Analysts, Gurus &amp; Pundits

Top 488. Mar 11, 2003 12:37 PM

» Kirk - Barton Biggs is calling a bottom

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He says the market is bottoming and there is a maximum bearishness

He says there are ALL characteristics of a bottom except valuation (probably why many say it is a secular bear and might go lower much in the future).

-- posted by Kirk

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http://www.capitalstool.com/forums/index...

Top 489. Mar 11, 2003 6:36 PM

» Kirk - Several Pundits Referenced here

Mark's Market Commentary - March 11, 2003

The big news of today is Bob Brinker's supposed "buy" signal today on the market.

In my absence, Buddha gracefully stepped up to the plate today to offer his take:

"Brinker must be looking for the bull cycle within the secular bear. Probably loading the boat with the upcoming 3rd year anniversary of this disastrous bubble burst in mind. He is also pro-war and must be gaming for expected upside soon. I wonder if he expects the pop over the next 3 years to bail his loyal Jonestownsers in the QQQ boat that he cut loose around 72 a couple years back?"

"Survivors in that raft are doubtful, sharks have long since circled and torn the rubber tubing to shreds. Brinker himself would get incredibly testy if a caller phoned in for a 'Survivor' update on those who had been cast into the brine when he was playing the bounce back then. Echoes of PigMen Kodansky from Merry-Lynching when asked by Rukshyster what he had to say to investors back in April 2001. "It takes courage to be a good investor". Translation: "Give me your friggin money, I have a distribution top I need to work into and you losers are the fodder I need to cram the barrel with".

"Brinker is a pretty good market timer all things said and done but scratch his underbelly and you get a reactionary, Las Vegas Republican who beleives in this government's world view. This may be his undoing as we are soon to be entering uncharted geopolitical waters. I can say with certainty that his timing model factors in a quick and decisive and uneventful U.S. conquest of Iraq and ignores Sigma 10."

"Incidentally the man does not feel we are in a housing bubble however much he may despise Al Green. What does all this tell anyone? That never before has there been such a gaming, Keno running atmosphere amongst self proclaimed pundits and econ 'experts'. They are all crawling out of the woodwork as we approach the 3rd birthday of this Monster Alaskan Brown Bear. They all want their voice heard and are in the Casino laying down their bets. Even the raspy,weak-tubed Laslo Birini is trying once again to be heard over the din."

"After getting blown out the back end of the furry beast a couple of years ago, he's got his snorkling gear on again and is calling a bottom. Does a third Wave come in and take him out to sea finally and forever? I guess we will know shortly. What is far more telling than any idiot analyst coming out and calling for a bloodthirsty War rally is the recent resignation of two high ranking diplomats from the U.S. government, protesting the moral bankruptcy of a 'Girls Gone Wild' foreign policy."

And as far as following these market timers, Buddha has been following another one:

"Richard Hahn has been looking for a washout capitulation for many, many months. Whenever he beleives it is approaching makes for an excellent buy signal. The more melodramatic and bearish his market commentary the more leverage one should use long."

"He has repeatedly gone long at the top in miners, long at the top in defense industry stocks and he subscribes to the over the waterfall vision of all the indexes. When the indexes then don't crash he blames everything on secret conspiracies out of the Fed and just moves his own goal posts around. He called timing bottoms for both July and Oct but was too frightened by his own melodrama to acknowledge the long signals."

"If you want to trade emotionally and be entertained nightly by his political opinions which are something right of Barry Goldwater, then I recommend subscribing. How the guy makes money I don't know, but he manages to. Mostly by staying in large cash positions I believe. Excellent example of why during a bear market it is much more profitable to simply take a straight job and enjoy your life."

So far, Buddha has been the most adept at trading the most reliable market timing signal of all time. One which has not failed the last 34 months. Each time people say "this time, its different", it never is and ends up the same. Reliable as clockwork. The Options Expiration Racket Play:

"We are now entering the Wednesday before OE Racketeering Week. Caution is advised. Bears are getting celebratory, supports are once again broken as they are regularly each month by this time, apocalyptics and cross draggers are climbing out of the wood work calling for capitulation and Niagara selling. Sorry. Seen this too often. We are now in the Forensic Window for Stock Operations to resume North shortly. Merely my opinion but I would tighten all trailing covering stops. A deluge of media leaks and price muscling coming soon to a theatre near you."

So for what its worth, I will be tightening my stops over today's highs on half of my positions, and lowering the stops on the rest to Monday's highs.

For what is left of my remaining mining positions, I will patiently wait for a bounce to look for a cover. Short positions are getting out of hand, and a mega squeeze on these stocks is due.

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There is a fundamental paradox in regard to the Fed’s embrace of “unconventional measures” when all else fails: At precisely the time when they are most likely to be needed, this is also when they are also likely to fail. - Marshall Auerbach.

In the end, the markets are always larger than the participants. All manias end badly - Alan Newman

-- posted by Kirk

Top 490. Mar 31, 2003 9:24 AM

» Kirk - Mark Leibovit

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To:davidk555 who wrote (17763)
From: DD Monday, Mar 31, 2003 11:44 AM
Respond to of 17769

Timer Digests #1 10-year Market Timer, Mark Leibovit, Chief Market Strategist for VRTrader.com, predicting Dow 6800 after the current suckers-rally is finished....
http://www.nbr.com/transcript/2003/trans...

03/28/03: Market Monitor- Mark Leibovit, Chief Market Strategist for VRTrader.com

PAUL KANGAS: My guest Market Monitor this week is Mark Leibovit, Chief Market Strategist for VRTrader.com. And welcome back to NIGHTLY BUSINESS REPORT, Mark.

MARK LEIBOVIT, CHIEF MARKET STRATEGIST, VRTRADER.COM: Glad to be here, Paul.

KANGAS: You have been bearish on stocks for the last three years, and rightly so, as it turned out. But have you seen any recent signals that the market is ready for a turnaround?

LEIBOVIT: Well, of course, Paul, we had the, as I call it, volume reversal about a week and a half ago, off the 7,400 level in the Dow, and that was a trading signal and since then the market has been resilient and NASDAQ stocks have been holding up. So that's a recent positive and maybe in a way it mirrors, in our previous interview we were coming off that October low. A similar type pattern. You may be entering or have entered a month or two period where prices will have a little upward bias. But that's not a clear enough signal to say that repetitive from what we did back in October, that a bull market has started. That's not what --

KANGAS: So in other words you're saying that we're overall in a secular bear market but it's punctuated by occasional cyclical bull markets?

LEIBOVIT: Absolutely. That's what we're in. Now, maybe this one will exceed the 1,500 points that we saw back last July or the 1,200 points we saw after the October low. We've already done 1,100, as you know. Maybe that's what this is about. But a little more time has to pass. Maybe we'll go a little bit higher, but I still view it as a bear market bounce and certainly tradable, if you can take advantage of it.

KANGAS: So you have to be very nimble in and out and don't hold on for anything more than, what, about 10 or 15 percent appreciation? Is that it?

LEIBOVIT: Absolutely. In fact, if we go 20 and the press jumps on the fact that it's 20 percent, then that 20 percent is a magic number, as you know, and we've suddenly entered the new bull market, that might, indeed, from a contrarian's point of view, be a "sell" signal. So I look for keys like that, too. And when you get too much euphoria at the wrong time -- and as you know, I'm pretty good on this market timing.

KANGAS: Right you are. As a matter of fact, "Timer Digest" named you within the top five for the last 10 years in intermediate timing, is that it?

LEIBOVIT: Actually number one in the last 10 years.

KANGAS: Number one.

LEIBOVIT: In the last 10 years. I think I'm number one also in the five, but I have to check that ranking.

KANGAS: Well, I congratulate you. That's quite a record.

LEIBOVIT: Absolutely. Thank you.

KANGAS: So how do we make money now, Mark?

LEIBOVIT: Well, primarily I think you should be in the gold stocks. We started adding those again a couple of days ago.

KANGAS: You liked those in October on your last visit with us and they've done well. And you still like them?

LEIBOVIT: Well, yes, we had a nice pull back but for our clients we had a "sell" signal in early January and, you know, we unloaded quite a few of them and now we're starting to nibble again. I'm not quite sure if this is the move that's going to carry us for six months. We may trade up for a few weeks, pull back and then have another move up.

KANGAS: Right.

LEIBOVIT: But this is a high confidence play for us if you take a five or six month perspective.

KANGAS: But usually when the golds are doing well, the rest of market isn't.

LEIBOVIT: Well, that's my perspective. In fact, I'm one of guests that was interviewed in your mid-December NIGHTLY BUSINESS REPORT yearly forecast and I was the only bear in there. Everybody was bullish. And officially I've stated -- whether I'm going to hang myself on this number or not only time will tell -- but 6,800 is where I see the Dow going by the end of year.

KANGAS: What are your favorite gold stocks?

LEIBOVIT: Well, gee, the list is so long --

KANGAS: But your favorites.

LEIBOVIT: Well, Newmont (NEM) because it's a blue chip name.

KANGAS: They had earnings out today that were almost double.

LEIBOVIT: And the stock did very well.

KANGAS: Yes, it did.

LEIBOVIT: Kinross (KGC), Glamis (GLG), Agnico-Eagle (AEM), Rand Gold (RANGY).

KANGAS: Do you personally own the stocks that you're mentioning here, the golds?

LEIBOVIT: Yes, I have. I trade these absolutely and love it.

KANGAS: How about some of the index funds? Do you dabble in them at all?

LEIBOVIT: Yes. Well, we do what's known as tactical asset allocation for some of, some clients that we advise and we use bear funds and bull funds along with the exchange traded funds to time the market. So tactical asset allocation is very important. In fact, this is a great way for listeners to make money. In the last three years if you were allocated in a bear fund, for example, you have done very well. If we get a rally here into mid year, jump on the bear funds. Another big wave coming down.

KANGAS: OK. So in other words basically when you see a descent upturn, you sell into it when it gets up around 10 or 15 percent and vice versa on the down side, you buy at?

LEIBOVIT: Right. If sentiment becomes too extreme on the positive and I get one of my negative volume reversals off the top --

KANGAS: OK.

LEIBOVIT: -- like we did last March, yes, it all comes into gear for us.

KANGAS: All right, Mark. I wish you continued success. Thanks for being with us.

LEIBOVIT: Thank you, Paul.

KANGAS: My guest Market Monitor Mark Liebovit, chief market strategist for VRTrader.com.

-- posted by Kirk

Top 491. Jun 22, 2003 8:56 AM

» Kirk - Timer Digest hotline for Saturday June 21

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From http://www.siliconinvestor.com/stocktalk...

This is the Timer Digest hotline for Saturday June 21.

The Dow stands at 9200.75 Up 21.22 on Friday, and Up 82.88 points for the week. There have been no signal changes, but there has been 1 Consensus signal change for the Long Term Consensus since Wednesday's Hotline. And, there have been realignments in each of the four Consensus. The Top Ten Consensus is Bullish with 5 Bulls, 4 Bears and 1 Neutral. The Top Long Term Timers are now Neutral with 5 Bulls and 5 Bears. The Top Bond Timers are Bullish with 3 Bulls, 1 Bear and 1 Neutral. And the Top Gold Timers are Bullish with 3 Bulls, 1 Bear and 1 Neutral. Now the comments of the Top Timers.

Mark Leibovit of vrtrader.com is on a June 9 Sell signal. He is looking for at least 1000 points lower in the Dow Industrials going forward with potential to retest or post new lows.

Joseph Granville of the Granville Market Letter is on a February 14 Buy signal. He said the constant new highs being made by his two key indicators show unstoppable upside market momentum, and project a considerably higher market ahead.

Michael Gibbons of Gibbons' Trading is on an October 28 Sell signal. He said the home builder stocks went parabolic and have likely topped out, and as the housing bubble deflates, so will the entire economy.

Bill Meridian of Cycles Research is on an April 4 Buy signal. He said from the low in any mid-term election year, such as this past October, to the subsequent high in a pre-election year, the market has gained 50% on average, which would put the S&P 500 Index at 1100.

Arch Crawford of Crawford Perspectives is on a March 21 Buy signal. He will reduce his long position from 200% to 100% long on Monday, and he will probably be getting out of the remaining long position and going short some time in early July.

Christopher Cadbury of Cadbury Timing Service is on a May 16 Sell signal. He said recent market sentiment readings are at levels that project a lower market over the next one and three week periods.

Steve Todd of the Todd Market Forecast is on a July 29 Buy signal. He said regardless of near term corrections, the bullish case seems to be a solid one with ample reasons for stocks to be considerably higher than current levels over the next six months.

Myron Greene of the Mutual Fund Timing Guide is on a June 2 Neutral signal. He said given the strength of the rally off the March lows, it is unlikely that a major decline will develop without at least one more run at the recent highs.

Dan Sullivan of The Chartist is on an April 7 Buy signal. He said in spite of an extremely over-bought market and high bullish sentiment stocks continue to march forward, and although he has been expecting a pullback he is maintaining current positions.

Jim Tillman of Cycletrend is on a June 17, Sell signal. He said the technical indicators appear to be coming together with the projected downtrend and he now favors the short side of the market.

-- posted by Kirk

Top 492. Jul 2, 2003 8:30 PM

» Kirk - 7/2/03: Timer Digest hotline for Wednesday July 2

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To:da_cheif who started this subject
From: da_cheif Wednesday, Jul 2, 2003 8:49 PM
View Replies (2) | Respond to of 9801

HE HAW....10% bulls in timer digest.....one bull in da top ten....guess whoo....snort...........TO DA MOON...LOLOLOL

This is the Timer Digest hotline for Wednesday July 2.

Please note: The next regularly scheduled hotline will be Wednesday evening July 9. The Dow stands at 9142.84 Up 101.89 on Wednesday, and Up 153.79 points for the week so far. There has been 1 signal change and 1 previously unreported signal change, but no Consensus signal changes since Tuesday morning's Special Hotline. The Top Ten Consensus is Bearish with 1 Bull, 8 Bears and 1 Neutral. The Top Long Term Timers are Bearish with 4 Bulls and 6 Bears. The Top Bond Timers are Bullish with 3 Bulls and 2 Bears. And the Top Gold Timers are Neutral with 2 Bulls, 2 Bears and 1 Neutral. Now the comments of the Top Timers.

Mark Leibovit of vrtrader.com is on a June 9 Sell signal. Overall, he remains negative on the market and views this rally as just another contra-trend short-term event.

Michael Gibbons of Gibbons' Trading is on an October 28 Sell signal. He expects most stocks and indexes to take out last month's highs by at least a tic, and then roll over and decline below last year's lows over the next four to seven months.

Joseph Granville of the Granville Market Letter is on a February 14 Buy signal. Tuesday's reversal triggered another new buy signal and is another reminder not to get too bearish.

Bill Meridian of Cycles Research is on a June 27 Sell signal. He said stocks will likely pull back into July 17-18, giving up about 5% from the June high.

Arch Crawford of Crawford Perspectives is moving to a July 3 Sell signal from a previous Buy on March 21. He is selling the remainder of his long position and is reversing to a 100% short position in anticipation of a lower prices ahead.

Christopher Cadbury of Cadbury Timing Service is on a May 16 Sell signal. His work suggests that the stock market will work its way lower over the next two weeks.

Dan Turov of Turov on Timing is on June 20 Sell signal. He said the risk component of his daily model is sky-high, indicating that the market is more susceptible than usual to the vicissitudes of random news.

Myron Greene of the Mutual Fund Timing Guide is on a June 2 Neutral signal. When the current rally is complete he expects stocks to roll over into a significant decline.

Steve Todd of the Todd Market Forecast has moved to a previously unreported June 25 Sell signal from a previous Buy on July 29. He said the market needs to rest for awhile, but that does not mean that it cannot rally near term.

Jim Tillman of Cycletrend is on a June 17, Sell signal. His key indicators are projecting a deteriorating market ahead as the next six months could be surprisingly negative.

-- posted by Kirk

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http://www.siliconinvestor.com/stocktalk...

Top 493. Sep 17, 2003 1:24 PM

» Kirk - Thomas Kurlak - Correction Likely for Semiconductor Stocks

To:Lizzie Tudor who wrote (7179)
From: SemiBear Wednesday, Sep 17, 2003 3:49 PM
Respond to of 7194

A Correction Likely for Semiconductor Stocks
http://www.thestreet.com/p/_rms/rmoney/a...

By Thomas Kurlak
Special to RealMoney.com
08/25/2003 11:30 AM EDT

Semiconductors

A market correction could occur at any time.
A cash reserve now will provide buying power for tech at better levels later this year.

Now that most Wall Street analysts have recognized the developing semiconductor recovery and turned bullish, a correction seems in order. After Intel's (INTC:Nasdaq - commentary - research) share price doubled since last October's low, the company is now confirming what many investors have known all along. The "news" of better business from management last Friday was not celebrated to the degree that a real surprise would've been, indicating that a lot of investors are already up to speed with the fundamentals.

I've been an advocate for owning semiconductor shares since last fall and remain committed to my forecast of a major up cycle that will carry the stocks higher over the next year. But I am concerned that "performance money" and short-covering by hedge funds this summer have chased the semiconductor stocks up to levels where more good news may not hold them, if the stock market weakens.

The lack of a summer stock-market fade has been largely due to a few cyclical groups moving up, especially technology, while the overall list has weakened. I don't like to see a weak advance/decline line when the majority of market advisers have become bullish. The falling number of advancing stocks is a sobering downslope of apathy toward most stocks not seen since last January. So a market correction could occur at any time now.

The Philadelphia Stock Exchange Semiconductor index, or SOX, has rallied 100% since October. Intel, also up 100%, stands at a defendable, but not cheap, 27 times the highest Street estimate I've seen for 2004 of $1 a share. Although I still believe Intel's annualized earnings can reach a peak level of at least $1.50 in this cycle, thus getting the stock to $40-$45, that additional 50% upside will, in my opinion, take the rest of this cycle to accomplish. A lot of bumps will occur along the way. And two sources of buying, funds chasing performance and shorts covering, have probably made their contributions. Traditional investors, who usually come in later and hold longer, will have to carry the load from here, and they can take their time about it.

Meanwhile, the lack of a summer correction has emboldened market forecasters to see clear sailing to higher levels this fall, supported by a consensus view of an economic recovery. In my experience, the market usually couldn't care less about coincident economic activity. While I have no reason to expect a weaker economy next year, the recovery in this year's second half is now coincident and investors are looking beyond it.

High-beta stocks like semiconductors need rising expectations to keep moving. Are expectations likely to rise from here, during what may be a period of stock-market weakness?

I've taken some profits recently and raised cash. I think opportunity exists in defense stocks, such as Northrop Grumman (NOC:NYSE - commentary - research), which are "near tech" names that often do well when traditional tech corrects. This group has lagged all year despite good fundamentals. But mostly, I think holding a cash reserve now will provide buying power for semiconductor and tech names at better levels later this year.

-- posted by Kirk

Top 494. Jan 12, 2004 4:16 PM

» Normxxx - Peter DRUCKER

Peter Drucker Sets Us Straight (On jobs, debt, globalization, and recession)

Fortune Magazine| 12 October 2003 | Brent Schlender

You can always count on Peter Drucker to provide a new way of looking at things. After all, he is the man who first recognized that management is a discipline worthy of deep and formal study. Long before anyone else—in the early 1950s, no less—he predicted how computer technology would one day thoroughly transform business. In 1961 he presciently called attention to the rise of Japan as an industrial power, and two decades later he warned of its impending economic stagnation. And we can thank him for coining the concepts of "privatization," "knowledge workers," and "management by objective."

At 94, Drucker is still full of insights that seem to elude others, and he is as opinionated as ever. His interests range from economics to psychology to philosophy to opera to Japanese art; his experiences include consulting with literally hundreds of companies, governments, small businesses, churches, universities, hospitals, arts organizations, and charities. To this day, leaders of all stripes make the pilgrimage to California to learn from the master, who continues to lecture at the management school that bears his name at Claremont Graduate University.

Drucker recently invited FORTUNE editor-at-large Brent Schlender to spend the better part of a day at his home in Claremont. It was two days before his birthday, and the professor was in fine fettle. You could tell, because the first thing he said was that he could certainly improve upon the list of questions and topics submitted beforehand ...

Question: You say that the U.S. economy today suffers from profound misperceptions. Can you give some examples of what you mean?

Answer: The structure of the U.S. economy is remarkably different from what everybody thinks. Nobody seems to realize that we import twice or three times as many jobs as we export. I'm talking about the jobs created by foreign companies coming into the U.S. The most obvious are the foreign automobile companies. Siemens alone has 60,000 employees in the U.S. We are exporting low-skill, low-paying jobs but are importing high-skill, high-paying jobs.

Question: But isn't it true that labor costs are much higher in the U.S., and that moving more manufacturing abroad harms our balance of trade?

Answer: Wage cost is of primary importance today for very few industries, namely ones where labor costs account for more than 20% of the total cost of the product—like textiles. I don't know what proportion of the cost of a typical American product is attributable to labor, but it's a small and shrinking one. Take automobile parts. Because of my consulting, I happen to know the internal cost structure for one of the world's biggest auto parts makers. They tell me that it is still very much cheaper to produce in this country—or maybe in conjunction with a maquilladora plant along the Texas-Mexico border—than to import, because the parts, while labor-intensive, are also very skill-intensive to design and make. When that's the case, you're still better off producing in this country. So the belief that labor costs are a main reason for producing outside the U.S. is justified for only a very small segment of industry.

Consequently, the industries that are moving jobs out of the U.S. are the more backward industries. The U.S. remains the cheapest place in the world to produce for many of the more advanced industries. I say that not because our wages and salaries are so low. They aren't. But employee benefits are much cheaper than in Europe, and American workers are more flexible. I don't just mean you can move people out of accounting and into engineering here; I mean physically moving people from Chicago to Los Angeles. Don't you dare try that in Germany. They won't go. That's one of the absurd byproducts of their huge and restrictive employee benefits: It's cheaper to allow someone to remain unemployed in the Ruhr than to move him to Stuttgart for a real job. The same thing is true in Japan.

So what I call "invisible" costs are quickly beginning to be more significant than direct labor costs. These are pension costs, benefits and health-care costs, and especially something nobody has yet assessed, which I call "reporting" costs, which are basically associated with complying with regulations, taxation, labor relations requirements, and the like.

Question: What about the widespread impression that the U.S. has an unemployment problem?

Answer: Nobody seems to realize that we have the highest proportion of our population in the workforce by far than any other country in the industrialized world. We have the lowest long-term unemployment rate in the West. Most of the unemployment we do have is not the long-term kind, but the short-term kind when people are between jobs for at most a few months. And we have easily the highest availability of good jobs for educated people who want to enter the labor force. We basically have no unemployment for college graduates, as they do in much of Europe.

[Normxxx Here: And for just about everywhere else in the world. ]

Now they all may not get the job they would like, and they may not get $70,000 a year the first year, but they get employed. And finally, when you think about it, in less than three decades we absorbed all the women who wanted to work into the workforce with no upheaval. It's quite remarkable.

Let's talk about the productivity of the U.S. economy. The numbers measuring productivity keep going up and up, even in this period of sluggish growth. I don't think you can trust all the productivity improvement figures that we see. But there's no doubt that in manufacturing we're seeing some basic changes in philosophy and in systems that may be comparable to the industrial revolution of the 1920s. The changes are coming, not by computerizing and automating production in the literal sense, but by systematizing production. In the past, the way to increase your productivity was to specialize. Today we design manufacturing and to some extent distribution not so much to maximize it but to optimize it. And the new manufacturing systems build flexibility into the system, which may actually result in a loss of immediate productivity by the way we currently measure it.

You see, these figures measure the productivity when work is being done, but they do not measure the loss of productivity when work cannot be done, such as when you're setting up a plant to make something different. I would suspect that the productivity increases are actually greater than all the figures we see because the new, more flexible manufacturing processes practically eliminate setting-up time, when manufacturing has to cease. In some cases this setting-up time has come down from three hours to four minutes. This does not show up in our productivity figures. Nor do the figures address the value of being able to change the mix of production, because they focus on the pure output of traditional mass-production industries. We don't quite know yet how to measure productivity in some of our newer industries.

How can the productivity of knowledge workers be measured and improved?

Answer: Nobody has really looked at productivity in white-collar work in a scientific way. But whenever we do look at it, it is grotesquely unproductive. As you know, most of my work these days is with universities and hospitals and churches, which are three of the biggest knowledge-worker employers, and their productivity is dismal. In part this is because knowledge work by definition is highly specialized, and that means that the utilization of the knowledge worker tends to be very low.

The inefficiency of knowledge workers is partly the legacy of the 19th-century belief that a modern company tries to do everything for itself. Now, thank God, we've discovered outsourcing, but I would also say we don't yet really know how to do outsourcing well. Most look at outsourcing from the point of view of cutting costs, which I think is a delusion. What outsourcing does is greatly improve the quality of the people who still work for you. I believe you should outsource everything for which there is no career track that could lead into senior management. When you outsource to a total-quality-control specialist, he is busy 48 weeks a year working for you and a number of other clients on something he sees as challenging. Whereas a total-quality-control person employed by the company is busy six weeks a year and the rest of the time is writing memoranda and looking for projects. That's why when you outsource you may actually increase costs, but you also get better effectiveness.

Question: Many high-tech CEOs are worried about the higher-education system in the U.S., and especially the fact that there are fewer people studying technology. Does this concern you?

Answer: That's perfectly true. But there are two things they forget. We are the only country that has a very significant continuing-education system. This doesn't exist anywhere else. And we are the only country in which it is easy for the younger people to move from one area at work to another. That's impossible in Japan. If you're an accountant, you're an accountant. That's equally impossible in Europe. But here it is easy.

Consequently, our most important educational system in the U.S., unlike Europe, is in the employee's own organization. I'm conscious of that because my European friends, when they move into this country, are overwhelmed by the expectations they face. Look at the career path for many people here. Jeffrey Immelt, the CEO of GE, worked in about half a dozen different categories—in sales, in design, in different product groups. In contrast, the head of Siemens never held a job outside Germany until he became CEO.

Question: What do you make of the recent so-called recession?

Answer: What we have been going through these past three years is most definitely not a recession. It's a transition—a transition with a lot of incongruities. Let me tell you a simple incongruity. We are going to have both fewer young people because of our own birth rate, and yet more young people because of immigration. For educated American young people there is no recession. But the immigrants have a mismatch of skills: They are qualified for yesterday's jobs, which are the kinds of jobs that are going away.

This also is especially hard on uneducated urban American blacks. Their great ladder of opportunity since World War II is going away. When Mr. Bush talks about the manufacturing crisis, that's what he's talking about. But it doesn't touch anybody else. And in reality there is no crisis: Manufacturing production in this country has doubled in the past ten years, even as factory employment has gone down. So our productivity improvement has to do with the shift from the old way of manufacturing to the new, more systematized form that happens to require less unskilled labor.

Question: You sound fairly sanguine about the state of the U.S. economy. Do you see any danger signs?

Answer: Oh, yes. The biggest problem I see is our total dependence on foreign money to cover our government debt. Never before has a major debtor country owed its debt in its own currency. It is unprecedented in economic history. Japan, by contrast, owes all its foreign debt in dollars. Now if you devalue the dollar, the Japanese economy benefits, because their imports become much cheaper. And the value of their debt goes down also. The individual Japanese companies that invest in dollars would lose, but the overall Japanese economy gains. But we have no experience about what will happen here when we owe so much debt in our own currency and we're forced to devalue the dollar. Sooner or later, we're going to find out.

What's more, there is an enormous amount of surplus capital in the world for which there is no productive investment. The supply greatly exceeds the demand. So there is a very jittery body of excess money that is desperately in need of returns, and it could become panic-prone. We have no economic theory or model for this.

Question: Does the U.S. still set the tone for the world economy?

Answer: The dominance of the U.S. is already over. What is emerging is a world economy of blocs represented by NAFTA, the European Union, ASEAN. There's no one center in this world economy. India is becoming a powerhouse very fast. The medical school in New Delhi is now perhaps the best in the world. And the technical graduates of the Institute of Technology in Bangalore are as good as any in the world. Also, India has 150 million people for whom English is their main language. So India is indeed becoming a knowledge center.

In contrast, the greatest weakness of China is its incredibly small proportion of educated people. China has only 1.5 million college students, out of a total population of over 1.3 billion. If they had the American proportion, they'd have 12 million or more in college. Those who are educated are well trained, but there are so few of them. And then there is the enormous undeveloped hinterland with excess rural population. Yes, that means there is enormous manufacturing potential. In China, however, the likelihood of the absorption of rural workers into the cities without upheaval seems very dubious. You don't have that problem in India because they have already done an amazing job of absorbing excess rural population into the cities—its rural population has gone from 90% to 54% without any upheaval.

Everybody says China has 8% growth and India only 3%, but that is a total misconception. We don't really know. I think India's progress is far more impressive than China's.

Question: What is the most important impact of information technology on business?

Answer: Information technology forces you to organize your processes more logically. The computer can handle only things to which the answer is yes or no. It cannot handle maybe. It's not the computerization that's important, then; it's the discipline you have to bring to your processes. You have to do your thinking before you computerize it or else the computer simply goes on strike.

This enforced discipline has some disadvantages, because it often forces people to oversimplify. Also, the process of arriving at business decisions isn't always systematic enough to be supported by computers. You have to take the assumptions out of the mind of the decision-maker and put them explicitly into the process, along with a method to check them, and only then can a computer help you manage it. Older executives find it excruciating to have to be that explicit, because they just don't want to be. Besides, as we all know, many decisions are ultimately made by the hydrostatic pressure in the boss's bladder.

Question: Given all these systemic changes in how businesses plan and operate, do you think the role and status of the CEO is changing too?

Answer: In every boom there is a tendency toward hero-worship of CEOs. The smart CEOs methodically build a management team around them. But many of those celebrity CEOs who are so highly regarded don't know what a team is. Moreover, the compensation inflation for CEOs has done very real damage to the concept of the management team. In an executive program I have at Claremont, the typical students are general managers of major divisions at very large companies, and they are very well paid. But it's fair to say they are contemptuous of the excessive pay that many of their CEOs receive. J.P. Morgan once said the top manager of a company should have a salary 20 times that of the rank-and-file worker. Today it is more like 400 times that. I'm not talking about the bitter feelings of the people on the plant floor. They're convinced that their bosses are crooks anyway. It's the midlevel management that is incredibly disillusioned. And so the present crisis of the CEO is a serious disaster. Let me again quote J.P. Morgan, who said, "The CEO is just a hired hand." That's what today's CEOs have forgotten.

Question: Looking back on your career, is there anything you wish you had done that you weren't able to do?

Answer: Yes, quite a few things. There are many books I could have written that are better than the ones I actually wrote. My best book would have been one titled Managing Ignorance, and I'm very sorry I didn't write it.

I don't regret turning down Henry Luce when he asked me to be foreign editor of Time magazine, and later to be managing editor of FORTUNE. I wanted to keep teaching, and I wanted to do my own writing, which you can't do when you're working for a publication.

I'm also glad that another job I was supposed to have didn't materialize. After teaching at Bennington College, I planned to work with a friend at Columbia University who was starting a department of American studies. Dwight Eisenhower, who was then the president of Columbia, vetoed the funding. He was a cost cutter. I had already been approved by the trustees and already had a contract. All it needed was Eisenhower's signature.

On the day I was told I didn't have the job, I left Columbia and was going into the subway at 116th Street when I ran into another old friend, who taught at New York University. He told me he was going to Columbia to look for some teachers to help him staff a graduate school of management at NYU. Before I even got on the subway, I had signed up. And that is how I became a professor of management. So in retrospect I'm exceedingly glad the job at Columbia fell through.

-- posted by Normxxx

Top 495. Jan 26, 2004 11:02 AM

» Kirk - Follow the Famous Pickers

.
Good article from the Washington Post
http://www.washingtonpost.com/ac2/wp-dyn...

washingtonpost.com
Follow the Famous Pickers

By James K. Glassman

Sunday, January 25, 2004; Page F01

Over the past six months, a portfolio of stocks chosen by Benjamin Graham, perhaps the greatest investment mind in history, has beaten the benchmark Standard & Poor's 500-stock index by a whopping 38 percentage points. That's a remarkable accomplishment, especially when you realize that last year's hottest stocks were fast-moving growth companies, especially of the tech variety, while Graham, the father of modern value investing, likes obscure plodders.

With the exception of Fresh Del Monte Produce (FDP), purveyor of pineapples and bananas, the stocks that Graham chose certainly aren't household names. His portfolio currently includes Industrie Natuzzi SpA, an Italian furniture company whose shares trade as American Depositary Receipts with the symbol NTZ; Triumph Group (TGI), which makes aircraft components; and Orthodontic Centers of America (OCA), provider of business services to dental practices.

They're classic Grahamian value stocks -- that is, they appear to be overlooked bargains. Del Monte has a price-to-earnings (P/E) ratio of 6, which means that you can buy $1 of its annual profits for just $6, as compared with $22 for the typical stock in the Dow Jones industrial average. Natuzzi has a P/E of 9; Triumph, 18; and Orthodontic Centers, 8.

Graham's portfolio includes another six stocks, but at this point I should probably tell you that Graham himself didn't select them. In fact, Ben Graham long ago passed on to his heavenly reward. He has returned as a stock-picker through the magic of modern science, and therein lies this week's tale.

Say you are convinced that some gifted people can actually beat the market -- and you are also convinced that you aren't one of them. How can you get one of these gifted souls, or gurus, to manage your portfolio (especially if the guru is dead)?

One way is to buy shares of stock in a mutual fund, or some other sort of investment company, that the guru (living, in this case) manages -- for example, Berkshire Hathaway Inc. (BRK), whose chairman, super-investor Warren Buffett, oversees a few dozen companies that his firm owns outright, such as Geico (insurance) and Fruit of the Loom (underwear), and a scattering of others in which it has a large chunk of public stock, such as Gillette (G) and Coca-Cola (KO).

But how would you get Graham, Buffett's own mentor, to manage your money? Graham, coauthor of the influential 1934 text "Security Analysis," was an erudite classicist who loved Proust and Virgil and translated books from the Portuguese. He was also a spectacularly successful practitioner whose own investment of $720,000 in Geico ended up worth $500 million. The big problem in hiring Ben Graham, however, is that he died in 1976 at the age of 82.

A fascinating Web site called Validea (www.validea.com) has developed a software program that seeks to imitate the investing style of Graham -- plus those of eight living gurus, including Buffett.

The program analyzes a large universe of stocks to see if they meet criteria that the gurus would, according to their own writings and public statements, be expected to set. For example, Graham rejected stocks whose prices were more than 25 times their average earnings per share over the previous seven years or more than 20 times their earnings over the previous 12 months. Graham also required a "margin of safety." He bought only companies whose price was at least 50 percent below their real, or intrinsic, value (as he determined it).

Stocks that pass these "screens" and several others qualify for a virtual portfolio that the guru himself might compose. For each guru, Validea uses screens to produce a portfolio composed of the 10 highest-rated stocks. Most of the guru portfolios are dominated by smaller companies (Graham's has only one large-cap and one mid-cap) -- and that makes sense. What the best investors seek are stocks whose merits others haven't noticed. Since large-caps are closely scrutinized by analysts and big investors, the gems are usually hidden among mid- and small-caps.

Validea established the Graham portfolio on July 15 last year. Since then, it has returned 52 percent, compared with just 14 percent for the S&P 500. Indeed, all eight of the original guru portfolios are far ahead of the S&P since inception. The ninth, based on the precepts of Buffett, was started only on Dec. 2 and has since merely matched the benchmark.

The top portfolio (54 percent return since inception) adheres to the investment principles of Peter Lynch, the former manager of the Fidelity Magellan fund. The Lynch portfolio is geared toward growth companies that have low PEG (or P/E ratio to earnings growth) ratios. For example, one of the stocks, Oxford Health Plans (OHP), a mid-cap, is expected to increase its earnings at an annual rate of 13 percent over the next five years, according to a consensus of analysts. It trades at a P/E of just 12, so its PEG ratio is 12/13 or 0.9. A PEG ratio under 1.0 is typically considered an attractive stock.

Understand that while Lynch, like Buffett, is very much alive, he did not actually select the portfolio displayed on Validea's site. He is out of that line of work. "What we've done," Justin Carbonneau of Validea told me, "is to look at the methodologies that these gurus have publicly disclosed" and calculated computer screens that mimic their styles. A Validea disclaimer hastens to point out that the gurus have not endorsed the stock selections.

Still, they ought to be proud of their electronic achievements. Validea backtested the strategies over three years and found that all the portfolios beat the S&P by wide margins (between 7 percent and 31 percent annually). But, of course, historical tests aren't as valuable as the real thing, and the real thing has been going on for only six months.

A similar Web-based guru screener is offered by the American Association of Individual Investors (www.aaii.org). Some of the gurus, however, are more obscure than the Validea cast. Last year's winning strategy is based on the work of Joseph Piotroski, a young accounting professor at the University of Chicago, who recently studied stocks with low price-to-book-value (P/B) ratios.

Book value is generally determined by subtracting total liabilities from total assets; it's a company's net worth on its balance sheet. Divide it by the total number of shares outstanding and then divide that result into the stock price per share and you've got P/B -- a figure that is much maligned in investing circles these days because many analysts believe that balance sheets can't capture the true value of modern assets such as human resources and patents.

The AAII's Stock Investor Pro software, which uses a universe of 9,000 stocks, first found the 20 percent of listed companies that had the lowest P/Bs. Then it applied Piotroski's nine-point scale to separate financially distressed firms (which richly deserve their low P/Bs) from companies that were sound but neglected.

The list is updated every month, and last year only seven stocks made the cut, on average. Currently, the list comprises just five companies, including Parlux Fragrances (PARL), a Florida-based perfume maker with brands such as Perry Ellis and Jockey, and Champion Industries (CHMP), printing and office products. These are tiny companies; by coincidence, each has a market cap of $45 million.

The Piotroski strategy returned 142 percent in 2003, but its volatility -- that is, the extremes of the ups and downs of the portfolio's value from month to month -- was nearly twice as high as that of the 500 S&P stocks. Over the past five years, Piotroski stocks have returned a total of 506 percent, compared with just 27 percent for the S&P.

When I introduced readers to some of the joys of the AAII guru screens a year ago, one of the portfolios I highlighted was composed by a computer imitating Martin Zweig, a popular author and money manager who searches for companies with what he calls "reasonable gains in sales and earnings."

The Zweig screens are complicated, but they focus on earnings stability and persistence (in others words, he's not looking for firms that have one or two big quarters) and sales growth. The resulting portfolio is a marvel. It rose 86 percent in 2003 and 806 percent over the past five years.

Validea also has a successful Zweig growth-stock portfolio, which was up just 34 percent over the past six months -- more than double the rate of the benchmark. Validea's virtual Zweig holdings are dominated by financial stocks, including HDFC Bank Ltd. (HDB), headquartered in Mumbai, India, and Countrywide Financial (CFC), a large-cap mortgage banker. HDFC, by the way, seems an excellent vehicle for playing the Indian boom; be aware, though, that its price has more than doubled in the past year.

The 13-stock AAII version of the Zweig portfolio also includes Countrywide, but all the other companies are different from Validea's. They include Tractor Supply Co. (TSCO), a retail chain whose shares have quadrupled over the past two years and, despite growing like crazy, carry a relatively modest PEG ratio of 1.4, and Coventry Health Care (CVH), a managed-care firm whose earnings are projected to grow at 15 percent annually for the next five years.

What's remarkable about the virtual Zweig portfolios is how much better they have done than the real thing. Last year, the Zweig Fund (ZF), a closed-end fund that trades on the New York Stock Exchange and is managed by the real Marty Zweig, returned just 9 percent, and it has lost money (rather than rising by a factor of nine) over the past five years. Also, the real Zweig Fund, as opposed to the virtual ones, is loaded with blue chips like Citigroup (C) and Pfizer (PFE).

Another living guru whose strategy is modeled by both Validea and AAII is David Dreman, author of one of my favorite investment books of all time, "Contrarian Investment Strategies: " (plus two sequels with similar titles). Dreman is a Graham-style value hunter whose real-life Scudder Dreman High-Return Equity (KDHRX) mutual fund has returned an annual average of 14 percent over the past 10 years, easily whipping the S&P. The fund is currently top-heavy in financials, with such companies as mortgage-funders Freddie Mac (FRE) and Fannie Mae (FNM) and regional banker PNC Financial Services (PNC) topping the list.

Last year, the AAII virtual Dreman returned 33 percent, almost precisely the same as the Scudder fund. The Validea fund has returned 42 percent since mid-July. Again, the computer-generated portfolios have little overlap, both with each other and with the real Dreman fund, but the stocks in all cases are similar.

Finally, there's one of least-known but best-performing gurus of them all, James P. O'Shaughnessy, a financial adviser and quantitative analyst to whose work I first called the attention of readers in a column back in 1996. O'Shaughnessy, the author of "What Works on Wall Street," came up with a simple system that turned out to be hugely successful when it was backtested over a 42-year period. The system, which combines elements of growth and value strategies (for example, it searches for companies whose earnings are rising swiftly and whose price-to-sales ratios are low), is modeled by both Validea and AAII.

O'Shaughnessy launched a fund -- later sold to a financial entrepreneur named Neil Hennessy -- that applied the system using computer screens, and it has produced amazing results. Over the past five years, Hennessy Cornerstone Growth (HFCGX), as it's called, has returned an annual average of 20 percent. What I like best about this fund, whose praises I have sung for several years now, is that it has done well in both good markets (last year it was up 45 percent) and bad (in 2002, it lost only 5 percent). Hennessy has also cut the expense ratio to 1.1 percent.

The portfolio is evenly split between mid-caps and small-caps (again, the lesson here is that the large-caps are already picked over for deals) and includes such companies as Nam Tai Electronics (NTE), a Hong Kong manufacturing-services provider; Select Comfort (SCSS), which makes beds you can adjust for firmness; and Flagstar Bancorp (FBC), a thrift based in Troy, Mich.

Again, the AAII version of O'Shaughnessy has done better than the real thing -- perhaps because its computer reconstitutes the portfolio once a month instead of once a year. As a result, the AAII portfolio sells and replaces about 30 stocks out of 50 in the average month, a nightmare for an individual managing a portfolio. But, at least according to five years' evidence, it seems to work.

By the way, both AAII and Validea charge for their service, and the fees seem pretty reasonable, based on recent history, but you'll have to decide for yourself. Validea offers a seven-day free trial, after which online access costs $29.95 per month or $74.95 per quarter, renewed automatically until you cancel. With AAII's portfolio software, Stock Investor Pro, you run the various screens yourself. The program, which contains a 9,000-stock database and screening and filtering capability, comes in the form of CD-ROMs, mailed monthly, for $247 a year, $198 for AAII members. Membership costs $49 a year. The portfolios also appear online, available to members, but are updated less frequently.

Validea's Carbonneau told me that the most popular service on his company's site appears to be a service that lets you choose any stock and see how the nine gurus would rate it. You can analyze industries, too.

Consider home builders. A few weeks ago, I examined the sector, about which I am fairly enthusiastic. Validea can crunch the numbers and find the companies in the industry that the gurus like most. D.R. Horton (DHI), admired by five of the nine virtual experts, leads the list. High rankings also go to Centex (CTX), Hovanian (HOV), Lennar (LEN), Pulte (PHM), Standard Pacific (SPF) and Toll Brothers (TOL).

Validea includes Horton in Zweig's 10-stock portfolio, and AAII includes Pulte and Standard Pacific in its own Zweigian 13-stock portfolio. Across all gurus, the sector is well liked.

You can go completely dizzy following all these virtual goings-on, but for many investors computer-based stock-picking makes sense, especially when for some reason -- like mortality -- you can't hire the guru you really want.

James K. Glassman's e-mail address is jglassman@aei.org. He invites comments and questions but cannot respond to everyone.

-- posted by Kirk

Top 496. Jan 26, 2004 2:05 PM

» Normxxx - Re: Follow the Famous Pickers

In response to message posted by Kirk:

Buffett says he can't find anything left worth buying. (He last said that in early 2000, if I recall.)

-- posted by Normxxx