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Tobias Levkovich, Citigroup Analyst discusses Wall Street

The following are comments compiled by US equity strategist Tobias Levkovich of Citigroup Investment Research. Institutional Investor has named Mr. Levkovich on its list of the nation’s leading analysts both as an equity strategist and as an industry analyst. He has been accorded a runner-up slot for portfolio strategy in the 2002, 2005 and 2006 Institutional Investor All-America Research Team (II) poll, along with third-team honors in the 2004 II poll. He also has been acknowledged by Smart Money magazine as one of the 30 smartest people in investing (December 2002) and was recognized as its Best Market Seer for 2003. In November 2004’s issue, he was named to the “Power 30 Thinkers” list.

“With the S&P 500 up roughly 60% since March 2009, the index has put itself in the running for the fourth best one-year gain following a bear market trough since 1929 and all the other periods were in the 1930s. Yet the current “Great Recession” is quite different than the Great Depression on various measures including the lack of an 86% market drop. Accordingly, a continuous surge in EPS will be needed to sustain the rally effort, especially as the top line is still not beating forecasts in any meaningful way.

Many market observers consider the current environment to be dramatically different from more recent economic downturns, even in the face of the 1973-74 severe correction and the back-to-back recessions of 1979-80 and 1981-82, which were deeply painful, not to mention a savings and loan financial crisis in the late 1980s, given unbridled growth in poor real estate loans. Hence, some skepticism is appropriate when people only highlight the differences but overlook similarities. Some investors contend that the market’s rebound relative to average bounces off recession lows is meaningless given the pullback from the abyss of financial Armageddon.

While corporate margins are being sustained by cost-cutting for now, the bottom-up consensus estimates calling for 27% EPS growth in 2010 requires a sharp bounce in operating profits that seems unsustainable without a broader-based sales pickup. A production recovery to stop inventory de-stocking and eventually to restock shelves should help, but sustainability remains crucial.”



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