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Anal-List - Chronicles of World Famous Market Strategists

Another in a series of nominations for the Prestigious Blodgett- Meeker Award (BM Prize) for Market Strategist of the Year

Last week,(7/1/01) Dr. Stool's featured nominee was Joe Battipaglia. The Mother Joseph Superior was a featured nominee in January. This series will continue, from time to time.

Watching an MSNBC news special on the history of Satan and Satanism the other night, Dr. Stool's thoughts turned to Jeffrey Applegate, Chief Market Strategist at Lehman Brothers. Dr. Stool had  seen Mark the Shark Haines interview Applegate a few days earlier on Caint Nobody Buy Channel. The occasion was the announcement of  Lehman's 10 Uncommon Value picks for 2001-2. Evidently this is an annual event, and it's quite a big deal to the portfolio sphincters. 

Shark says to Applegate, "So how ya doon - not too good I guess, since your 2000 picks dropped 47%, huh?" Seems eight of the ten were tech stocks. 

Applegate glares into the camera, horns clearly visible, and says, "I'm doon jus fine." But his eyes, they was sayin', "I'm gonna break your legs, you mothahumpa s.o.b."

So then Shark says "So what the hell went wrong, you jackass?" On national TV yet, can you imagine? Or at least that's what Dr. Stool thought he said. Something about the smirk as the words came dripping out of the left side of the Shark's mouth.

So Applegate says, "Aaay, ya know it wasn't my fault. Nobody coulda seen what was gonna happen. Everybody else got it wrong too. They wuz good picks, and they's still good picks, and we stand by 'em, 'cause we wasn't wrong, and nobody else got it right." 

Now that's what I like, a stand-up guy who takes responsibility for being a freakin' jackass. But before we get into this turd's track record, let's just set the record straight on one thing. There most assuredly were people who got it right, big people, Wall Street Big Shots, not just the permabear crazies like Dr. Stool, and Fleck and Crash, and David Tice. Here are five:

• Byron Wien- Chief Market Strategerist, Mooogan Stoogely

• Barton Biggs- Just Barton Biggs, Mooogan Stoogely

• Doug Cliggott- Chief Strategerist, JP Mooogan

• Richard McCabe- Chief Somethin or Other - Mohel Lynch (Pronounced Moil as in Oy, do we got a tip for you)

• Richard Bernstein- Chief Quantitative Strategerist - Mohel Lynch (Oy do we got tips)

• Robert Farrell - Senior Chief of Technical Blah Blah (and one of Dr. Stool's long time heroes)- Mohel Lynch.

Like I said, five.

Now here's the thing. These guys are famous dudes. They get quoted in the Joinal every freaking week. They get their faces on the cover of Barrons. Wein and Biggs and McCabe and Farrell, they been around for five or six hundred years, and everybody on the Street knows them. 

And they were bears on tech. Both before and after Applegate's picks. So if you're going to lie, you creep, at least make it believable.

Here's a brief compendium of what the five wise men had to say for the six months prior to Applegate's picks. Six months, that should have given him adequate notice, right?

1/2/00 - Byron Wien says tech will have problems as the market wakes up on valuations.

1/4/00- Wien thinks that new valuations on companies are a little outrageous

3/24/00 - Barton Biggs doesn't think investors should be heavily weighted in stocks, should be more in fixed income. He is hard pressed to find internet companies or techs among his top picks

3/30/00 - Biggs says that things are very scary; he doesn't see much opportunity; says eventually we'll have a succession of failed rallies and public will give up.

4/5/00 - Wien thinks valuations are too high, especially in tech. Advises underweighting.

4/9/00- Doug Cliggott says tech prices are too steep.

4/10/00 Richard McCabe says last week's Nasdaq sell-off was not "a brief, random event, but the beginning of a longer lasting change. The storms that have swept through the stock market in recent days have driven home this point" The technology sector has begun an important corrective trend." He told investors to reduce their tech holdings.

4/11/00 - Richard Bernstein says everyone is loaded in one sector and they consider NASDAQ as The market; this is a mistake, NASDAQ is one sector of the market, and people should diversify.

4/13/00 McCabe says the days of everything going up in technology are over for many years to come.

4/27/00 Wien expects 25% market drop, with tech possibly breaking the November lows, i.e. below 3000 on Nasdaq. (at 3774 at the time) He called for the SPX at 1300. It was 1465 then.

5/4/00 Biggs says we are in the early stages of a gradual leadership change away from tech to value. He says, tech has finally cracked, and big cap tech stocks will suffer in the final stages of a bear market in the tech sector.

5/5/00 Wien says Dow will go below 10,000 and Nasdaq will go below 3000. He says there's further damage in store before we are out of the woods. He points out there are a number of good tech companies without earnings that are still vulnerable and that there are a number of technology stocks with earnings that are still overvalued, citing that many are at over 100 times earnings.

5/11/00 Cliggott cuts tech weighting from 27% to 20%

5/24/00 Cliggott says tech is still overvalued, pointing out Nasdaq is still at 100 times earnings.

5/25/00 Cliggott says the rally in Nasdaq is not sustainable. He expects, over the next 6-9 months, the likelihood of an unattractive combination of higher inflation rates, rising interest rates, and slowing corporate earnings, with recession not a zero possibility. He says there's tremendous optimism among investors about long term growth from tech companies, however, due to vicious competition, reality is this growth is only in spurts.

6/20/00 Biggs doesn't believe the Federal Reserve will be able to engineer a "soft" landing for the economy. He says it has had too long a boom and there are too many excesses for a soft landing to be possible.

6/13/00 Bob Farrell calls the Nasdaq rally a bear market rally.

6/14/00 Farrell says that historically, long periods of correction have followed major concentration in sectors with huge inflows of money at high prices. He says that the peak in the first quarter was a major peak, to be followed by a corrective process. He forecasts a summer recovery, then more fundamental decline that can last several months or even years.

6/22/00 McCabe tells investors to stay away from the wild tech group that the market was fascinated with in earlier months.

6/24/00 In Barrons mid year round table, Biggs sees a "significant institutional bubble" in the Nasdaq, particularly in the areas of Internet infrastructure and wireless-telecom. He expects a significant shift from growth to value investing.

8/8/00 Richard Bernstein warns that he remains bearish on technology. He warned that U.S. firms with high foreign exchange exposure were starting to underperform, adding that these were mainly technology companies.

Now ladies and gentlemen, that's six very famous guys, with three of the most famous brokerage houses in the world, who were widely quoted in the financial media 21 times telling people to GET THE "F..." OUT of Tech, before, and just after, the announcement of Lehman's 10 uncommon values.  Needless to say, the drumbeat went on continuously in the second half, and thereafter, with a growing chorus of converts. Applegate claims that no one got it right. Maybe he didn't hear the wise men. Maybe  he did, and wants you to think that you didn't. So now let's look at his record.

As usual, Dr. Stool will limit the focus to the period of 6 months to a year prior to today, to be consistent with the forecast horizon of the strategist.

Before we get to the picks, let's look at some of Applegate's prognostications, along with an editorial comment from Doc, here and there.

7/23/00 Applegate says the summer rally is pausing, and that until the market's leadership is renewed we'll get churning with no real progress.

7/31/00 His research notes stress upside earning surprises. He also says "…with labor costs still rising, perpetuating the need for substitution of labor with capital, and capital spending rising faster than GDP to meet that need, we still look for Tech to provide the leadership going forward." 

8/7/00 He forecasts that by mid-year of next year (that's now folks) the S&P would be at 1700.

8/31/00 He says that the rich valuations in the best technology companies should persist for years to come. He got that right, the valuations are still rich. Guess he forgot about the earnings.

Then he says the stock market's positive performance that week, under the assumption that the Federal Reserve will leave rates unchanged at its meeting, was a good sign. "To us, the important messages to be gleaned from this week's market data are that the physical capacity is still increasing and spurts in tech industrial production growth are coincident with Fed tightening," Applegate writes. "This should mean that prospects remain good for a long business cycle getting longer."

Now what the hell does that mean.

He also said that demand for technological product is largely interest-rate insensitive, pointing out that tech spending exploded during periods of rising rates. Gee, looks like he got that right too. Rates are coming down, and so is tech spending. Guess he didn't count on that, though, huh?

8/31/00 - He forecasts a 1600 S&P by year end, and 1,800 by the end of 2001. Must have been smoking some good stuff. He also said investors should overweight in technology stocks because they are the least interest rate sensitive sector of the market. There he goes again.

9/11/00 Current stock market risk remains "well below where it was 10 and 20 years ago", says Applegate, despite the rising share of technology stocks in the S&P 500. (Again, the opposite of the truth.) "Lower risk is mainly the result of good conduct of public policy." He continues to see the Federal Reserve's interest rate policy as the "dominant variable that impacts stock market risk," adding that the outlook for this policy looks pretty good. "Our stock market risk model forecasts slightly lower market risk next year." 

10/16/00 The S&P is fundamentally undervalued. "…unless oil goes to $90, it's hard to make an argument we have a serious inflation or valuation problem."

11/1/00 He exhorts investors to stick with tech, advocating a 47% weighting. He cites robust local and global demand, and says tech stocks are cheap, but that selection is important. He says you can't make a good case for value stocks, that growth out performance will return. Investors should plan for it in the fourth quarter.

11/20/00 Applegate reduced the cash position in his model portfolio to ZERO. Forecasts 12% equity returns over 12 months.

12/11/00 Says the market is significantly undervalued.

12/13/00 "Today, 60% of capital spending is on technology," Applegate says. "The spending continues, and that has been a trend in this cycle. I still think overweighting tech is the right call. The primary leadership in this recovery will be technology."

12/18/00 He forecasts a Fed rate cut and S&P 1675 and Dow at 13,000. Financials, short-term cyclicals, and tech will be helped by Fed easing. He says stick with big names that have been down big, like 50-60%, lately.

12/19/00 Forecasts at least 20% return on equities and earnings growth of 7% based on prospect of Fed easing. He says that capital spending is not crumbling, that it's growing at a multiple of GDP. Most tech stocks are undervalued and demand in rest of the world is good.

12/30/00 He says that a significant portion of the correction in the market and in tech sector is behind us and that the S&P 500 is priced 19%-20% below fair value and should move up sharply after such undervaluation. He says that S&P small cap index and Russell 2000 are overvalued, primarily due to reduced Treasury supply. (Huh?) He forecasts that P/E multiple expansion will propel the market forward and that the economy will not head into recession

He projects:

Dow: 12,500 by mid-year; 13,000 by year-end

S&P 500: 1500 by mid-year; 1675 by year-end

S&P 500 profit growth: 7% by year-end

10-yr T-Bond yield: 4.75% by year end

Now THAT's quite a record!

Strangely, in late January of this year he said he had a 30% portfolio weighting in tech. Gee, I wonder how it got from 47% to 30% in two months.

Now the stock picks. The original 10 from last year first:

Damn, that's even worse than Joe and the Mother. But wait, it continues. While not as prolific as Joe, Applegate was certainly as consistent as Fat Bastard. Here are the rest of his picks form last July through this January. 

There you have it ladies and gentlemen, 25 more recommendations, 19 losers. Overall, 35 recommendations, 27 losers, almost tripling the overall decline in the S&P, a stunning performance, truly worthy of nomination for the BM prize. 

Stepan N. Stool PH&D

Mother Superior Down 25.6% in 7 Months 
Dr. Stool has updated this article, first published in March, to reflect current performance. Looks like the Mother's still worse than Joe, and neck and neck with Applegate.

Source: Most of the above crap came from www.netcog.com, and a variety of data services. If Dr. Stool got it wrong, blame them.

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