WSJ.com is available in the following editions and languages:
Thank you for registering.
We sent an email to:
Please click on the link inside the email to complete your registration
Please register to gain free access to WSJ tools.
An account already exists for the email address entered.
Forgot your username or password?
This service is temporary unavailable due to system maintenance. Please try again later.
The username entered is already associated with another account. Please enter a different username
The email address you have entered is already in use.Please re-enter the email address.
From time to time, we will send you e-mail announcements on new features and special offers from The Wall Street Journal Online.
Create a profile for me in the Journal Community
Why Register?
Privacy Policy | Terms & Conditions
As a registered user of The Wall Street Journal Online, you will be able to:
Setup and manage your portfolio
Personalize your own news page
Receive and manage newsletters
Receive and manage newsletters
Keep me logged in. Forgot your password?
Digg
You may not love the stock market, but you have to love how it can make a fool out of just about anyone.
Take investment guru Barton Biggs who apparently dumped half of his $1.4 billion Traxis Fund's “bullish bets” between June 29 and July 3, the very worst time to be selling stocks so far this year.
“I can change my mind very quickly,” said Biggs in an interview with Bloomberg. With the S&P500 now up about 8% since hitting its lows on July 1st, Biggs must rue his fickle temperament.
No one, especially Biggs who's been in the game for decades, should be surprised. The stock market seems to have a remarkable talent for persuading investors to change their minds at precisely the wrong time.
Of course, the stock market doesn't actually cajole, coax or convince anyone. It's only a mirror. Nervous investors end up doing the wrong things all by themselves.
Consider a July 6th research piece authored by UBS equity strategists Jonathan Golub and Chip Miller. In it, UBS lowered its year-end price target for the S&P500 from 1350 to 1150.
That's a big downgrade as these things go. (The Wall Street consensus remains closer to 1300.) And even though plenty of investors ignore price targets, they're a pretty big deal for the Wall Street banks. The targets inform the “view” of the bank, driving the advice it gives and products it sells.
In the report, UBS laid out its logic: U.S. corporate earnings would remain good. But investors were scared - and would stay that way the rest of 2010. So instead of valuing the market with a “normal” price/earnings multiple of say 14 or 15, investors would only pay up 11 or 12 those earnings.
Of course, I'm grossly simplifying the UBS argument. Like any good Wall Street strategists, Golub and Miller have their own detailed theories and analytical frameworks. The case for the downgrade is actually drawn from a theory on “all or nothing” market behavior. (We're in a “nothing” phase, as you might guess.)
But in a way, the downgrade was a classic “gut” or “feel” call, based less on numbers than on Golub's and Miller's perceptions of investor perceptions.
As Miller put it to me, “Are investors going to be less scared about macro risks going forward? Our best guess is the level of fear is overdone. But volatility will most likely remain high for the rest of the year.”
That UBS came to the downgrade over the long Independence Day weekend is no coincidence. On Friday, the S&P500 had fallen to its year-to-date closing low of 1022. Recent U.S. economic data stunk. Europe was still a mess. Investor sentiment was lousy. Earnings season was coming up.
To stick with an S&P500 target of 1350 meant a 32% uptick over the next six months, over 60% on an annualized basis. It must have seemed pretty unlikely. So on Tuesday, the first trading day following the weekend, UBS issued its downgrade.
Since then, of course, the market has marched remorselessly higher. Another 5% gain and the S&P500 will hit 1150, the revised UBS target. The market's certainly behaving as if it will get there sooner rather than later.
And what then? If you're UBS, do you dare revise your target upward so soon after revising it downward? If your Barton Biggs, do you pile back into all those tech stocks you sold just before Intel announced its best quarter ever?
The answer is – yes. That's exactly what you do. And then you nervously watch the tape and pray that you were only fooled the first time around.
Yahoo! Buzz
MySpace
Digg
del.icio.us
NewsVine
StumbleUpon
Mixx
Error message
Investor “confidence” is lost for at least a generation. That’s for good reason. The market has zero integrity and is literally just a vehicle to fleece investors by traders.
Read Full Article »