Abby Joseph Cohen

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

Top 126. Oct 24, 2002 7:27 AM

» Kirk - Abby 10/24/02

.
To:Captain Jack who wrote (2025)
From: PCSS Thursday, Oct 24, 2002 8:23 AM
View Replies (1) | Respond to of 2027

from Abby Joseph Cohen this morning:
PART 1

World Investment Strategy Highlights Portfolio Strategy

Overweight equities.
We forecast a 29% return from global equities over the next 12 months. We are also overweight convertibles (expected return 16%). We are neutral commodities (8% expected return), underweight cash (3% expected return) and underweight bonds (2% expected return).

We are not forecasting deflation, but it is a risk
We can identify periods in the past where deflation has been accompanied by solid growth, profits and decent equity returns Œ in other words, iogood deflationld. Unfortunately, in an environment of sluggish growth, investors are more focused on a inbad deflationlt outcome.

Margin power is more important than pricing power
Margin power Œ the difference between price changes and unit cost growth Œ drives profits. Margin power has most potential at the bottom of the cycle when there is a lot of spare capacity and growth is re-accelerating. Our economists forecast an acceleration in OECD GDP growth from early 2003.

Equity markets more exposed to deflation than the broader economy
Equity markets have different sector weightings to economies, and listed companies are more prone to product price deflation than the underlying economy. Technology accounts for much of the observed price deflation, but over the last year equity market product price inflation has been zero even after stripping out technology.

There are some sector bright spots
Aside from the usual defensive sectors that are generating modest price increases, some areas of the materials and industrial sectors have generated price increases as well. Although some of these price rises may represent an early cycle iybouncell, limited capacity additions in recent years probably also play a role.

Focus on spare capacity as well
Sectors with significant spare capacity will enjoy a large decline in unit costs as demand fills the capacity gap. Combining our views on industry pricing power and the scope to bring down unit costs and enjoy margin expansion, we highlight paper, capital goods, metals and mining, semis and computers as sectors with potential for further margin expansion.

To:PCSS who wrote (2026)
From: PCSS Thursday, Oct 24, 2002 8:49 AM
Respond to of 2027

from Abby Joseph Cohen this morning:
PART 2

World Investment Strategy Highlights Portfolio Strategy

United States: US stocks remain notably undervalued

.........Exhibit 25: Forecasts and performance

>>>>>>>>>>>>>>S&P 500<<<<<>>>>>CURRENCY RETURN, %<<<<<<<
>>>>>>>>>>>Level>>>% Chg>>>> $ >>>>>> ¥ >>>>Euro>>>>> £
In 12m>>>>>>1150>>>>29.6>>>>29.6>>>>19.4>>>>12.6>>>>26.9
Last 3m>>>>> 848>>>> 6.1>>>> 6.6>>>>14.8>>>>11.1>>>> 8.9
Last 12m>>>>1073>>>-16.2>>>-14.9>>>-12.4>>>-21.6>>>-20.7

We have slightly reduced our 12-month rolling price targets for the S&P 500 and Dow Jones Industrials Average, reflecting the high level of investor risk aversion. Even so, expected equity returns are likely to be substantial and in excess of returns from Treasury securities.
The current high level of investor risk aversion is expected to decline, but this will take time. Consequently, we have raised the required ERP in our dividend discount model to a significantly higher than normal level. If this is correct, equities are notably undervalued, although less than previously estimated. We have therefore reduced our 12-month S&P 500 target to 1150 from 1300 and our Dow Jones Industrials target to 10,800 from 11,300. Valuation models are not timing devices, but this DDM approach seems most useful in a 12- to 18-month time frame.

Three factors driving extreme risk aversion
The critical question for investors is whether risk aversion will remain at these extreme levels. To answer, we try to identify the key factors driving the risk intolerance and think about their likely development. These factors are, in our view: (1) economic uncertainty; (2) investors™ confusion and anger regarding accounting and other corporate issues; and (3) the geopolitical environment. To the extent that ugly scenarios in each category are already widely discussed by investors, the level of risk aversion may not rise, and could fall, from current levels. Even so, it has become even less likely that risk aversion will fall back to the historical midpoint within our normal forecast horizon of 12-18 months.

1. Economic uncertainty
Economic uncertainty has been an issue for almost three years. The pace of economic and profit growth peaked in late 1999, and has been under pressure ever since. But the three-quarter recession has ended and, although some deceleration may occur, our Economic Research group does not expect a "double dip" into negative territory. They have written extensively on many of the issues now worrying investors, and their conclusion is that moderate growth is the most likely outcome. Profits have been recovering since late 2001, based on both GDP-based data and accounting-scrubbed numbers for the S&P 500.

The question we need to ask with regard to investor aversion is whether economic worries will intensify from current levels. To the extent that unpleasant scenarios, including deflation, are already widely discussed, the current required ERP associated with this factor might be sufficient.

2. Accounting and corporate governance
Among the most vexing problems have been those encountered in accounting and corporate governance. Most US companies have moved towards improved self-compliance, under the rapt attention of regulators, shareholders and their boards. We
believe the worst is now in the past. Corporate profits have been rising since the beginning of the year, although the data have been difficult to parse due to mammoth accounting adjustments. These adjustments have exceeded $200 bn for the companies in the S&P 500. These are roughly 30% of reported income, and are similar to the adjustments made in the early 1990s. At that time, adjustments were linked to prior overstatements associated with inflation puffery and values assigned to tangible assets. More recently, large adjustments have been related to goodwill impairments often linked to intangible assets.
Again, from the perspective of investor risk aversion, we need to ask whether perceptions in this category will deteriorate from current levels. This is not likely, from an accounting standpoint, given the dramatic adjustments already made by the US™s largest companies. But more time will be needed before investor comfort in this area is restored. We believe that two particular areas of current investor concern, pension accounting and accounting for ESOs, will have mainly company-specific, rather than economy-wide, implications.

3. Geopolitical environment
Geopolitical concerns are obviously weighing on investor sentiment. One year ago, this meant a focus on the aftermath of the terrorist attacks of September 11. The recent bombing in Bali, and attacks in Yemen and other locations, indicate that global terrorism remains a factor. Furthermore, there is intense focus on Iraq and potential military engagement.
Again we ask whether investor risk aversion is already reflecting these worries. Although it is difficult to determine how much of the current required ERP is attributable to such developments, the commodity markets offer some guidance. Our Energy Research team believes that the current equilibrium price for crude oil should be well below $20/barrel, yet current prices are near $30/barrel, indicating that a notable war risk premium already exists in energy markets. It therefore seems quite likely that a notable risk premium is already priced into the equity markets. There is a striking contrast with 1990, when Iraq invaded Kuwait. In that instance, most investors were caught off-guard by developments. The rise in energy prices, and the sharp decline in equity prices, came after the hostilities began, not before. Indeed, the stage whispers coming from Washington since the spring on the possibility of military engagement with Iraq may have been intended in part to prepare the markets for such an outcome.

Risk aversion appears elsewhere
First, intense risk aversion is also impeding economic growth. Many business leaders, concerned about similar issues, are approaching decisions about expansion with trepidation. Furthermore, there may be some reluctance to undertake bold initiatives, given the increased scrutiny with which business strategies are currently viewed. Plans to hire new workers or invest in new facilities are now undertaken with the greatest of care.
Second, the wide spread in corporate bond yields over Treasury securities of comparable maturity suggests that the concerns afflicting equity prices are also impeding corporate bonds.
As noted above, we expect the current extreme level of risk aversion to abate. This would be to the benefit of economic growth and the performance of corporate securities, both equity and fixed income, which in our view are likely to outperform Treasury securities during the forecast horizon.

Near-term impediments to share price recovery
Powerful share price rallies since late September are supported by our valuation conclusions, and are fueled by notable cash positions in portfolios. Even so, we note that non-fundamental factors may dampen share price performance. For example, portfolio clean-up, mainly of poorly performing issues, is occurring. Mutual funds typically complete this process by the end of October, but most individual taxpayers will do so between now and late December.

-- posted by Kirk

Top 127. Dec 20, 2002 6:55 AM

» Kirk - 12-20-02: Market up 30% in '03

.
oh oh...

-- DJ FRENCH PRESS: Goldman's Cohen: US Stocks Will Jump In '03 --

PARIS (Dow Jones)--Goldman Sachs strategist Abby Joseph Cohen tells Les Echos
that she expects U.S stocks to jump by 30% next year, buoyed by a recovery in
the U.S. economy and a lessening in risk-aversion among investors.
In an interview, she says industrial, technology and energy stock could be the
best picks for the new year.
Newspaper web site: www.lesechos.fr

Paris Bureau, Dow Jones Newswires; 33 1 40 17 17 40.

(END) Dow Jones Newswires
12-20-02 0146ET- - 01 46 AM EST 12-20-02

Symbols:
US;GS DE;GOS

20-Dec-2002 06:46:00 GMT
Source DJ - Dow Jones

-- posted by Kirk

Top 128. Dec 20, 2002 7:17 AM

» smile_1 - Re: 12-20-02: Market up 30% in '03

In response to message posted by Kirk:

LMAO...

3 day down trip based on prior observations made be Captn Ron

If today is positive, fits with triple/quad expiration reversal...

-- posted by smile_1

Top 129. Dec 10, 2004 8:44 AM

» Kirk - 12/10/04 Abby on CNBC-TV

.
Abby is now Out of corp bonds. She liked them a year ago and has now sold.

Allocation now

70% Equities
25% ST Bonds
3% Commodities
2% Cash

(It might have been 75/20/3/2)

Even if you don’t market time or buy individual stocks, my newsletter offers quite a bit of useful information and tables (Discussion of interest rates, The Fed Model, etc.) that many say are worth the price of the subscription on its own.

As of 12/7/04, the Total Return for Kirk's Newsletter since 12/31/98 is 157%. Here are some more periods and comparative benchmarks:

 
              Kirk   S&P500  NASDAQ 
12/31/2002    +68%    +39%    +62%
12/31/2000    +34%     -5%    -13%
12/31/1998   +157%      5%     -2%

Click for a free issue of my newsletter
Suitable for the aggressive growth part of your diversified investment portfolio.

-- posted by Kirk

Top 130. Feb 5, 2005 10:26 PM

» Jeremy75 - Re: Re: Cohen's record

I guess I was just lucky. I'm 45 and retired. I followed B. Brinker's advice starting in 1986, and by just investing in index funds I have all the $ my family and I need. I don't follow any short term advice from anyone, just long term advice. -Got 100% out of market in Jan. 2000, Brinker rec. 65% out of market. -Got back in March 2003 per Brinker's suggestion. Where has his long term advice been wrong?

-- posted by Jeremy75

http://www.siliconinvestor.com/readmsg.a...

Top 131. Feb 6, 2005 3:49 AM

» SteveT - Re: Re: Re: Cohen's record

In response to Re: Re: Cohen's record posted by Jeremy75:

Where has his (brinker's) long term advice been wrong?

http://www.suite101.com/discussion.cfm/i...

http://www.suite101.com/files/topics/270...

http://www.siliconinvestor.com/readmsg.a...

http://www.suite101.com/discussion.cfm/i...

-- posted by SteveT

Top 132. Feb 6, 2005 3:45 PM

» Moonlight - Re: Re: Re: Cohen's record

In response to Re: Re: Cohen's record posted by Jeremy75:

Jeremy,
I ditto your experience with Brinker.I did buy the Q's at his suggestion at $83. but quickly decided he was wrong at about $78 but I've made up for that since. I knew nothing but have more than I ever dreamed of to live on. Have a happy life and God bless.

-- posted by Moonlight