Here's one for those super sleuths at Law and Order. With the stock market on a rampage, having shot up about 40 percent from its March low and around 8 percent in July alone, the $64,000 question is who should you trust: the swelling number of bulls or the shrinking number of bears?
Both camps offer persuasive arguments. The bulls, for example, argue the economy is solidly on the mend, pointing to such evidence as sharply slowing economic deterioration in the second quarter, five straight months of gains in pending home sales, the administration's obvious willingness to bail out the giant financial weaklings and Uncle Sam's readiness to step up to the plate with big bucks and fresh economic stimuli, such as the cash for clunkers car buying program, to further pep up the economy.
The market's surge and an expanding number of sunny economic signs remind me of the title of a book written by a beatnik, Richard Farina, in the mid-1960s -- "Been down so long, it looks like up to me." There's no denying that both the economy and the stock market, both of which have been down for a long time, now look up.
The bears, on the other hand, bellow economic hokum. They insist the sudden flow of economic glitter is not economic gold. Among other things, they cite accelerated declines in wages and salaries, mounting job losses, the near-certainty of a lot more foreclosures, the unwillingness of most banks to lend and declining consumer confidence.
Equally worrisome, it's pointed out, is the non-stop political infighting in Washington that is preventing the government from taking more forceful and speedier action to ease our economic woes even more and to pass much needed legislation on the health care, energy and educational fronts.
Further, some bears hasten to point out, despite periodic signs that the debt-ridden consumer is by no means dead, the fact is many of those better than expected second-quarter earnings reports -- which helped push stock prices higher -- largely reflected sizable corporate cost reductions rather than improving demand for products and services. In other words, they're suggesting that the recent surge in stock prices is based a lot more on hope and hype than on reality.
To help provide some clarity -- at least I hope it does -- here's the thinking of a trio of crack, well regarded market pros, all wary bulls, who envision higher stock prices ahead.
One of them is Bill Rhodes, head of Boston-based Rhodes Analytics, a market advisor to institutional investors who has lots of concerns. Chief among them: the strong likelihood of a very lackluster economic recovery, a damaged financial infrastructure that has yet to be fully repaired, ongoing real estate problems, the need for repairing the credit markets, which could take many years, and a narrowing of stock market leadership.
Still, Rhodes, a one-time strategist at Merrill Lynch, surprisingly says, "I would be a buyer of stocks, but very cautiously."
With all his concerns, why, I asked, would he be a buyer? "Because the market is in a sweet spot," he says. His chief reasoning: huge liquidity on the sidelines ($3.4 trillion in money-market funds), mostly belonging to institutions; a lot of political pressure on the Federal Reserve to ignore early inflationary effects and keep invigorating the economy, and a massive amount of market momentum.
Rhodes reckons the S&P 500, now trading at a shade above 1,000, will climb to something north of 1,100 before the market peters out.
His top stock category: "technology and more technology." It's the biggest business we have and we're doing a big business exporting it, Rhodes says. He favors software of all sorts, semiconductors and some hardware.
Another one of our wary bulls is Fred Dickson, a former Goldman Sachs strategist and currently the chief investment strategist of D.A. Davidson & Co., in Great Falls, Mont. Although Wall Street went gaga over better than expected second-quarter results, what with more than 75 percent of the companies beating Street estimates, not so Dickson, who notes the bar was set very low. Likewise, he observes, most of the results were disappointing, with the posted numbers running substantially below year-earlier levels.
Looking ahead, though, he sees a perkier economy, improving third and fourth quarter earnings and rising margins, all leading to climbing stock prices and an increase in the S&P 500 to about the 1,050-1,100 range. For the moment, though, Dickson regards the market as overbought, having moved a little too far, too fast.
His three top stock tips, each of which is rated a market outperformer, are Express Scripts, Stericycle and Intel. He's also gung-ho on several emerging markets, notably China, India and Singapore.
One of his big worries is the fiscal shape of the health care and energy bills. "There are lots of questions, but few answers," he says.
Rounding out our wary bulls is one of the best market timers around, investment adviser Mark Leibovit, the skipper of VRTrader.com of Sedona, Ariz. "The rally is very extended here," he says, "and it doesn't give me a warm and fuzzy feeling to see traders chase what have been laggards for the past three months."
Still, Leibovit says, "make no mistake here; the trend is definitely up." Or put another way, as he expresses it, "the trend is your friend; don't fight it."
So there we have it, an outlook from our bullish, but cautious trio for more economic zip and higher stock prices. Or in a nutshell, it's full speed ahead, but be ready at any given moment to slam on the brake.
Dandordan@aol.com
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