GuruVision: Tuning In to the Big Guru
That is the message from Wall Street's gurus this week -- even if the market didn't totally cooperate Monday: The
Dow Jones Industrial Average
rose 0.4% but couldn't sustain its initial momentum, while the
dipped 0.1% and the
For those needing more proof the market is safe than
dedicating loads of precious (?) time to celebrity guests such as
, as well as promoting the celebration of "Squawk Box's" fifth anniversary (congrats), consider the following:
- "Today's valuations ... still suggest an attractive buying opportunity." -- Edward Kerschner, chairman of investment policy at
"The near-panic selloff last Wednesday was at least the beginning of the final capitulation of the spring/summer correction in share prices. We continue to recommend that investors use remaining weakness in particular to add to their medium- and long-term equity investment portfolios." -- Christine Callies, stock market strategist at
"The strength on Thursday greatly increases the chance that the market has made a low during the last week, and will now be in a mostly bullish trend for the next two months." -- Robert Dickey, director of technical analysis at
Dain Rauscher Wessels.
Those comments were issued (separately, of course) either today or Friday. Let's go back a bit further, all the way to last Thursday, and
comments from the big chief guru himself,
By now, the story of the boom in information technology is well known, and nearly everyone perceives that the resulting more rapid growth of labor productivity is at least partly enduring. Capital deepening has surged during the past seven years, and innovations, synergies, and networking effects have boosted significantly the growth of multifactor productivity. With output per hour having accelerated, cost pressures have been patently contained.
As Greenspan himself indicated, those comments were nothing new. As far back as
July 18, 1996, he testified to the following:
As we have discussed before, powerful forces have evolved in the past few years to help contain inflationary tendencies. An ever-increasing share of our nation's workforce uses the tools of new technologies. Microchips embodied in physical capital make it work more efficiently, and sophisticated software adds to intellectual capital.
So the point of this exercise is not to declare that Greenspan has suddenly found religion. Instead, it's an attempt to further understand why
is so bullish again and whether it's justified.
is to be believed (and he runs approximately $300 million more than I), then the
answer is unequivocally "yes" to the
question about whether expectations had fallen so low that anything other than
news would be viewed favorably. That sentiment proved extremely powerful -- especially when combined with heightened levels of cash and a belief many stocks, especially big-cap techs, had become egregiously cheap.
Perhaps that kind of psychological shift explains the Comp's 7.8% ascent in one session. But I challenge the notion it's sufficient to justify a continued bullish outlook, especially given the fundamental backdrop which worsened Monday
the euro and the situation in the Middle East.
Which brings us back to Greenspan, whose repeated comments about the benefits of technology are -- to some observers -- a
recommendation to buy corresponding stocks. (Notably, few focus on the
warnings the chairman has also delivered about the potential limits of technology-enhanced productivity.)
Fed watchers downplay theories about any such connection.
"He is just calling it like he sees it -- I don't think he is in any way trying to imply the tech sector should do better or people should buy tech stocks," said David Jones, chief economist at
Aubrey G. Lanston
, who is widely believed to have the chairman's ear (
presumably having everything else). "If you ask him, he'd be quick to say not only is he not trying to control the stock market, but couldn't control the market if he wanted to."
Anyone familiar with "irrational exuberance" or other instances of Fed jawboning might take exception to that notion. Furthermore, the chairman's recent comments were duly noted by two of Wall Street's most steadfastly bullish gurus.
After forecasting that the economy will experience a so-called soft landing with
growth "just shy of 4%" for the rest of this year and into 2001, Jeffrey Applegate, chief investment strategist at
, wrote that Greenspan's remarks "further indicated comfort with that level of growth, most of which is coming from productivity."
Like the Mets'
Todd Zeile, I was unable to connect with Applegate today despite coming tantalizingly close on two occasions.
Thomas Galvin, equity strategist at
Credit Suisse First Boston
, made a less overt, but no less significant acknowledgement of Greenspan's comments in his weekly comment: "We are bullish on the market and attracted to current valuations because fierce price cutting will keep inflation extremely low, but productivity gains and technology enhancements can protect and sustain margins for select franchises."
In a follow-up call, Galvin suggested Greenspan is using a "carrot and stick approach" with investors, keeping them "on edge" about the Fed's anti-inflation vigilance, while simultaneously providing a rationale for why inflation remains at bay despite the devaluation of the euro and $30-plus per-barrel oil amid stellar economic growth.
Galvin, a self-described "new era" proponent, acknowledged the importance of being productive by focusing on this week's
employment cost index
and GDP reports. He predicts ECI will be up 1.1% for the third quarter and 4.6% year over year when it's reported Thursday, while GDP will total 3.8% when reported on Friday.
But productivity growth of 4.5% "essentially neutralizes labor costs," the strategist contends, suggesting GDP growth will be tempered by recent inventory building.
Retailers attempting to shed said inventories will engage in price cutting, he theorizes, which "will lead to surprisingly low inflation of 2% or less next year as measured by the GDP deflator, which should tell the Fed that current interest rates are too high."
Rather than giving investors the green light to buy stocks with impunity, perhaps Greenspan's comments gave gurus a chance to dream the big rate-cut dream (something Galvin, for one, has been doing since
mid-August at least). However spurious a rate cut seems, and almost regardless of current fundamentals, a bullish outlook will be handsomely rewarded if more investors start coming around to that way of thinking.
Or maybe they already have.
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.