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May 24, 2006
McManus not as bearish as others, Wed., May 24, 2006, 1:11 PM
Apparently Tom McManus of Banc of America Securities, one of my points of light, is increasing his exposure to equities because he believes that traders have become too bearish. A reader sent us a summary of his take on the CNBC interview.
Bill- For a while now I've been trying to keep track of the public comments of Tom McManus and I thought you may be interested in reading my summary of what he had to say yesterday on CNBC.Keep up the great work and believe me, your teaching is helping. As a graduate of a small liberal arts school in the Pacific Northwest I've learned more about the markets in the past year reading your posts than I would have in 10 years of college. Speaks somewhat to my schooling but speaks more to what you are trying to, and are actually, accomplishing. / "B"
Tom McManus (Bank of America Chief Equity Strategist) on CNBC's Squawk Box 5/23/06:
Correction or Pause?
Adding to his equity allocation to 60% from 55%, 65% would be normal.
"Over past 5 years we've been as low as 50% and as high as 75%. We were at 75% in late 2002 and early 2003 at the bottom of the bear market. Now we have some problems with valuation, we have some problems with liquidity which I think is drying up a little bit at the margin. But even so we've seen a huge outpouring of bearish sentiment; we've seen a huge increase in hedging. We've seen momentum investors reducing their exposure as the market averages get closer to break even on the year and we think that there is a little opportunity for a bounce here and for us to get another look to reassess what we think is going to be a deceleration in profits in the second half of the year."
50% equity allocation at the beginning of '02 was the lowest equity allocation.
Started to reduce our weighting at the beginning of '04. Cut it four times in '04, boosted once in April '05 when we had a sharp sell-off like this one.
Think there is a slow down coming in the US because of the housing market. Think that profits will ultimately determine where stocks go in 2006.
As averages move to break even or down on the year we tend to see a lot of investors move to reducing their exposure. Huge increase in put / call ratios, volatility indicators.
We saw some very happy readings on sentiment at the beginning of the year, we've seen some of those deteriorate but not to the point that you would see them at the bottom of the bear market by any stretch of the imagination.
Quite possibly more work to do on the downside. Global pullback is putting downward pressure on a lot of indexes.
Large Cap sustainable growth companies here in the US represent very good value when compared to bonds and when compared to the broad market.
Looking out 2-3 years into the future I think some of these stocks that have seen massive multiple contraction over the past 6 years represent good value, especially when we compare them to bonds.
If you look back to the beginning of 2000, the crack in tech and telecom provided the see-saw bounce for the small and mid-caps that we underperforming before then.
Thinks that CPI underestimates increase in the cost of living. Thinks that the CPI could run hotter.
Where does the Fed need to go?: Should be data dependent, shouldn't make up their minds until they sit around the data.
Big Caps: April 1999, small and mid caps stocks bottomed relative to big cap stocks. 7 years into that out performance. Last time we saw such a big out performance was in the 70's. That also happened to be the last time we saw such a big up move in commodities. These two moves are related to the froth. The froth is definitely in the commodities, the metals. Institutions embracing commodities. Don't know how long it will go on but it is clearly related.
Like Don Coxe, I find Tom McManus to be an excellent strategist. Both work for major Wall Street firms. So, there is nothing wrong with Wall Street -- if you know where to turn.
Posted by Posted by Bill Cara on May 24, 2006 01:11:16 PM | Category: Cara Today in the Market