Short Life for Bush Rally?

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The New York Sun

When voters gave President Bush another four years, “the stock market won the election,” veteran money manager Barbara Rosenblum tells me. But if you’re looking for any runaway Bush bull market, forget it, she said.


Prudential Financial strategist Edward Keon pretty much thinks the same way. He believes the spirited Dow rally in response to the Bush win – Wednesday’s 101-point Dow sprint (which was followed by yesterday’s 177-point gain) – will be short-lived because of what he calls “the skunk at the garden party.” That skunk: Earnings growth has stalled, and he expects weak growth in 2005.


Ms. Rosenblum, CEO of Rosenblum, Silverman & Sutton, a 30-year-old San Francisco-based management firm with assets of $250 million, captured the mood of many in the institutional fraternity.


Wednesday’s triple-digit Dow surge in reaction to the Bush win suggests to Ms. Rosenblum that the stock market got what it wanted – more of the same, stability and not a lot of unanticipated changes. “If Mr. Kerry had won,” she said, “it would have been a different story. The market would have gone down because investors would have worried about tax changes (such as changes in estate taxes and in the tax system). Now, I think, there’s a sigh of relief and the course for the stock market is steady as she goes.”


Ms. Rosenblum takes strong issue with those bulls who see a solid Bush win spurring a new upsurge in stock prices, given the end of election uncertainties and some strong earnings gains. Over the past six quarters, the market has been growing at a slow 3% rate, and she sees more of the same. “Just look for it to chug along,” she said.


Why so? “Because we’re in a slow growth world, not a wild inflationary world, and companies can’t consistently report higher earnings in a world growing slowly,” she observed. The economy, she contends, is now in a holding pattern, “and we’ll have trouble stimulating it, “given the big budget deficit (which will temper government spending), marginal increases in interest rates and high energy prices. Wait,” she said, “till consumers see 60% increases in their heating bills. You have to wonder if they’ll continue to spend as freely as in the past.”


Noting, too, that California has just passed a $2 billion bond issue for stem cell research, she said “that’s dynamite for the biotech industry,” meaning, she added, “everyone should own a biotech stock.”


In light of her concerns about the economy and earnings growth, her investment strategy, she tells me, is to try to hit singles, not home runs. In this context, she favors five ideas, each of which she feels can generate returns of about 10% over the next 12 months.


They are Iron Mountain, the world’s largest record keeper; the Biotech Holders Index, an index of 20 of the largest and most liquid biotech companies; banking biggie Citigroup; CVS, the country’s 2nd largest drug chain, and Tyco International, an industrial conglomerate that has cleaned up its act.


On another outgrowth of the president’s re-election, a number of pros think the Bush win should be quite positive for drug and defense stocks. Financial advisor Gary Goldberg of Gary Goldberg & Co., Suffern, N.Y. also views financials as an important beneficiary. Pointing, in particular, to the prospects of partial privatization of Social Security and an expanded IRA, he sees more money going into retirement accounts. As a result, he rates Merrill Lynch, Charles Schwab and E*Trade Financial as stocks to own.


The New York Sun

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