Capital Markets

This is the Season of the Bear

One of Wall Street's foremost bears is singing the same old tune. Too bad he's no longer a solo act.
Jennifer CaplanJanuary 9, 2001

You have to give Byron Wien credit for being consistent. He was a bear when the great technology bull market of 1999 was going full steam ahead. He was a bear when the market crashed last spring, and he’s a bear now.

But wait, it gets worse: Wien, the chief investment strategist for Morgan Stanley Dean Witter, says you can forget about a soft landing. He expects a full-blown recession.

Some people might remember that a year ago, Wien’s bearish outlook was airily dismissed by tech bulls. He was just another Old Economy Old Fogey, who didn’t “get it” about the New Economy, and his chicken little act fell on deaf ears.

Last week, Wien gave his 2001 forecast as part of a panel presentation at the New York Society of Security Analysts (NYSSA), and if the event was any guide, a virtual chorus of hens are now singing Wien’s tune and warning that the sky is still falling.

Wien also dismissed last week’s rate cut by the Federal Reserve bank as weak medicine, citing the example of 1989 and 1990, when the Fed cut rates 10 times, and the markets failed to sustain a rally.

“The Fed has cut rates many times and the market has gone nowhere,” he said emphatically. “When you cut rates because the economy is in recession, the market may not necessarily go down, but it doesn’t always go up.”

In a report he distributed at the NYSSA event, outlining his list of “surprises” for 2001, Wien warned that as the unemployment rate moves above 5 percent, the Federal Reserve will continue to ease aggressively, taking the federal funds rate down by 150 basis points by midyear.

Wien added that the economic recovery will be muted in the second half of 2001, with profit surprises remaining skewed toward the downside. He told that the earliest that corporate earnings will pick up again is the third quarter.

Instead of rising 10 percent as the consensus holds, average earnings for companies in the benchmark S&P 500 index will in fact decline, Wien said. The modest revenue growth of S&P 500 components will not be enough to offset the cost of amortizing capital equipment and servicing debt.

Where weak earnings tread, weak stock prices follow. Wien said things are going to get so bad that the S&P 500 will hit a two-year low in the spring.

“There is still more attrition ahead,” he warned.

Perhaps the other panelists were concerned that Wien’s report would further the indigestion the NYSSA guests must have been feeling after they heard the dire outlook. After all, investors have already been taken to the cleaners. Do they need to hear that they’re about to get their pockets picked again?

Maybe that’s why some of the other panelists, while echoing Wien’s pessimism, chose to accentuate the positive. Anna Copeland Wheatley, editor-in-chief of AlleyCat News, stressed that the Internet companies that are still standing after the devastating storm of late 1999, have acceded that they must be “lean and mean,” cutting back on excesses and focusing on profitability.

Wheatley also said there’s greater sobriety in the venture capital community. “New investments will have to be golden,” she stressed.

Wheatley’s prognosis is a far cry from the heady days of 1999, and although Arnold Berman, managing director of SoundView Technology Group, said we’ll see a “return to normalcy,” the road back is going to be a bumpy one.

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