are trading near historically high valuations. "If the market was trading at 15 times earnings, I don't think it would budge" on warnings about possible terrorist attacks, he said. "Clearly it's not making people all warm and fuzzy, but I don't put a lot of faith in that rationale for why the market" moved.
Woody Dorsey, president of Market Semiotics in Castleton, Vt., and a student of market behavior, put terrorism threats ("undefined wars" in his vernacular) last on a list of issues weighing on the market. Others included "'unaccountable accounting', elevated P/E ratios, 'bull' market brokerage revelations,
Perhaps the skeptics are correct, and this is all in the media's collective head, which often needs checking. But despite rumors to the contrary, traders are human beings and subject to emotion. If they weren't, the market would be rational and efficient, which it often isn't.
Even Gallagher noted there has been an increase in the use of various employee assistance programs at his firm, which is based in midtown Manhattan. Furthermore, "there's a different feeling down there" near Ground Zero, he conceded. "You've got to reorient yourself."
Those of us far from Ground Zero are having an even harder time orienting ourselves to what's transpired. I worked in Lower Manhattan for nearly 10 years, commuting through the World Trade Center almost every day. It's still hard for me to envision that those buildings are gone, much less friends and colleagues like Bill Meehan.
Having endured, up close, the horrors of Sept. 11 and its aftermath, many market professionals now are worried about the fallout from the Eliot Spitzer-
brouhaha. (Merrill Lynch agreed to pay a fine of $100 million to settle allegations that it issued overly bullish research in order to win lucrative banking deals. Merrill also agreed to separate research analysts' compensation from investment banking, a decision
has adopted for its Salomon Smith Barney unit.)
I know, I know ... few tears are being shed at the thought of Wall Street's fat cats getting thinner. But brokerage firms already have endured heavy layoffs and more may be coming. Add to that the lingering fallout from a more- than two-year bear market and Wall Street can't be a very pleasant place to be these days, albeit perhaps a more "humane" one.
Given that some believe the market does better when the
is nice in Manhattan, it's not so hard to believe the sum of those fears -- for participants' personal and professional well-being -- isn't having some effect.
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.