Never mind those mad cows. It’s the mad bulls we’re worried sick about.
Pompously snorting over a stunning blockbuster 2003 stock market, the bulls seem to think stocks can go up forever now. The bears can scarcely be heard amid the hullabaloo over the market’s resurgence.
We have empathy for the bulls. They think anything’s possible now because even the most famous bull, Wall Street strategist and cheerleader Abby Joseph Cohen, has busted out of an embarrassing three-year slump by nailing the 2003 bull.
With the market buoyed by a healthy dose of U.S. fiscal stimulus, the bulls recorded a resounding victory in 2003 across the board with the TSX Composite up 24.3 per cent, the S&P 500 up 26.4 per cent, the Dow Jones up 25.3 per cent and Nasdaq up 50 per cent.
Cohen’s year-end forecast for the S&P 500 index was 1,150, only 41 points high.
Pom-poms may have gotten in the way in 2002 when Wall Street’s most famous prognosticator predicted the S&P 500 would reach 1,300 by year end, which turned out to be 48-per-cent bull. The perennial bull from Goldman Sachs is, naturally, still mad about this market, now forecasting a 1,250 S&P 500 this year.
But that’s not what’s troubling us.
This time, Cohen has plenty of company in the bull camp. It’s roses and champagne on Wall Street where the bullish sentiment transcends virtually every sector of the market. The optimism is widespread with virtually all of Wall Street’s strategists merrily pitching more bull for 2004. Much of the same exuberance prevails on Bay Street.
The contrarians will argue that kind of bullishness is as bearish a sign as one could find anywhere. Yet, contrarians often tend to bail too soon and miss dessert. In fact, this bull run may not have run its course, considering it has yet to catch the imagination of cabbies and the general populace.
The only notable Wall Street strategist with a pessimistic view is Smith Barney’s Tobias Levkovich, who predicts an early-year rally followed by a slide precipitated by rising U.S. interest rates that will take the S&P 500 down to 1,025 by year end.
The Canadian money managers we chat with regularly for the Edge’s Pro’s 3 Stars column, most of whom are pretty straight shooters, have become increasingly cautious in recent months. Most point to lofty valuations for stocks.
Jean-Francois Tardif of Sprott Asset Management points to an alarming 40-to-1 ratio of selling to buying by corporate insiders over the past six months (for Tardif’s top picks, see this week's Pro's 3 Stars).
But the most telling sign may be the perspective of Vancouver small-cap guru Wayne Deans of Deans Knight Capital Management, who recently threw up his arms in despair and bluntly stated there wasn’t a single stock that he liked. Indeed, Canadian small caps have outperformed large caps with the S&P/TSX small-cap index up 32.1 per cent in 2003.
Deans manages the Northwest Specialty Equity Fund, which boasted an astonishing one-year return of 50.9 per cent through November. He has been the Edge’s top stock picker in the past two years and was one of the first fund managers to discover Cinram International (CRW-TSX), which he made a top pick in the Edge two years ago at $4.20. It has since skyrocketed 575 per cent and only now is Bay Street head-over-heels in love with it.
So will the market be up or down this year?
Deans and many of the game’s most successful stock pickers could care less. They don’t count bulls. They crunch numbers.
They avoid ‘Mad Dow Disease’ by tuning out the hype and the noise on Wall Street and focusing on individual stocks and not the stock market.
On that note, we offer our hot tip for 2004. Buy earplugs.
That could turn out to be the wisest investment you ever make.
* MEMO TO JIMMY PATTISON: Hey, Jimmy, we know how you love the fact that your companies are private, but we’d love nothing better than to see you veer off course and take one of the companies in the Jim Pattison Group public.
Since you bought $48.6 million US of Biovail stock (BVF-TSX) from embattled CEO Eugene Melnyk in early December, the infamous drug maker has regained some credibility with the shares spiking 13 per cent in two days on the news. They’re now up about 20 per cent in a month.
With the microscope on corporate governance, imagine what someone with your credibility and respect could do for an initial public offering of a high-profile U.S. company like Ripley Entertainment in a revived IPO market. There’d be a stampede of hungry investors who are fed up with bad actors running public companies.
Of course, the toughest sell would be in getting Ripley’s Believe It Or Not! to believe it.
* SAGE WORDS: “When opinions in Wall Street are too unanimous – BEWARE! The market is famous for doing the unexpected,”
– Peter Wyckoff, one-time Wall Street research analyst and author of The Psychology of Stock Market Timing.
HOT 2003 STOCK: Northern Lion Gold
NL-TSXV $1.80
Up $1.77 (+5,900%)
You know-it-all gold bug, explain, if you will, why you didn't plunk down 10 G’s a year ago to purchase three-cent Northern Lion shares when the fledgling Vancouver company purchased a prospective Finnish gold property. Oh, you did! But you sold out at a dime, right? Whaddaya mean, you’re still holding the whole shebang at $1.80 with a $590,000 profit? Greed Lesson: The hot stock of 2002, MDP Worldwide Entertainment (MDP.A-TSX), was down 52 per cent in 2003.
COLD 2003 STOCK: AFM Hospitality Corp.
AFM-TSX $1.50
Down $3.75 (-71.4%)
Room service, please send up the stock. OK, just send up something for the share-price headache. Shareholders of this troubled Toronto lodging franchisor and hotel management company didn’t exactly get the red-carpet treatment as the stock spent the entire year in a free-fall to oblivion. Bottom Fishing Lesson: The cold stock of 2002, Bell Canada International (BI-TSX), was up 93 per cent in 2003.
