Isn’t it funny how the same talking heads who were wrong at the top of the credit bubble are back again, as bullish as ever. Abby Cohen just made these predictions at the Barron’s Roundtable:
We see a range of 1250 to 1300, and the market might not be at the high end at the end of the year if economic growth starts to slow in the second half. We might not see multiple expansion. Instead, stocks will move higher on the basis of profit and revenue improvement. We’re forecasting S&P 500 earnings of $75 to $76 this year, and $90 next year. But it is too soon to be paying for 2011 earnings. Importantly, revenue will increase this year, by about 10% to 12%. Another thing that will distinguish 2010 is a decline in volatility.
Remember, this is what Abby said on CNBC on July 31, 2007, right at the top of the credit bubble:
We get paid to look around the corner and into the future, and over the next several months and quarters we think that the equity market looks to be in good condition. We don’t see an economic recession, we think that corporate profits continue to grow at a moderate pace, and importantly valuation – we think – is not at all stretched in the equity market. Indeed, the S&P 500 is currently trading at under 16 times earnings. Normally when inflation is under 3% the average P/E multiple is 18 ½ times. So we’re below where we normally would be on a P/E ratio basis. Using the more sophisticated dividend discount model, or discounted cash flow models, we believe that the appropriate year-end value for the S&P 500 is about 1600, or about 10% above where we are now.
We believe that many of these companies in the financial services industry are still in very good condition. What we know, for example, is commercial banks have been applying very good lending standards and the problems seem to have existed among those lenders who may or may not be part of the S&P 500 who relaxed those standards too much.
Ouch. And this is what she at the end of 1999, less than 3 months away from the top of the tech bubble:
I used to be a superbull. Now I’m just a bull… What we’re telling our portfolio manager clients is that technology deserves to be a core holding.
Keep in mind, Abby Cohen is Senior investment strategist at Goldman Sachs, the same company that somehow manages to always “dance between the raindrops.” Yet their most conspicuous research spokesperson is now going for a rare hat trick: being duped at the top of the three greatest bubbles of all time in a period of ten years (if we include the current sovereign debt bubble). These are the smartest guys on Wall Street?