Undressing Window Dressing

The TaskMaster peeks behind the curtain to reveal the seamier side of Thursday's rally.
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Inside the Underbelly

SAN FRANCISCO -- Lots o' talk about "window dressing" being a factor in

today's advance. The folks on

CNBC

were tossing the term around ad nauseam but the network didn't address how (why) groups that have sucked wind this quarter rallied, if window dressing really is the practice of fund managers buying stocks that have been big winners.

Financials and pharmaceuticals were glaring examples of this curious turn. The

Philadelphia Stock Exchange/KBW Bank Index

rose 2.7% today but lost 16% for the quarter. Similarly, the

American Stock Exchange Pharmaceutical Index

gained 1.7% today, but lost 8.3% for the third stanza.

But "buying the winners" is only half the story, according to one market veteran who requested anonymity.

"The other part is the seamier side" of window dressing, he said, pulling back the curtain (couldn't resist) to reveal an unsavory element of Wall Street. "Investors that own a big position in stocks that may have been losers call

their broker and say 'I can't report this stock at 30. Buy 50,000 shares of

XYZ

and run the price to 32 or 35.'"

The source wasn't aware of any specific instances but said tomorrow and Monday will show which names hold today's gains and which revert to quarterly form.

As for how much window dressing (of either kind) impacted today's gains, "I haven't a clue," he said.

The game goes on.

On the Loose With the Bulls

I escaped the confines of my cube yesterday to attend the

Banc of America Securities 29th Annual Investment Conference

, specifically the "portfolio strategy workshop" hosted by John Skeen, the firm's director of portfolio strategy, and Thomas McManus, equity portfolio strategist.

McManus opened the presentation with the firm's big-picture view, which remains steadfastly bullish.

Noting the

Chicago Board Options Exchange Volatility Index

rose to over 30 on Sept. 23 for the first time since March 2, McManus said the "high level of concern" about "downside risk" on Wall Street only enhances his optimistic outlook. Spikes in the VIX, which fell 3.6% to 26.89 today, have augured stock market rallies in recent years, he observed.

The strategist then

reiterated a belief the economy is cooling and that bond yields have peaked even if the

Federal Reserve

isn't done tightening (which he thinks it is), similar to what occurred in late 1994 and early 1995. He called 5.50% "fair value" for the long bond's yield.

McManus took umbrage with the commonly held view the

S&P 500

is wildly overvalued, noting

Standard & Poor's

"index committee has been stacking the deck with growth companies" in recent years. Thus, historical P/E comparisons are inappropriate. For example, health care, financials and technology accounted for only 8% of the S&P 500 in 1964 combined vs. 47% today, he said.

Finally, after declaring the S&P 500 is "not the market," the strategist said the "average stock" is "roughly 15% undervalued."

Then Skeen took over the podium and ripped through the firm's best picks with a blistering, rapid-fire delivery, reminiscent of

Angus Young in his heyday.

Focusing first on the "communications revolution," Skeen waxed positive on

Level 3 Communications

(LVLT)

and

Texas Instruments

(TXN) - Get Report

, for which he set a 120 price target (TI closed at 82 1/2 today). Internet software plays such as

Verity

(VRTY)

and

BroadVision

(BVSN) - Get Report

were also featured.

He was effusive about

Novellus Systems

(NVLS)

, predicting the company will take market share from

Applied Materials

(AMAT) - Get Report

in the coming year and sport a stock price well over 100. (Novellus closed at 67 7/16 today.)

Moving on, the strategist forecast a broad-based rally this fall with a focus on consumer stocks.

Among the names on the firm's "fresh money list" are

Darden Restaurants

(DRI) - Get Report

(a "cash flow machine") and

AnnTaylor

(ANN)

, which he called "quite ignored."

Skeen also showered favor on

Wells Fargo

(WFC) - Get Report

but seemed more excited about

Fifth Third Bancorp

(FITB) - Get Report

, calling it a "wonderful story" and setting at 78 price target. (It closed at 60 27/32 today.)

Finally, the strategist noted

Ciena

(CIEN) - Get Report

is "under pressure" but a "terrific buying opportunity."

Of the aforementioned, B of A has done underwriting for AnnTaylor, Level 3, Verity, BroadVision, Novellus, Fifth Third and Wells Fargo.

Thursday Afternoon QB

Yesterday,

CNBC

featured the

Abby J. vs. Uncle Ralphie "story."

Last we'd heard from

Goldman Sachs'

Cohen was on

Sept. 8, when she upped her year-end price target for the

S&P 500

to 1385 from 1350. She also increased her 1999 target for the

Dow Jones Industrial Average

to 11,500 from 10,300.

That day, the Dow closed at 11,036.34 and the S&P at 1344.15. Heading into today, the averages were down 7.5% and 5.6%, respectively, from those levels (after having already started declines from record highs).

Yet, little mention from the network about Abby J.'s not-so-impressive short-term timing.

As for

Prudential Securities'

Acampora, back on

Aug. 9 he wrote that year-end targets for the Dow and S&P would stay intact unless the Dow fell below 10,334 and the S&P 500 below 1,292.

That unhappy (for those long) development occurred on Sept. 23. In announcing the change, Acampora wrote he waited 'til

Tuesday because he'd been "giving the market the benefit of doubt" and because of anticipation heading into last weekend that the

IMF

would make an "accommodation regarding the dollar."

I've been

tough on Acampora in the past but I'll give him credit in this case for sticking to his guns, even if he waited a day or two to fire. (I wonder if this will get me back on the email list for Pru's research?)

I know it's in

CNBC's

best interest to keep the market's "stars" aligned. But couldn't the network provide a little more accountability and context?

Then again, what would I write about?

Neither Acampora nor Cohen returned calls seeking additional comment today.

P.S.

I know you

voted for more on the

gold story, but I it's going to have to wait because I want to do it right and my editor is clamoring for me to file.

In the meantime (Fugazi), didn't today's "Heard on the Street" column seem somewhat

familiar?

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 welcomes your feedback at

taskmaster@thestreet.com .

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