With the passage of HR-10, one can safely assume that there will be an enormous uptick in merger-and-acquisition activity in the financial community, which will encompass the usual suspects: banks, insurers, brokers, banks, insurers, brokers, etc.
When the dust settles, presumably a small number of megaplayers conceptually will offer customers every product imaginable via every distribution channel imaginable. Right, left, whatever -- you'll be able to get it all in one place.
Which brings me to the past half-hour spent reading (in the air on the way to New York) the new
Morgan Stanley Dean Witter
U.S. and Americas Investment Perspectives
. This tome brings new definition to the tension between offering a consistent "product" that entails some degree of uniformity and conformity -- and the creation of an environment that ferments individuals pursuing innovative thinking. Whatever anyone might think about the near-term future of the global financial markets, there is a commission-generating idea in here to satisfy every persuasion.
Let me first say that this is not at all intended to be a rag on Morgan Stanley. (I've had my run-ins with them and I rest my case on the "two-handle" of
Protection One.) Like any Wall Street firm, it has good and bad elements, good and bad people, and predictably vacillates between genius and disaster -- just like any firm that publishes its opinions frequently and has been at it a long time. 'Nuff said.
Anyway, you have to give credit where credit is due to any firm that creates enough intellectual freedom to put the writings of
within 51 pages of each other.
Barton -- for those who are so busy being bullish that they no longer bother reading any cautionary articles -- is the longtime Morgan Stanley strategist. He's a big name in the industry and often writes (well, I might add) on issues that are interesting, global and not always relevant for the individual investor, who often doesn't have the means to take the plunge into institutional-sized opportunities like Midwest farmland partnerships with a $50 million minimum investment.
But writing well, as you may have already figured out, has little correlation with being right. (I'm working desperately to disprove that theory, but the jury remains hopelessly deadlocked at the current time.) Despite a good call on Japan, Barton is becoming best known for being pretty consistently bearish and particularly critical of the "Internet bubble." As you also may have guessed, I share an affinity for that view, even though I have yet to put in print that buyers of the New Paradigm are "manic-depressive" and "sniffing heroin," as does Biggs in his most recent piece. I don't rule it out, mind you, but the charge seems a bit too specific: After all, it ignores a whole class of potential glue-sniffers.
Biggs then reports that Morgan's research efforts have determined that out of the 1,200-plus technology IPOs issued since 1980, a mere 5% have created 86% of the wealth. Furthermore, that the combined value of 241 publicly traded Internet firms is $550 billion, representing a group that has only $24 billion in sales and a combined loss of $7 billion. It's worth reading that sentence again. And also one more time.
In other words, the forces of creative destruction that drive a capitalist society operate at cyclonic levels in the world of technology. Biggs is -- surprise -- bearish on U.S. large-cap stocks, which he calls "grossly overpriced and dangerous." Tech and the Internet stocks he terms "huge bubbles ... massive wealth destruction." And for the U.S. economy? "May even have a recession next year." Nevertheless, he still likes Japan and the emerging markets and would own a boatload of T-bonds.
... The Bull ...
There's an old saying on Wall Street that bearish salesmen end up working as waiters, so Morgan no doubt prefers to point its sales force to page 53 of this week's
, where we have Mary Meeker and her update on
Says Mary: "Yes, we are raising revenue and operating loss estimates ... we have essentially maintained our $2.9 billion revenue estimate, but have raised the operating loss from $51 million to $313 million ... lowered our operating income estimate from $13 million to break-even (for 2001)." But, of course, she concludes it's a buy.
Mary then goes into her own personal trials with recommending
in the 1990s in the face of much skepticism and derision and makes the obvious parallel that Amazon is in the same spot today. Interestingly, although she inevitably uses the word "faith" -- which is
in any investment piece on an Internet stock -- there is a surprising amount of intelligent hedging from someone who has been crowned (somewhat sheepishly) on newspaper and magazine covers as the "Queen of the Internet." The Queen closes with "when all is said and done, the fourth quarter of 1999 may be remembered as the time when the leading B-2-C (business to consumer) companies crossed their chasms into infrastructure adulthood ... and the winners distanced themselves from the pack." (While it's great to lead the herd, sometimes it pays to look over your shoulder and make sure the herd is still there.)
... And All Those in Between
In between the extremes of Biggs and Meeker, Morgan's parade of other strategists make eloquent cases for contradictory outcomes. On page 2, Morgan's other investment strategist, Byron Wien, feels the obvious heat for his recommendation of 20% cash in a market that doesn't "appear" to be going down. He's playing the "interest rates have gone far enough" game by adding financials. Meanwhile, over on page 4, economist Stephen Roach is still calling for higher rates, but sees a short-term drop, pooh-poohing Biggs' economic fears. Page 6 has yet a third Morgan investment strategist, Peter Canelo, and his team giving us the top 10 reasons to reduce cash positions and generate commissions, preferably at Morgan Stanley.
All of this is well written, makes sense to any educated person and does an excellent job of pushing rational investors to the conclusion that the future -- particularly the near-term one -- is hopelessly cloudy, and that none of us has any real idea what is likely to happen.
With stuff like this pouring out of the Wall Street houses every day, is it any wonder why I focus on a bottom-up, stock-by-stock approach -- trying to get just the business and the price right? Call me a fan of simplicity: If I get those right, the future tends to take care of itself.
Jeffrey Bronchick is chief investment officer of Reed Conner & Birdwell, a Los Angeles-based money management firm with $1.2 billion of assets under management for institutions and taxable individuals. Bronchick also manages the RCB Small Cap Value fund. At time of publication, neither Bronchick nor RCB held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Bronchick appreciates your feedback at