The Rally's Big Players

" It's always -- with a senior editor. At Barings didn't see it is why what do you think I'm the same. And I sat I actually think that there are probably been times in the last 500 years when there were more starving people and you could just -- on other words it's not as if were as bad as we've been in the history of the world for him. However. I do like the idea of the general principles these government selling these infrastructure assets mostly because. Around the world you've had all these funds buildup as a -- us by infrastructure high toll roads and all -- also what does that a private company now runs the Chunnel between France that's always in the case to -- it was developed that way. But even for example very prosaic Indiana soul it's sold it's you know told turnpike a private investor and with the right to collect tolls and wouldn't like pretty good deal for the government but here's my question would medical office topic in my book. What that -- the company decides that they want to start charging eight dollars for somebody to get our pilot Louisiana I think it becomes a regulated utility yet -- electric company can chart yeah other Congress Center and market -- can appreciate your report article that you back. The -- or at least the reasons for leaving like the one who brought you."

" What is it about. Well I wanted to take a look at look we've seen this monster rally that everybody's been looking -- kind of waiting for the big pullback. And it's obvious to sort of make these prudent noises that say. You can't expected to give you anything more and I wanted to see people who really have been with the trend correctly. And what they're saying right now. And look who's keeping you in this market right now on a handful of those I found -- economists are analysts strategists. For the most -- market. -- forecaster and I I settled on a handful that seemed to kind of have a few attributes in common have been in the business 3040 years we've seen a lot of cycles. They run their own firm's research firms -- Ned Davis Research Steve lose hold of blues folk group. Laszlo Birinyi. And one of the things that unify their approach. Is first really big -- that look I'm not gonna say they plucked the absolute bottom but early on this rally they said this is going to be big. And they also have -- the door want to look for the signs that things might be getting a little bit over overdone but they're not seeing them yet. They listen to the market as much as they tell the market where what it should be doing and I think that right now can he can get some comfort by the fact. That these folks who really their name is on the line they're not influenced by the kind of politics several Wall Street firm that wants to sell you a bond as opposed to tell him being stocks. So I think it's it's somewhat encouraging. But I think that they're keeping the market in the short leash. By that I mean. You know he can't go down 15% straight line and are still missing bind because that would mean behavior changed."

" Yeah what what do you make of the I mean is it it across the board then are they. Promoting a cyclical bull market and they pretty much here we go we're going to continue march --"

" I think pretty much a cyclical bull why don't know none of nobody's saying that this is. With these may be a couple of exceptions that this is the equivalent of like 1982 -- weren't for twenty great years Elton and we're going to basically go up nine or acts not -- acts of what we are right now they're saying we can get up to. S&P 1200 another ten or 15%. That's where we sat the moment before Lehman fail to -- like we forgot that we what what it's like to be up --"

" Doesn't I think is that a lot of these strategists as much they're saying that not influenced by how the politics that you know they're really riding on the coat -- of their own name and that kind of thing. When you see that the market's been up 6070%. Since March. What do you find that the trend among must be strategist because we haven't seen a major pullback yet and are most of them willing to say stay in it."

" What's interesting is if you look at the major brokerage strategist at brokerage house strategist that you see around a lot we survey them once -- we did just around Labor Day. They were busy all summer raising their index targets to meet what the market ever done right and that's that's a natural thing I mean attended. Hugged the market plus or minus 10% of operating -- after that great same store sales looked like we're all humans the psychology of it takes over and I always joke that what those strategists that operate with. You know they always say that politics is the art of the possible. He strategist babies to practicing part of the plausible but they're going to go in -- meetings all day long I could be on the road forever. And their client might be -- who might be bearish you better have something that sounds plausible to either side if you of the business. That's what you should remember as an investor when you hear them opine about the mark."

" What about the pullback to mean you when you say. It would not what we're not going to come back down 15% or what have until we're not going to that if we did it would mean something radically changed different from the way area and I guess that's what I'm saying I mean from their perspective. They're in for the long haul up down there's sort of this is the same with any final -- on --"

" Are actually a little more tactical they're saying look I'll get out of I think that it's run its course focus going to try to catch the falling knife -- one of the historical analogies I keep seeing cited by some of these folks is. Nineties and forcibly fired we came off a very similar. Bear market watch out lull like we did early this year. And we were up huge the rally was almost straight up into 1975. And you didn't get a pretty stiff pullback of about fourteen or 15% and then another up leg -- to a new relative high so. Nothing matches up perfectly with history but I do you think that. You know the one mismatched and I think most average people see in retail investor is really very cautious right now is not really believing the rally. Is that they don't understand how the market can be up so much percentage wise in an economy that still doesn't you know operate very well right now. Well nothing very well very good was going on 1975. Nothing very that was going on in 1983. It's east which when we pull out of one of these deep recessions. And when the market has overshot the downside -- panicky way which is what happened in those times you just recovering a bit of that overshoot from here on out. I think we're right near a level where. You know if it's not time to prove it yet in the way of companies actually showing you the way -- Earnings that aren't just being improved by cutting costs and they think the bottom line we have sexy the top line and I I agree with that although it's it's not realistic to expect him like the first half of this year -- for big companies to produce top line growth in aggregate when. The -- was shrinking global economic. Activity was shrinking it's not possible physically for that to happen but. We are in a point where we're going to get it more the tail wind of a GDP growth probably third fourth quarter and yes you do have to show it. I do really think that the margin story makes sense in other words they caught probably able -- much. It doesn't mean they're going to go on start spending freely again but I do you think what the market is pricing -- is not third quarter earnings is pricing in first half 2010."

" Do you would you buy into the snapped back where companies have now gotten soul lean and mean. That once that top line does start to come in the margin expansion will really be there they'll really see I don't know Pharmacia windfall profit -- and we'll see profit growth."

" I do the question Tim I don't think that's really very dispute bowl effect if the top line cakes and but I think the question is how the market already gotten there yet not I mean I think you can make the case that that that these levels market is already kind of pricing in a pretty good snapped back. Although I don't think its pricing and an irrational snap back. We not to get too deeply into numbers but. -- estimate for 2010 look like a huge jump. The S&P 500 from -- from from this year and but they're not a huge jump for those same companies in 2008 in other words. In -- an economy that wasn't falling off a cliff they pretty much produced what's expected in 2000."

" Com wanting to talk about retail investors. I've sort of been waiting over the last four or five months for us to go down 678%. In the retail investors start to panic and say. Here we go again it's going to be like it was last fall I gotta get out. And it's almost like that do whereas the retail investor might say it's time for me to get out -- night institutional investor might say great get out is now when again. These do you sense that that sort of that balancing act and -- why we haven't had a 10% correction."

" To some degree yes I think that the professionals are very reluctant sellers right here because you know. Contrary to common. Sort of thought out there most professional investors do that the average mutual fund it's beating the market wise -- beating the market this year. Because the average stock is beating the market this year -- had such a broad rally so they just want to sit on it. They don't really want to change your portfolio wading through the end of the year very much I don't think you can but retail investors are not trusting I'm nervous."

" Earlier in the year there's a lot of talk about how much gala sitting on the -- some if you were still reluctant even though the market is rallying much of our guest -- finale it was timing and sank. He felt that you still sitting on the sidelines waiting for I don't know what I just asked them -- you know how much money we seem -- the -- there's still a lot of money sitting inside but like him."

" There's a tremendous amount sitting on the sidelines which to me isn't the same as saying a tremendous amount ready to go into the market -- Obviously at some point 0% -- money market funds cause people to move off the dime. What they've been doing. Is putting enormous sums into corporate bond funds. And short term corporate conference and municipal golf so they're kind of inching out on the -- respectable or not trusting of of equities I think that's why I don't think that high grade. Corporate municipal bonds. Really very attractive right now because they're giving you your walking in your five and 6%. You know you're not -- out -- inflation over a long period time we get inflation coming back. And yet it's comfortable to do that you feel like you're getting something I'm not saying it's irrational but I think. If this bull market. Is not going to end until we hook retail investors and then it's not going to."

" The retail investors are showing up gold does say however these are not -- son Matt McCall about it up. And you know they've been calling up the brokers in getting in and that's been the latest. Flood of investments that pushed the gold rally higher it's all flake. If -- sitting at in -- looking at such a big rally and then this money that's on the sideline -- the -- that starts to be put to work your will that push the market higher. The market gold market I think equities if they start to go into the equity act."

" It will have that rotation happen to another and usually it happens not when always pull back to an attractive price it happens when. People feel like the market's getting away from the or enough time passes that the wounds of last September and last march in terms of what happened -- portfolios start to fatal."

" Right what do you make the volume enacted -- SA all -- an activity is what we're seeing at least a little bit of an increase here from zero at the beginning of the year. Positive sign for yours is still little bit of window dressings is still is that they know very depressed level it's not."

" A huge market driver at this level. But it's encouraging I think it until it gets overdone a lot of these things are like that so I think if there's one -- in the Yemeni that we've seen recently. That I think is good which is dominant companies with very good cash positions. Looking to be opportunistic Abbott labs Walt Disney -- and in the market celebrated these moves other ones where it seems like it's kind of over reaching. Kraft bidding and hostile way for Cadbury nobody like that nobody on craft -- they want them to go build a global umpire. And I think he's seeing similar things can Xerox and going after affiliated computer so. There's good deals bad deals but the the possibility that CEOs feel confident enough to make deals he's a good thing. And we're not yet though at a stage where it's getting crazy. I keep warning appoint an up front about Blackstone deal last week to buy their theme -- from InBev Anheuser-Busch which you know SeaWorld and all the rest of it. Extremely conservative valuation extremely conservative capital structure they weren't able to really eleven this deal up. I was joking that Steve Schwartz of a Blackstone. You know three years ago if he showed in those terms he would soon take his name off the New York Public Library building that he would actually do that deal -- just not enough embedded profit and that's a good thing that you're you're kind of in forcing sobriety on the market and."

" You know wire -- interesting that your take on so that I was chatting about this morning with these two Bear Stearns hedge fund managers that are now going to trial. Could be six or seven enough I think this trial but if you Bear Stearns hedge fund managers who basically the government saying that there were lying to investors run and still get into their. Odd billion dollar fine and right and the government this the first time that we might see some criminal charges in the financial crisis do you think anything's going to comeuppance."

" There's a potential for something to come of it I mean obviously it's tremendous gray area you know kind of what did you know when did you know and obviously it's going to be the big email trail reminds me of the frank -- from banking think. I think something could come of it. I always joke that it's it's not time to sell when you see that the guys in suits in handcuffs is time to write -- and you know just because when did when we did the Enron trial and when those convictions come down. It's pretty close to when you want to actually get more. Optimistic about the economy and the markets we need -- and I think you might get one here might thanks candidacy as I said solely."