Elaine Garzarelli : Guru Garzarelli Back as Market Timer

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Reuters
Guru Garzarelli Back as Market Timer
Sunday February 23, 3:47 pm ET
By Haitham Haddadin

NEW YORK (Reuters) - The flamboyant Elaine Garzarelli was high priestess of the world of high finance in the early 1990s. But these days, the Wall Street sage, whose stellar record includes predicting the 1987 stocks crash, finds her calling in the tough art of market timing.

"I don't know if it's my comeback, but it's market timing's comeback," says Garzarelli, who believes the "buy and hold" mantra of the 1990s is not suitable for the current turbulent market.

An independent researcher, she heads her own firm Garzarelli Capital Inc. As a quantitative analyst, her sector recommendations are based on a mathematical model that uses 14 indicators to track interest rates, the overall economy, profits, monetary gauges, valuations and investor sentiment.

At a recent conference in New York, the impeccably dressed Garzarelli looked the antithesis of a numbers-crunching economist nerd.

At the height of her fame, Garzarelli was dubbed the "Queen of Wall Street" and, along with other successful women, participated in a L'eggs pantyhose commercial.

The $25,000 she was paid for the spot, went into a scholarship fund for women she had set up at her alma mater, Drexel University, where she earned a doctorate in economics.

"Those who did not see it had rumors going around I was in my underwear," she joked. "I did it because Alan Greenspan (News) did a commercial for Apple Computer. It was for a good cause."

A STAR IS BORN

Garzarelli gained fame while an analyst at Shearson by predicting Black Monday in 1987. She later joined Lehman Brothers where she reportedly made $2 million a year, but was let go in 1994 over a disagreement with the chief strategist over a call. Garzarelli turned out to be right.

In 1995, she set up her own money management and advisory firm in Boca Raton, Florida, and since 1998, has worked out of an office in Huntington, Long Island in New York.

Garzarelli advises clients with over $1 billion under management in the United States, Europe and Japan, on meandering the deepest bear market this side of the Great Depression. Her institutional report goes to clients managing over $100 million.

"Her batting average is very good," said Monica Graham, president of Graham Partners Hedge Fund, which manages $150 million and is one of Garzarelli's clients.

"Her indicators take the emotion out of looking at the market ... It's a reality check. They tell you where the market should be and where it would have traded historically."

Garzarelli says to expect a flat long-term trend. Rallies may intersperse this dull market. Now is not one of those times.

"The market cannot rally until the uncertainty of North Korea and Iraq is lifted," Garzarelli told Reuters. "We could break below the October (five-year) lows. It is not because the fundamentals are that bad, but because the psychology is bad."

"The fear can create a problem with consumers, so we could be faced by a double dip in the economy," she added.

In late October, as the market recovered, she demonstrated her timing skills by recommending stocks that rallied briefly. They included Ford Motor (NYSE:F - News) and SBC Communications (NYSE:SBC - News).

She had a prescient call with utilities she upgraded to neutral from unattractive, saying they were cheap. Among those, Dominion Resources (NYSE:D - News) rose to $56 from $41.

Now, she says she likes retail, insurance and restaurants, among others, while avoiding metals, beverages and utilities.

MEDICINE TO ECONOMICS

Garzarelli's career on Wall Street has roots in her family life. She set out to study medicine, but after taking a course in economics, was instantly hooked.

"My Dad was a banker and was astute in the stock market," said Garzarelli, who while growing up was fiercely competitive with her older brother, now an engineer. "I learned a lot about math, electronics and science from him... also chess."

At Shearson, she warned investors to stay out of stocks. On Black Monday, Oct. 19, 1987, the Dow plunged 508 points, or more than 22 percent, -- and a star was born.

"I went on TV," Garzarelli recalls. "It made me famous to the general public ... I was the new flavor of ice cream."

On the Street, though, she had already been chosen for seven years as the top pick in Institutional Investor magazine's All America Research First Team in quantitative analysis. She held on to the No. 1 spot for 11 consecutive years.

Detractors have argued that Garzarelli gets a lot of mileage from that 1987 call, but got other calls wrong. A big blunder, they say, was turning bearish in 1996 amid the biggest bull run in U.S. history.

"It destroyed my reputation. I had such a following," said Garzarelli, who turned bullish soon afterward. "Greenspan spoke about 'Irrational Exuberance' and he was trashed too."

Her other more prescient calls included the 1990 and 2000 bear markets, the market bottom in 1982 and top in 1984.

Though her attempts at managing a mutual fund at Shearson were not that stellar, she fared better in picking market sectors for the Forward family of funds between 2000 and 2002.

Unbiased advice is where she excels, clients say.

"There was a time when Elaine was running money and was tied up with the emotions involved," says Lou Lloyd, president of the $20 million Belfinance Hedge Fund.

When he was in charge of global equities at Shearson, Lloyd hired Garzarelli, and calls her track record "impeccable." Now, as a client, he says her advice can prompt him to take "another look" at a stock.

For Garzarelli, life on male-dominated Wall Street was challenging. It also got progressively tougher.

"As you get closer to the men in age, things do not work as well. They can't guide you, it's competitive," she says.

-- posted by SteveT