The recent events in New York could hardly be more horrible, but Wall Street veterans last week cautioned investors to remember that a day does not a market make, or a month, or even a year.
Investors in the post World War II era have witnessed many events both potentially or actually catastrophic, but Wall Street always took the punches, and later gave back better than it got.
The Cuban Missile Crisis and the possibility of coast-to-coast carnage dented the market in 1962, but the market rallied through most of the latter 1960s, even as American cities burned with racial tensions, and the United States waged a costly, losing war in Southeast Asia. The Persian Gulf War dinged Wall Street in 1991, but the 1990s was one of the best decades to buy stocks. Indeed, through the long Cold War, with its waxing and waning hints of nuclear holocaust, the stock market more-or-less chugged upwards.
“People who sold today (Sept. 17) or sell tomorrow are going to look back in three years and be sorry they did,” said Marshall Geller, investor through four decades and co-founder of the Geller & Friend Capital Partners Inc. in West Los Angeles.
Even the somewhat bearish William “Bill” Mason, money manager with Cullen Fortier Asset Management in Woodland Hills, and finance professor at Pepperdine University, thought the Wall Street falloff last week was a short-term buying opportunity. “I think the odds support a decent rally once the investing public digests this,” said Mason. “Although I might not buy airline stocks.”
Mason noted that in October 1987 the market sank more than 22 percent in just a few days, a percentage drop that dwarfed last week’s action. Yet the market came back.
Francisco Martin, financial adviser with Bank Julius Baer & Co Ltd. in Los Angeles, said, “Right now, every client is scared, but the thing you don’t want to do is sell in a panic. Right after an event, or during an event, such as the Persian Gulf War, is a terrible time to sell.”
Fear-inducing events spook the market, but only short-term, said Martin. “Events don’t cause recessions, and ultimately, the market trades on fundamentals,” said Martin.
However, some old-timers are concerned about exactly that, the fundamentals. Wall Street has been pricey in recent years, with even large market barometers, such as the S & P; 500 index, trading at nearly 30 times earnings, roughly double long-term historical norms. A recession, and lowered earnings, already threatened to topple Wall Street prices, even before the recent terrorism. “This (the WTC tragedy) might be the straw that broke the camel’s back,” said Geller. And Mason has long expected a secular trend downward on Wall Street, until price-earnings ratios move back towards long-term norms, in the teens, and not high 20s.
But Paul Rabbit, of Hermosa Beach-based Rabbit Analytics, said that interest rates and inflation are much tamer currently than in earlier decades, and, if anything, that means stocks are a little bit cheap right now.
“Are stocks overpriced? You have to look at what are the competing instruments… the yield on Treasuries,” said Rabbit. With T-bills offering yields in low single digits, stocks look better to investors, he said.
Cantor History
For stock market denizens in Los Angeles, seeing the name “Cantor Fitzgerald” figure so prominently in the World Trade Center tragedy sent chills down the collective spine. Evidently, 700 Cantor Fitzgerald employees who were in the structure at the time did not survive the attack.
The bond trading house, very strong in U.S. Treasuries (reportedly controlling 25 percent of the market), was actually started in Beverly Hills 57 years ago by Bernie Cantor, who was chairman and chief executive until shortly before he died in 1996. Cantor was also well-known in the Los Angeles art community, and his widow, Iris, remains an important figure here.
Cantor was the world’s premier collector of Rodin sculptures, and generous with his bounty: Among many contributions to the art world, he gave 57 sculptures to the Los Angeles County Museum of Art (in addition to many other contributions, including cash). In all, he collected 750 Rodins, giving away 450 to various institutions.
I interviewed Cantor in 1984 in his spacious Beverly Hills office filled with large Rodins. Despite his vast wealth, Cantor spoke affably to all comers, and happily gabbed about giving away the office statues so more people could look upon them. By then, his firm loomed large in the government bond market, having put bond trading “online and on-screen” in the mid-1970s. At the time, it was an exotic and market-leading concept.
After Cantor’s death, a new management team shifted its headquarters to New York, and beefed up operations and staff there. Once Cantor Fitzgerald became so large, it really had to be in New York to find staff, and be on East Coast trading hours. The company still has a significant presence still in Century City.
Junk Bond Watch
In the already fragile junk-bond sector, some astonishing prices were reported last week amid very thin trading. Even brand name bonds were trading at half off. Global Crossing Ltd., the huge telecom giant run by Gary Winnick out of Beverly Hills, is especially talked about by junk traders. “We are seeing Global Crossing bonds trading at 50, 52 (cents on the dollar of face value),” said Ken Akioka, high yield bond manager for Payden & Rygel in downtown Los Angeles. Global Crossing bonds due 2006, if honored, would afford investors a 25.7 percent yield to maturity, said Akioka.
Still, Akioka was wary of the Global Crossing debt. “We have a small position in the bonds, and we are looking at it,” he said. “We are not buying yet.”
Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. His new book is “The Pied Pipers of Wall Street: How Analysts Sell You Down the River,” published by Bloomberg Press. He can be reached at [email protected].
