The Wall Street Clown Show

It's been a while since I laughed out loud while going through the news, but that's just what happened when I read the following Reuters report, "JPMorgan's Lee Sees S&P 500 Retest of '07 Record." As a service to loyal Financial Armageddon visitors, I thought I'd do them the favor by highlighting all the ridiculous bits:

The benchmark S&P 500 index should surge back to its October 2007 record above 1,500 by the end of 2012, provided the U.S. economy sees a V-shaped recovery, JPMorgan Chase Chief U.S. Equity Strategist Thomas Lee said on Wednesday.

My take: And I should be the next president of the United States, provided I have enough write-in votes when the 2012 election results are tallied. In reality, the notion of V-shaped recoveries -- especially after what we've been through -- is one of Wall Street's favorite (unfulfilled) fantasies. Otherwise, for reality-based insights on the impact of financial meltdowns, read "The Aftermath of Financial Crises," by professors Carmen Reinhart and Keneth Rogoff).

"The global economy is in the midst of a synchronized recovery," Lee said at the Reuters Investment Outlook Summit. "If we end up with a V-shaped recovery, we could go back to our record high of 1,500 in 2011-2012," he added, referring to the S&P 500.

The S&P 500 fell 0.4 percent to 908 on Wednesday.

My take: "Synchronized recovery"? Say what?! Not according to data published just weeks ago by economics professors Barry Eichengreen and Kevin O'Rourke, in a post at voxEU.org entitled, "A Tale of Two Depressions." Below is just one of their highly illuminating graphs (no sign of a rebound here, that's for sure):

Lee also reiterated his year-end 2009 target of 1,100 for the S&P 500, saying the United States will likely come out of its recession some time this summer, followed by the rest of the developed world.

In October 2007, the S&P 500 hit a record closing high of 1,565.15, before falling back. In March of this year, it slumped to a 12-year closing low, but has since rebounded by about 40 percent on hopes the recession that begun in December 2007 was moderating.

My take: In March 2008, Lee was counting on a "short recession," had penciled in a year-end price target of 1450 for the S&P 500, and was expecting "financials to lead the market higher," according to CNBC. So far, at least, there's no real sign that this allegedly "brief" downturn has ended, and anyone who bet on the JPMorgan "strategist's" prior call on U.S. equities managed to lose his or her shirt last year, because the broad market finished down 38% at 903.25, while the S&P Financials regurgitated more than half their value.

Lee added that a market correction in the wake of the recent run-up would be "healthy," and could lure back investors who opted to sit out the recent rally.

"This rally has left many investors uninvested or underinvested. The pullback is the entry point to really see more meaningful money put to work," said Lee, who has been named a top analyst in Institutional Investor magazine's annual all-star poll.

My take: not content to lead the lambs to the slaughter like he did last year, Lee is determined to fully eviscerate his followers without any real justification other than a reliance on the greater fool theory. Otherwise, in an interesting Freudian slip, Lee more-or-less acknowledges that the recent "green shoots" rally has not had much in the way of "meaningful money" behind it.

He favors the financials, industrials, technology and consumer discretionaries sectors, in that order, saying the sectors would be the biggest beneficiaries of an economic recovery.

Within financials, he favors asset managers.

The S&P financial index is up 84 percent since the broader market's 12-year low on March 9.

"We are still favoring cyclicals over defensives," said Lee. Even so, he was mindful of potential risks to the recovery.

"The biggest risk is that we're implicitly assuming the consumer is stabilizing. There's a lot of potential shocks. If oil goes to $100 a barrel, you can't have a recovery," said Lee, adding the other risk would be if savings rates somehow overshoot.

My take: even though reports clearly indicate that consumers are terrified about the future and are continuing to scale back, the housing market remains in the doldrums (or in the tank, depending on where you live), and personal consumption rates, savings rates, and debt levels are still on the wrong side of long-term averages, Mr. Lee assumes "the consumer is stabilizing." Why stop there? As long as we're talking BS, why not go a step further and "assume" that the consumer is flush with cash and starting to spend money like a drunken sailor?

One would have thought that after having been SOOOOO wrong about the events of the past two years, those who call themselves "strategists" would have sought out a more productive line of work.

Instead, all we keep seeing are endless reruns of the Wall Street Clown Show.

Stay tuned for plenty more?

Comments

[Onlooker]

Great post Michael. And I know you agree, but clown is much too kind. Friggen con artists is what they are. Either that or they're so clueless that it's a crime that they're making money doing what they do. But I think they've just sold their soul and rationalize it somehow even though they suck in good people who unfortunately trust these people.

[David]

Although hilarious the lies coming out of Washington
the laughter from the Chinese students that smacked Geitner in the face was the laughter that was heard around the world. And now we see China Russia And others about to drop the US dollar !
America has 2 choices left be a good little country and do what is right or act like a fascist entity and start more wars, the economy however is about to drop off a cliff ,this time it is going strait to the bottom.

[acudoc]

Unfortunately, no recovery will occur this time around until fractional-reserve banking is prohibited, the world returns to a gold standard (i.e. honest money not created by debt-assumption on the part of the hapless citizenry of the world), bank notes are solidly-backed 100% by gold reserves, and the interest rate on loans is not set by nine white guys sitting around a table in Washington, D.C. but by free market forces in the capital markets.

The powers that be, besotted with hubris, will fight this tooth and nail until utter destitution of the Western economies has occurred and the capital accumulated over generations has been destroyed. Such is the nature of the human experience---a profound greediness on the part of the controllers of the money supply and an equally profound and cynical disregard for human suffering.

[Gilbert Rockinfeller]

I think the Aliens are running Wall street. Most of the stuff these martians are puttin out is out of this world ha ha. At least there not happening on this planet.But hey, if enough folks can spend there way out of this depression without having any money well three cheers for them right?I mean who are we to question Our recently appeared Messiha of Finance Lord,Master Grand Puhba Obbama. The guy can walk on water so why cant he run the celestian presses and rain down financial moola on us doubtfull unbelievers?

[chambers]

So we have all the major banks in the U.S. insolvent, mark to mark asset accounting rules suspended. Likewise, states, counties, cities, consumers and pension funds are insolvent.

Few banks are lending, states are crying for federal bailouts and cities demanding courts to allow them to declare bankruptcy. Companies large and small continue to let employees go because they are losing money, yet still the stock market will soon hit new highs!!!?

I want what your smoking!!!

[Muscles]

We are sitting in the greatest recession since the great depression, and while some may have called it right plenty have called it wrong.

I dont think I would dismiss this prediction as quickly as you have, there may not be any merit behind his calculations, but when the market recovers it is going to take off - whether that 2012 or 2014 I am not sure.

I think anyone with half a brain realises the market is going to get smashed again, and this rally we have seen is going to end and possibly the lows tested recently will be broken, what that will aid is the big boys getting bigger, acquiring all the middle guys.

Stagecoach group is just one example of this, watch Xstrata and co expand in the future and when the recovery comes along the big guys are going to be worth alot more than the Oct 2007 levels

[killben]

DO you really think Lee is contributing to JPM> Give him the boot

[Boom2Bust.com]

"One would have thought that after having been SOOOOO wrong about the events of the past two years, those who call themselves 'strategists' would have sought out a more productive line of work."

No way. These "strategists" just go about their business, praying no one remembers their bad calls.

[Rocky]

Wall St. strategists are paid to be optimistic so that people will buy stocks and whatever else the firms are selling, preferably products with high commissions built into them. For decades, Larry Wachtel was the mouthpiece of Bache (later Prudential) and one of the best known touts on the street. You could always count on him to put a positive spin on the market, no matter how gloomy things were.

[boqueronman]

"the other risk would be if savings rates somehow overshoot." How can any working adult not read that sentence and laugh out loud?

Anyway, no one has commented on this sentence: "Lee, who has been named a top analyst in Institutional Investor magazine's annual all-star poll." Huh?

As a non-professional, it makes one wonder what the criteria is to become an "all-star." It would have to be one of two things: anticipating market trends and offering verifiably rewarding investment advice or raking in the most suckers' cash - excuse me, investors - of any of his competitors. In other words, if the vote was taken today, Bernie Madoff would top this "all-star" list according to the latter criteria.

How do people like him stay employed in an industry that is - supposedly - charged with safeguarding, and maybe growing, the most precious of all commodities, a person's savings?

[roger]

There is a lot of synchronized BS going on.
Economist have the uncanny ability to mystify
reality.

[YT]

boqueronman,
You have it wrong. The industry is there to make a profit, safeguarding savings is a secondary byproduct. If it happens great, if not, its okay as long as the profit is made. When the profit isn't made, that's when the bailouts save his hide. As a society, we let bailout after bailout pass without stopping it by any means necessary. We get what we deserve... Guys like him running blindfolded around Wall Street with scissors in their hands.

[Fu]

The market could certainly surge back to near its former high within two years. It happened after the 1974 bear market. And the government stimulus this time has been unprecedented.

I don't think it's going to happen, but I think there's a 10% chance that it could happen. If it happens, stock will be in a bubble, but how can you say it won't happen? Research has shown that people will invest in bubbles, under the right conditions, even after getting stung multiple times.

Based on the PE/10, the market is fairly valued now. Anyone saying with certainty which way the market is going to go is a fool, because no one can predict the future.

[roger]

Close the FED shut down Wall Street,outlaw unlimited
wealth, no more billionaires or private corporate jets.
use the medium of exchange for exchange & investment
not speculation.

[Alexandra]

Completly delusional. Why can't we just turn their power off? The are looking at the screens and are actually believing their own shit. Those morons analyze the behavior of the algorithms they have programmed themselves and think they are discovering deep truthes about the economies. Ha! Just unplug them and have them look at the real world outside.

[mark]

Someone should ask JPMorgan's "chief bond strategist" what they are advising their clients who hold US treasuries. If we're looking at a 50-100% return on stocks over the next couple years, are they advising clients to hold on to 10 yrs yielding 3.5%, or 30 yrs yielding 4.5%. Seems like a rather disproportionate risk adjusted return, eh. In fact, if stocks do that, then the bond return would probably be negative 30%, or more. Why isn't JPM pounding the table to sell/short treasuries?

[Acclaim Investing]

Great article. I love to expose these "Fools of Wall Street", as I prefer to call them. What is truly amazing is how people continue to listen to them. After Jim Cramer's interview with Jon Stewart I was sure that he would be fired or at least would be ostracized, but no, people continue to quote him.