Where are the Bears?

I noticed yesterday that the WSJ’s MarketBeat picked up quotes from both Raymond James’ Jeff Saut and myself, with each of us wondering where all the Bears went:

Such sanguine forecasts have the bears on Wall Street sharpening their claws. "Verily everybody is currently bullish on e-v-e-r-y-t-h-i-n-g, save me," writes Jeffrey Saut, chief investment strategist at Raymond James. Wall Street is experiencing a period of "upside hysteria given the various upside breakouts by the various indices as repeatedly trumpeted by the media." Barry Ritholtz of Ritholtz Capital Partners writes that the "noise out of the talking heads has been anything but bearish." He opines that "momentum is driving the market, with fundamentals taking a back seat …."

I guess the Journal is implying that we are 2 of the few commentators left making Bearish observations.

But the very best quote about the ursine absence comes to us from Richard Russell (via Jeff Saut’s comments):

“I’ve seldom seen a time when almost everything and everybody
appeared bullish. Bullish on the stock market, bullish on emerging
markets, bullish on commodities, bullish on the dollar, bullish on
housing, bullish on the economy. But there’s a problem. You see, the
great buys, the great profits, are made when we’re loading up on stocks
in the face of universal bearishness. When were stocks and houses a
great buy? The answer is during 1942 and 1949 and 1958 and 1974 and
1980. Those were major stock market lows, and stocks bought during
those times ended up providing their buyers big profits. Conversely,
stocks bought in 1966, or 1971, or 2000, when stocks were popular,
ended up giving their buyers headaches and losses.

Today, bullishness is in the air, people are spending with abandonment,
mergers and acquisitions are a daily event, volatility is low and no
one is buying puts, price/earnings are high and dividend yield is low,
and mutual fund cash is at record lows. Stocks bought in this kind of
atmosphere generally do not end up providing investor with profits.”

Richard Russell – Dow Theory Letters

Russell is an old pro who has seen every market bottom and top over the past 50 years — and according to Saut, called most of them correctly. (Saut’s address is temporary — if I can scare up a PDF, I’ll post it)


>>

Note:  the comments the WSJ quote is based on will show up here later this morning . . .

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CEO Options: Luck — or something else?

The WSJ streak of taking very interesting columns and hiding them on Saturday continues.

Yesterday, they asked: Are some CEOs reaping millions by landing stock options when they are most valuable amatter of dumb luck — or something else?

Excerpt:

"On a summer day in 2002, shares of
Affiliated Computer Services Inc. sank to their lowest level in a year.
Oddly, that was good news for Chief Executive Jeffrey Rich.

His
annual grant of stock options was dated that day, entitling him to buy
stock at that price for years. Had they been dated a week later, when
the stock was 27% higher, they’d have been far less rewarding. It was
the same through much of Mr. Rich’s tenure: In a striking pattern, all
six of his stock-option grants from 1995 to 2002 were dated just before
a rise in the stock price, often at the bottom of a steep drop.

Just
lucky? A Wall Street Journal analysis suggests the odds of this
happening by chance are extraordinarily remote — around one in 300
billion. The odds of winning the multistate Powerball lottery with a $1
ticket are one in 146 million.

Suspecting such patterns aren’t
due to chance, the Securities and Exchange Commission is examining
whether some option grants carry favorable grant dates for a different
reason: They were backdated. The SEC is understood to be looking at
about a dozen companies’ option grants with this in mind.

The
Journal’s analysis of grant dates and stock movements suggests the
problem may be broader. It identified several companies with wildly
improbable option-grant patterns. While this doesn’t prove chicanery,
it shows something very odd: Year after year, some companies’ top
executives received options on unusually propitious dates.

The
analysis bolsters recent academic work suggesting that backdating was
widespread, particularly from the start of the tech-stock boom in the
1990s through the Sarbanes-Oxley corporate reform act of 2002. If so,
it was another way some executives enriched themselves during the boom
at shareholders’ expense. And because options grants are long-lived,
some executives holding backdated grants from the late 1990s could
still profit from them today."

The chart below implies that the odds against these being random are quite high. (I guess Sarbanes Oxley didn’t root out all the corporate corruption after all).

Last week it was the mortgage resets, and this week its CEO Options. Great stories, buried on the front page — of the Saturday edition . . .

Source:
The Perfect Payday
CHARLES FORELLE and JAMES BANDLER
WSJ, March 18, 2006; Page A1
http://online.wsj.com/article/SB114265075068802118.html

How the Journal Analyzed Stock-Option Grants
CHARLES FORELLE
WSJ, March 18, 2006; Page A5
http://online.wsj.com/article/SB114265125895502125.html

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