Hey, is it just me or are the stock market bulls starting to appear a bit fatter and lazier after two consecutive years of cosy gains on North American indices?
Indeed, there seems to be too much complacency among investors. Which is to say that this may be a good time to start squirming again.
Hardly anybody is talking about the rotten scoundrels and shady characters who helped bring the market to its knees a few years ago. Enron, Henry Blodgett and the Dot-Con Age have faded from the memories of many investors. The latest stock market fiascos are being buried in the financial sections. Brokers and fund managers on Bay Street and Wall Street are giddier than usual.
And the most telling of the red flags? My pal Bre-Xer has quit his gig dealing blackjack at the casino, where he was summoned after betting the farm on Book4golf.com a few years back, and has confessed to having piled his hard-earned dough into a laughing stock named Nortel Networks (TSX:NT), which should have its financial statements in order before the end of the millennium.
Wall Street's major brokerages are merrily forecasting gains of five to 10 per cent for the major U.S. indices this year. To support their views, these bulls rattle off critical statistics such as this one: Since 1905, the stock market has never had a down year in years ending with the number five.
We're here to rain on the parade because all is not roses and champagne. That's according to some of the street's heaviest hitters and straightest shooters.
Amid the noise emanating from the street and its perpetually bullish cheerleaders, there are some sobering reminders that complacency can be a dangerous thing these days.
(WARNING: The following contains disturbing financial pictures that may cause bulls to squirm. Viewer discretion is advised).
A guy named Warren Buffett - maybe you heard of him? - is bearish on the U.S. dollar to the tune of some $20 billion, betting on foreign currencies through Berkshire Hathaway (NYSE:BRK.A). The Oracle of Omaha is also cool on the stock market, calling the market to trade mostly sideways for the next decade.
"If lots of people try to leave the markets, we'll have chaos because they won't get through the door," Buffett recently told Forbes magazine, citing America's chubby twins - those exploding current account and budget deficits.
My pal Bre-Xer shrugs it all off and orders another martini. So what does Buffett know anyway? His company's stock, at $87,500, is only up $87,480.54 since 1964 when it traded at $19.46.
Richard Russell, editor of the Dow Theory Letters, also believes the U.S. dollar, despite its recent strength, is doomed in the longer term and is recommending investors run for cover and hide under gold bullion and gold shares.
"The world is choking on debt," Russell wrote in a recent report. "Everything is a function of debt - from our currency to the mortgages which are the basis of our housing boom (bubble)."
The cagey Russell has been known to nail a few trends since his investment letter was launched in 1958. Among his best calls was his nailing of a market bottom in December, 1974.
When Morgan Stanley chief economist Stephen Roach speaks, people tend to sit up and take notice.
Roach, one of Wall Street's most influential players, recently wrote that the U.S. economy and the U.S. consumer are both "an accident waiting to happen" and is cautioning investors about the possibility of a stock market crash reminiscent of the last one in 1987.
Remember Black Monday? Oct. 19, 1987. Superstar fund manager Peter Lynch was on a golf course in Scotland when panic swept through the market. On his return to his hotel, he learned that the Dow Jones industrial average had crashed a mind-boggling 508 points or 23 per cent and his fund had been annihilated.
Roach gives the U.S. about a 10-per-cent chance of dodging the bullet and avoiding an economic catastrophe.
"The day will inevitably come when foreign investors - already heavily exposed to (U.S.) dollars - will reassess risk-adjusted return expectations of U.S. securities," Roach wrote in a research report late last year.
"That's what happened in the fall of 1987, and there are increasingly worrisome signs of a replay of that same ominous chain of events."
Roach believes that if Federal Reserve chairman Alan Greenspan is forced to raise interest rates further and faster than planned, it could trigger a catastrophic chain of events, one of which would see the debt-riddled U.S. consumer breaking down.
Among other heavyweights occupying the bear camp is legendary Hong Kong fund manager Marc Faber, who like Buffett is betting on further depreciation of the U.S. dollar. Faber also believes China's impact on the global economy is in the early innings.
Jim Rogers, co-founder of the famous Quantum Fund with George Soros and author of a new book, Hot Commodities, is shunning the broad markets for what he describes as a raging bull market for commodities that would be powered by China. He believes the current bull market for commodities can run at least until 2014.
"The 21st Century will be the century of China, whether we like it or not," says Rogers.
Rogers runs the Rogers International Raw Materials Index, a commodities fund heavily weighted in crude oil (about 35 per cent).
Toronto fund manager Ross Healy, one of Canada's most seasoned market pundits, believes the stock market may be setting up for a vicious bear market in 2006 and perhaps even a depression.
"In 2006, I think it's going to be a really bad one (bear market)," Healy, CEO of Strategic Analysis Corp., tells the Edge. "It's a question of whether we have a depression. But bear in mind what a depression is (technically).
"It's not 1929. It's just a year-over-year decline in GDP (gross domestic product) growth and I can see that happening in the U.S. in 2006.
"I think we'll also be hit hard in Canada, where I think our car industry is going to get massacred."
So what would be the catalyst for a bear market?
"The U.S. consumer," replies Healy, the portfolio manager the Accumulus Talisman Fund, who boasts almost four decades in the investment game. "I think the U.S. consumer has just about had it. He's just about dead."
Many will scoff at Healy's gloomy forecast, just as they did when he was a voice in the wilderness in 2000 at height of the tech bubble, cautioning investors on Nortel when the stock was over $100.
Ultimately, Healy managed to catch their attention.
But many didn't get it until Nortel was languishing as a penny stock. Barkeep? Another martini for my pal Bre-Xer.
(For Healy's top picks, see Pro's 3 Stars, Page 23).
* SAGE WORDS: "If you are a professional gambler, you don't have to play every hand."
- Mark Faber, professional investor.
HOT STOCK: TYLER RESOURCES
TSXV:TYS $1.48
Up 64 cents (+76.2%) on 17.5 million shares (for week ending Jan. 13).
Tyler shares erupted on assay results from its Bahuerachi copper mine in Mexico, but the mariachi band need not stop playing. That's according to Calgary analyst Josef Schachter. Based on exploration results to date, the president of Schachter Asset Management has raised his 12-month target from $3 to $10, stressing that target hinges on the Calgary company proving a 4,000-metre-long deposit in its drilling program.
COLD STOCK: INTRINSYC SOFTWARE INTERNATIONAL
TSX:ICS $0.94
Down 34 cents (-26.6%) on 1 million shares (for week ending Jan. 13).
Maybe Intrinsyc can create software so Alan Greenspan can find a cure for the sickly U.S. dollar. The Vancouver company reported a loss of $1.4 million or three cents per share for its latest quarter, including a $496,000 hit taken on the exchange rate for sales to the U.S. The company, which lost two cents a share in the year-ago period, says it has initiated a currency hedging strategy to mitigate the risk of currency exchange losses.
(Gyle Konotopetz can be reached at gyle@businessedge.ca)
