JPM Strategist's Market Outlook - Another 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):

[click to enlarge]

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

[Larry House:]

Thanks for highlighting some of the lunacy that is out there. I will grant that there is always a chance these dancing dolls may be right, but I sure can't see it. A quick recovery from the biggest jolt to the world economy in 70 years? Hardly. I want to be kind and think they are just honestly misguided; on the other hand, I wonder if it is willful misrepresentation. We must question all sources in this mess we are in.

Jun 19 11:46 AM

[Tom Colangelo:]

Asking an financial analyst for an opinion on the market's future is like asking a fox if everything is O.K. in the hen house. His mandate is to pump the market action.

Earnings for U.S. companies will be dramatically lower as the economy slowly sinks to a comatose state this year and for the foreseeable future.

To maintain P/E ratios that reflect fair value, stock prices will have to come down perhaps 20 - 30%, conservatively, to match the lower Earnings.

Especially for the banks which will be paying very very very small dividends for the next few years after the Fed stops lending them money at close to zero interest which they lend at 6-8%.

PREDICTION 1:

2nd QUARTER disappointing dividends will not be competitive with bonds forcing stock prices to drift downward in July and August.

PREDICTION 2:
By end September, stock prices will be in full retreat when the 2nd QTR. Earnings are confirmed by the 3rd QTR. reporting period.

No amount of manipulation or green shoots B.S. can change the direction of dividend returns…….
Although the Fed did intervene for the banks in many ways to allow them to show PHONY earnings in the first quarter.

Start configuring your portfolio for this (LONG TERM) game changing event at the end of June and end of Sept. GOLD, OIL, CHINA, BRAZIL ETFs as a base.

Have patience BEARS.

The second mouse gets the cheese.

Jun 19 12:11 PM

[Dave Wrixon:]

Much depends on what further advances in the fanciful valuation of toxic assets is possible.

Jun 19 02:39 PM

[whidbey:]

This a side show to the main event in Government.

The new Financial Regulatory scheme (aimed at preventing fraud) will not prevent the Fed from shilling for Wall Street.

Watch your back the rules prevent cheating by all but the Treasury and Fed.

Tom's predictions above seem very reasonable to me.

Jun 19 02:51 PM

[ken3602:]

It's simple. They need more retail investors' money poured into the market before dumping... Their tactics are always same. At the first stage they give more realistic goals to reach, then when things are ripe, they give something with dramatic, unrealistic number for a last push.

Jun 19 04:31 PM

[Fighting Yoda:]

With consumer deleveraging and credit crunch - we cannot have any quick recovery - L is best case scenario. Speculative stock buying and PPT euphoria is no substitute for anything.

Credit is falling so much - private credit decreased by $1.8 Trillion is the first quarter, consumer credit by $90.7 billion (annualized). Household net worth down by $13.87 trillion.

There is no trigger for recovery - new technology, new markets, demographics, new ideas. Green is just a boondoggle and BRICs can only do so much. JPM and GS etc are just trying to create another bubble - it suits their ends not yours.

Jun 19 07:01 PM

[H. T. Love:]

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

With all the banks touting each other and providing results based on "fuzzy math" and sell-side fleecing more and more innocents with "historic entry-point opportunity", how could they *not* be up big?

And now the Fed is paying them interest on a theoretically zero-risk investment (gee, I wonder where they get the money to do that?) and the banks cutting consumer-credit exposure (reducing risk even further) and having been designated "too big to fail", etc., etc., etc.

I think the banks have woefully *underperformed*.

But it will be fixed when the CRE exposure takes full effect and we do this little Fed/Treasury/Populist Politician skit again!

And the masses will be swayed, believing that all is done in their best interest.

HardToLove

Jun 20 12:29 PM

[Old Trader:]

In terms of the specifics of Lee's calls for sectors to invest in, I'd give him 1.5 points. Tech HAS been strong, and given relatively strong balance sheets, and potential consolidation in the sector, its not a bad call, esp. if one has a bit longer investing horizon.

The .5 point is for his call on asset managers for the financials. I (like many/most others, methinks) am NOT a fan of the sector, given all of the potential damage down the road, but if somebody put a gun to my head and said I MUST invest in the sector, that's probably where I'd put the money.

Jun 20 12:33 PM

[ain't no fo...:]

"...said Lee, who has been named a top analyst in Institutional Investor magazine's annual all-star poll."

Dear GOD.

Jun 20 01:32 PM

[ken3602:]

Financial sector could go up this high and even hold it up so far mainly because there was this newly created strong belief among institutions and retail investors that US gov and the Fed will not allow these companies' stock prices to go down forever (forever is too big a word... probably at least until this recession is over?). As J.S. Kim and others suggested in their previous articles, however, this hold-up cannot and will not last as banks secondary offerings are finalizing.

Jun 20 03:33 PM