Francois Trahan: Today vs One Year Ago


Louis Rukeyser’s Wall Street‘s guest this week was Bear Stearn‘s strategist Francois Trahane.

Trahane presented a variation of Doug Cliggott’s discussion (“Then and Now“). Cliggot looked at the differences between today and 20 years ago. Trahane compared the current market to March 2003:

1) Technically, the market was very oversold 1 year ago. Today, its no longer oversold and is actually overbought;

2) Valuation was compelling a year ago. There are far fewer compelling stock valuations today;

3) Equity Cycles were at a post-bubble low, with an expectation that the market was primed to go vertical. It did, and we should now expect (at best) a sideways market for some time (Note: This is consistent with the work we’ve done on post bubble environments — see 3 Bubbles);

4) Economic data was at cycle lows 1 year ago. Today, the ISM just hit a 20 year high — and then rolled over. From a contrarian perspective, you want to buy when the market when its hated, not loved;

5) Lastly, Trahane looks for a rotation form smaller caps to larger ones, from high Beta to more stable stocks, and from speculative issues, to quality, profitable, dividend paying firms (sound familiar?)

I do not see anything in this list to disagree with. Its always intriguing when different methodologies and time frames arrive at similar conclusions.

My expectations are for a few more weeks (or even months) of consolidation, and then another leg up into the fall — and that may well be it for this cycle. We’ll obviously have a better read as more data becomes available.


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