Are the Bulls Full of Bull?

The question, he asks, "is whether the bulls are full of bull?" Ortz argues that the plight of the banks -- a bell-weather market sector -- is still an unresolved issue.
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It's one for Ripley. A falling brick from the top of a high-rise building strikes you smack on the top of your head. Your reaction: No big deal!, and you walk away unscathed.

Interestingly enough, or maybe significantly enough, a similar kind of an occurrence that took place Friday in the stock market is encouraging some market watchers to conclude -- especially on the heels of last month's 20% rally -- that the severe bleeding in the marketplace may have finally run its course and a rising new trend could be in the works.

Escaping the ill effects of the falling brick refers to the market's astonishing feat of shrugging off Friday's devastating news -- a leap in the March unemployment rate to 8.5%, the highest level since 1983. Not only didn't the market go down, but the Dow actually managed to rack up a gain of nearly 40 points to close above 8,000, an important support level.

"It's time to buy on any weakness," observes stock market guru Elaine Garzarelli, whose composite of indicators are flashing a buy signal and suggest to her that equity prices are about 20% undervalued at current levels.

Veteran San Francisco money manager, Gary Wollin, takes the bull argument one step further, likening the market's ho-hum brick-falling incident to what he believes could be a prelude to "a buying panic." Wollin, who caught much of the rally by deftly switching from bear to bull last month when the Dow was trading around 7000, contends the ball game has changed, evidenced, he says, by the fact the market is no longer getting killed on bad news.

Six months ago, he notes, the Dow could have easily tumbled 200 points or more on the bad employment news. The fact it went up instead, he thinks, is reaffirmation that the very worst is over.

Our bulls may be right, but one overseas money manager is skeptical. Human psyche is refusing to acknowledge the chamber of economic horrors out there, a refusal, he believes, that will result in further wealth destruction. What's more, he's convinced more bricks are certain to fall (both here and abroad) and that jumping back into the market at this juncture makes as much sense as jumping into a pond of alligators.

The question, he asks, "is whether the bulls are full of bull?" His argument is that the plight of the banks -- a bell-weather market sector -- is still an unresolved issue. He also believes -- and he's by no means alone -- that substantially more loan losses lie ahead and that the recent runup in bank stocks was way too excessive, given the lingering uncertainties. Accordingly, he expects banking's bottom line for the balance of the year, even though it has been reduced, to come in considerably weaker than expected.

Overall, he sees the general market running afoul of weak first-quarter results, with a GDP contraction of at least 5% and a bevy of disappointing earnings performances. As a result, he expects the Dow to retreat to last month's low of about 6,550.

Wollin, who manages close to $100 million of assets under the banner, Gary Wollin & Co. and has outperformed the market two years running, sees his projected buying panic largely reflecting a pronounced swing on the part of the shell-shocked public -- which basically missed the recent rally -- from money-market funds to equity funds. At present, money-market funds hold about $3.8 trillion of assets.

Wollin, who has made a number of excellent short-term market calls over the past two years, both bullish and bearish, figures the buying panic could kick off in 3 to 6 months with the Dow then trading at around 9000. Further, that panic buying, he reckons, could push the index to close to 11,000 before year end, roughly a 24% increase from current levels.

Given the market's poor fundamentals -- notably the ailing economy, the prospects of even greater job losses and the ongoing chaos in the housing, credit and banking arenas -- some bears might well construe the forecast of a buying panic as far fetched, if not downright ludicrous, the brainchild of a seemingly life-long resident of Disneyland who refuses to step out into the real world.

Wolin's reaction: "Everybody knows the bad news and it's already well baked into the market." He does, though, have some qualms about commercial real estate, an increasing amount of which is tanking, and mounting defaults and delinquencies on credit card debt, both of which are growing areas of economic and market concern.

A blue-chip stock player, Mr. Wollin favors such names as Triple M, Procter & Gamble, Johnson & Johnson, U.S. Steel, ExxonMobil, Chevron and Freeport McMoRan Copper & Gold -- all of which he views as market out-performers over the next 6 to 12 months.

Garzarelli, head of Garzarelli Capital, which doles out market advice to institutional investors, minimizes widespread economic jitters. Why so? Because, she observes, it appears that economic activity is stabilizing, as evident from strength in commodity prices, low short and long term government and mortgage rates, improved housing and light vehicle sales and rising consumer confidence and money supply.

Assuming $60 a share in earnings for the S&P 500, versus an estimated $50 this year, Garzarelli figures fair value for the index is around 1000, about 20% above current levels.

Jeffrey Saut, the chief investment strategist of Raymond James Financial, doesn't share her enthusiasm. Taking note of the recent buying stampede, he contends the equity markets are way overbought. Consequentially, he says, "we are again cautious."

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