Dismal quarterly reports, serial scandals, widening probes into analysts and investment banks wherever you look, it's bad news.

Almost everywhere. This week the most irrepressible of Wall Street's optimists received a signal from above indicating that the good times will return soon: the editors of BusinessWeek, the most popular business weekly in the United States, elected to grace this week's cover with a mean-looking bear.

You may be wondering at the upbeat correlation between a bad-tempered ursine depiction and imminent gains on the stock market.

Well, bears signify long-term poor market performance. And, a popular Wall Street theory argues that the best time to buy stocks is when the editors of the major papers turn pessimistic.

That theory was born after BusinessWeek drew a bear on its cover in 1979 and, with spectacular bad timing, titled its cover story "The Death of Equities". Its article immediately preceded the longest boom America has even known, barring the two-year trough after the 1987 crash.

Since then, the covers of America's business mags have been known as "contrarian indicators". When they turn bearish, it's time to buy.

So, with the bear glaring at us from the cover of BusinessWeek yet again, and America's pundits turning bluer by the day, Wall Street is on a new kick: to announce that we've reached rock-bottom, and it's time to return to stocks.

It's a nice theory, but the bear sorry, the market may not have read the book. There is a good chance that the grizzly stalking the Street for two years now won't get the hint and bow out. Thing is, the Street is still brimming with bear food:

• Unlike 1979 and other troughs in the American stock market, stock prices today are not low, even after the crash.



IBM Corporation


General Electric


Wal-Mart Stores




Johnson & Johnson




Coca Cola

(NYSE:KO) all these sumo-weights are still trading at multiples of 20 to 35. In previous busts, their multiples shrank to one-digit figures.

Nasdaq and Internet star

Cisco Systems

(Nasdaq:CSCO) has lost 70% of its value but its still trading at a multiple of 80. Yes, earnings multiples are historical, and analysts expect it to grow and forge ahead. But even if their rosy prophecies come true, Cisco will still be trading at a multiple higher than 30.

• In the last six months, Wall Street investors have grown leery of earnings multiples, because when they are based on reported net income it transpires that the managements have more leeway than we'd realized.

Meaning, when it wants to, the management can inflate the figures and get their accountants' blessing for the cooked books. The parade of accounting scandals looks likely to continue in the quarters to come as companies continue to disclose the slime hiding in the crannies of their books.

It took less than two years for WorldCom to morph from one of the world's biggest, most successful communications companies to a puling bankrupt. Clearly, the danger of freefall by companies found to be wearing dirty balance sheets is greater than ever.

After five years of hearing that the justification for high share prices is a drop in risk premium, investors must be wondering if the risk premium hasn't leaped for the sky, in view of the managerial penchants for cooking the books.

• Economists and analysts point at the might of the real American economy, and divulge astonishment at the "detachment" of the declining stock market, compared with the firm economy. The only explanation they can offer is a "crisis of confidence", adding that it will be resolved by firm government action.

Yet that blithe "axiom" should be questioned. Firstly, who said the economy and stock market should move hand in hand, especially after the financial festivity that sent share prices shooting for the heavens? Secondly, the American economy might surprise for the worse next year. People are ignoring that possibility, but it's there.

• During the last downturns, like in 1979, American interest rates were high, and subsequent rate cuts fueled a surge in stocks. This time the interest rate weapon is out of ammo. The Federal Reserve already cut rates from 6% to 1.75%. Lowering it to almost zero is unlikely to help the economy or stocks.

The low Federal Reserve rates may even be helping to create a real estate bubble that is artificially supporting the American economy. Despite the slide in stocks, American continue to maintain their high consumption habits and negligible savings, partly because high housing prices enable them to borrow, using their homes as collateral. One morning they may wake up and understand it's time to save, not spend. Then the economy may follow meekly in the wake of stocks.

Therefore, if you think the bears sprouting like hairy mushrooms on business journals as a sign of good times ahead, please keep in mind that most analysts are still in denial, most of the economists see the resumption of growth as a given, most investors are still counting on dual-digit annual returns in other words, there isn't enough pessimism to justify the optimism.