Bear Stearns’ Trahan Gets Religon

Bear Stearns’ Francois Trahan is pulling in his horns.

He was amongst the crowd making the incorrect 2004/05 call for a rotation into Big Caps, and has been mostly Bullish since.

He is now getting some religon, and recognizing the weakening longer term elements:

THE MARKET’S RECENT ATTEMPT AT A BREAKOUT APPEARS MORE CONSISTENT WITH A LAST GASP, RATHER THAN A NEW BEGINNING… if the recent rally marked the start of a sustainable upturn, then market leadership should have been concentrated in early-cyclical segments, such as consumer discretionary and financials, whereas leaders have been sectors that typically fare well in the latter stages of a market move.

INVESTORS SHOULD HAVE TAMER EXPECTATIONS ABOUT THE ROAD AHEAD…the conditions that prevailed in October, when the rally essentially began, have changed… technical indicators in October were conducive to a near-term rebound in stocks at a time when leading indicators began to reaccelerate…. for leading indicators to continue to accelerate from here is a tall order with the Fed in tightening mode.

WHILE THE INFLATION DEBATE SEEMS TO HAVE MODERATED RECENTLY, SOME INDICATORS SUGGEST THAT INFLATIONARY PRESSURES COULD SOON BECOME AN ISSUE AGAIN, EVEN IF ONLY TEMPORARILY… besides traditional inflation hedges such as gold, real estate and other commodities, investors may wish to consider equity segments that benefit from a mild pick-up inflationary trends through pricing power such as telecom.

VARIOUS MARKET SEGMENTS CAN PROVIDE CLUES ABOUT WHAT TO EXPECT FROM ECONOMIC FORCES AND HOW TO BEST POSITION PORTFOLIOS ACCORDINGLY… at this time, economic-sensitive currencies suggest that a further deceleration in the global growth outlook could be around the corner… some specific equity segments currently signal that housing industries of the market could be due for a slowdown.

A KEY REASON WE DO NOT THINK THE RECENT EQUITY RALLY IS SUSTAINABLE IS THAT THERE IS STILL TOO MUCH OPTIMISM IN THE MARKETPLACE… when investor sentiment lingers in bullish territory, the market typically becomes vulnerable to the slightest bit of bad news… furthermore, sustainable rallies tend to begin with sentiment is depressed, rather than when it is already stretched.


Francois Trahane,
Bear Stearns
NY, March 2006

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  1. Leisa commented on Mar 4

    Barry, My father sent me this link to Pimco. I read Dialynas’ Marshall Plan which is included in this link. It is from 2004, but still deals with contemporary issues. I found it to be a pretty understandable and comprehensive view of all the dark specters that have been flittting around the periphery. Perhaps you and your readers would have an interest.

    Of course I realize the fact that I read something that my father (who has grumbled about all of the signs that portend trouble for the last 10years) sent me and actually agreed with it officially makes me old. Now we have a whole new dimension to our relationship where we can discuss impending economic doom and gloom. How did I come to this?

  2. B commented on Mar 4

    Thanks Leisa. Looks good. I’ll read it in detail on Monday. You do know men are by nature very negative. It is in our genes. Being much more sensitive to negative feedback has kept us alive. It’s also tied into the amygdala’s “cave man” emotion center. The one which makes people awful investors. Pavlovian or self-reinforcing negative conditioning. :) The more we read about the end of the world as we know it, the more we convince ourselves the facts are self evident. How could it be anything but? Our problems are endless……so they said in 1980.

    While I wouldn’t take any bets right now, if we come out of the next eighteen months without some severe breakdown in the dollar, housing, etc, I’ll post some of my favorite market prognosticators that are bullish. Half are women. One was Garzarelli, Barry’s alter ego in the BW study. While she’s prone to being too bullish, she’s a brillaint Wall Street mind. Btw, I don’t believe she actually predicted Dow 14000. She predicted an S&P figure and the Dow 14000 was sort of a misquote. So far, she has tagged 2006 right on from a sector standpoint. Buying her favorite picks would have one up 25% or more in two months.

    I’d like anyone on here to post me a link to a very bearish Wall Street guru that is a woman. I’d be interested in reading their ongoing commentary.

  3. angryinch commented on Mar 4

    Just read a few recent newsletters by Don Hays. He’s superduper bullish for 2006. Says the SPX will hit 2,800 by 2008-09 (which I guess means the Nazz at 5,000-6,000 and the Dow at 25,000). Whatever.

    Best I can tell, his thesis is based on Christ, America is great, and the (thoroughly discredited) IBES stock-bond valuation model. Whatever, again.

    Here’s one of his current whoppers: don’t worry about the four-year cycle because the second year of the presidential cycle is actually bullish…after the first quarter.

    Guess he didn’t look too closely at the charts from, oh let’s say, 1962-2002. Second years of the presidential cycle were anything BUT bullish after March in: 1962, 1966, 1970, 1974, 1978, 1982, 1986, 1990, 1994, 1998, 2002. Some of these cycle years WERE bullish midyear—let’s say from Apr-Jul—but the Aug-Dec periods were often Carnage Central.

    Then he gets even more wack: second years of second term presidents are even more super-duper bullish. He goes back to good ‘ol Woody Wilson for this crap data.

    First of all, the sample size is six. Second of all, it isn’t even close to the truth. Most telling: Hays lists all the super-duper rallies during these “2nd of 2nd” years—1958, 1986, 1997—and completely leaves out Nixon’s “2nd of 2nd” in 1974, a year where the Dow finishes down 30%.

    If you add Nixon to the mix, Hay’s whole thesis goes in the crapper, not coincidentally where it belongs.

    Even the other examples are far from bullish. 1958 was a legit bull year, straight up. But the breakout in May 1958 came from 3-year lows (1956 and 1957 were not good years.) This is hardly the landscape we face today in 2006 with 4-year highs.

    And in 1986, after a strong Jan-Mar rally, the market chopped around for the rest of the year in a tight range. Not really bullish at all, and nothing like 2006 so far.

    And, of course, 1997 was a very volatile year, especially after July culminating in the Oct panic (-13%).

    How do doofs like this hold onto their credibility and continue to sell newsletters? It’s one thing to cite data, state your thesis, and still be wrong. But to completely make sh*t up, that’s where I draw the line.

  4. Idaho_Spud commented on Mar 4


    I read that through completely. Thanks for sharing.

    It scared the daylights out of me. If things are as bad as that, this country is in for some rough times, even if we take abrupt action to correct the global imbalances and massive debt.

    Unfortunately as in most things nowadays the plan is… no plan at all – what, me worry?

    Talk about the emperor having no clothes…

    And meanwhile over at Motley Fool, intrepid investors are debating the pros and cons of buying MSO shares…

  5. todd commented on Mar 4

    The female perspective is worth noting, but PLEASE choose someone other than Elaine Garzarelli… investors that made money in the late 90s shouldn’t be dubbed “market gurus.” They should be called “people that were in the market in the late 90s.”

  6. Idaho_Spud commented on Mar 4

    Upon further thought, that PIMCO article goes a long way toward explaining the sudden departure of so many FED governors. I wouldn’t want my name associated with the coming debacle either :)

  7. B commented on Mar 4

    I’m familiar with Don’s work. I wouldn’t totally discount him as a dope. He was a lone wolf in 2000 as being very bearish amongst the perma bulls. Plus, he’s an engineer by training so I’m partial to him as sort of a Grandpa figure.

    I know he’s one of the people who compares 1994-5 to 2005-6. I’ve also seen some of his work regarding the run he expects on the S&P.

    We have to see where we end up in a few years. He may be right. No one knows where the market will be in three years. Would people have thought Dow 10,000 in 1980 when it was, what? 1000? 10X gain? Or Naz 5000 when we were at 150? He’s consistently beaten the market so while he may not fit your investment style, you can’t argue with success. That said, I believe his short term (next 12 months) work is very flawed without getting into all of the details. The IBES valuation model is somewhat similar to Ford’s model as I can make out and both really aren’t that inaccurate as far as I can tell. Both alerted investors to the mess in 1987 and 2000. I have a model I use that I hocked from some smart sob and it is likely very similar to the Ford model. Although I think valuation models are anecdotal guides at best.

    Is there some other valuation model you find more appropriate? Please don’t say the Fed’s simple model. lol.

    Oh, and Garzarelli is a very, very smart lady and has made alot of people alot of money. Again, even this year. She hasn’t gotten all of the calls right but she should be given some due. I will goof her for calling Dow ten million or whatever she said pre-2000. That was her, wasn’t it?

  8. David commented on Mar 4

    Just a quick note to let you know his last name is Trahan, not Trahane. I have been reading him for many years, he has been right more than wrong.

  9. angryinch commented on Mar 4

    I don’t know too many engineers who play fast and loose with facts and figures the way Hays does. Sounds more like a missionary to me.

  10. Leisa commented on Mar 5

    To All

    At the risk of sounding “shrill”, and with respect to bullish v. bearish women on Wall Street, the population market gurus with estrogen coursing through their veins is small. If my memory serves me correctly, Garzarelli was also one of the few women to make it to the upper echelons in Wall Street. Of course, I’m of that age when women were pretty underrepresented in many leadership capacities. When I graduated in 1982, there were NO women partners in any of the then Big 8 accounting firms in my city and only a very small number (probably couldn’t even register as a percentage!) nationally. At my firm there were 10 of us, and we had the dubious distinction of being the first class where it was 50/50–with later years tilting toward more a higher percentage of women. The point of my post is not to gripe, but rather to point out that I would guess that the investment gurus (generally middle-aged folks with a track record) are biased toward being male due to this imbalance in gender representation, regardless off the bearish/bullish-ness of his respective opinion. NOw having said that, my guess is that women, who are generally free of the evolutionary need of competitive supremacy, either physical or intellectual, would be more likely to have a more balanced view and would be neither overly bearish nor bullish.

  11. Barry Ritholtz commented on Mar 5

    Louise Yamada
    Abby J Cohen
    Liz Ann Saunders
    Mariel Siebert

  12. Barry Ritholtz commented on Mar 5

    David —

    If I didnt think he was value added, I wouldn’t excerpt him.

    A lot of stuff has been good — but he’s been stubbornly wrong on the big cap / capex stuff for 3 years running

    Also, I fixed the spelling error.

  13. angryinch commented on Mar 5

    While we’re on spelling, it’s Muriel, not Mariel. Maybe you were thinking of Hemingway.

    Also, if women are genetically less disposed to being overly bearish or bullish, then the gals must be loving the Dow action over the past couple of years.

  14. Barry Ritholtz commented on Mar 5

    which is the hot young blonde one?

    Not her . . .

  15. B commented on Mar 5

    That would be Anna Kournikova, Cameron Diaz, Scarlett Johansson, Kate Bosworth, Renee Zellweger, Denise Richards or Naomi Watts. Liz Ann dyes her hair. lol.

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