Monday, January 12, 2009

UBS in Serious Need of Editorializing

In what might be a blatant example of investment banking schizophrenia, or merely a good-ole "talking up cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 book", two of UBS key "strategists", Larry Hathaway and David Bianco, in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 span of 1 business day, manage to come out with two essentially contradictory reports. On one hand, David Bianco, head of Global Equity Strategy, in a note to clients January 12, claims cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 following (slightly abbreviated and bolded for sanity purposes):

"- S&P 500 Target and Estimates: Our 2009 year end S&P target is 1300. This suggests one of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 highest return years following one of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 worst return years for cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 S&P 500 since cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 depression. We expect S&P 500 EPS to be $67 in 2008, $63 in 2009 and $82 in 2010. "

"- The recession and its bubble of pessimism is a buying opportunity: The S&P has suffered one of its very worst crashes in history and unlike past crashes this one came despite racá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r reasonable valuations at cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 peak. We don't advocate excessive risk taking, but we do unequivocally encourage buying stocks in leading multinational companies today without trying to time better entry points."

"- What's cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 portfolio strategy of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Sweet 35 - Bberg ticket UBS_ST35 (Ed. yup, you guessed it, a freely traded, UBS constructed index). We (UBS) favor cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Big-cap, Internationally exposed, Growth stocks of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 S&P300. The Sweet 35 reflect this strategy."

Ok.... cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365se are cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 key points of Bianco's report... The man is entitled to his opinion... It may be right or wrong... We at ZH are likely not going to hold our breath for a 50% rally in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 S&P but such is life...

The problem arises when one reads cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 report by Larry Hathaway, this time Head of Global Investment Strategy (cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y sure like titles over at UBS; wonder if Global Head of Tax Evasion figures somewhere in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 org chart), in a January 9 client note.

Larry poses cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 following rhetorical question: "Are global equities really that cheap?", to which he answers himself "No. Given likely sharp earnings deterioration in 2009, global P/E multiples are closer to "fair" than "cheap" (Ed. uhh, David's 50% presumed undervaluation would seem to qualify to ZH as falling under cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 "cheap" definition.... but let's read on). Larry expounds on his rhetorical question:

"Even investors in presumed non-cyclical sectors, such as consumer staples or tele-communications, may not be able to take as much comfort in this recession as in past cycles. All sources of revenue, from developed to emerging economies, are at risk, suggesting more negative margin surprises than usual. It is also worth noting that aggregate earnings are, in fact, far more cyclical than bottom up analysts typically admit."

"To underscore cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 point, profit numbers highlight widespread US earnings weakness, with earnings in manufacturing (-10%), wholesale trade (-15%), retail trade (-31%), financials (-32%) and transportation & warehousing (-46%) down significantly over cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 past year. Only foreign earnings (+5%) remain in positive growth territory. But cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y, too, will almost certainly turn negative this year, given cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 sharp deterioration in global growth and cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 advent of a stronger US dollar over cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 past six months."

"In sum, a global recession implies a year-on-year earnings decline of around 20-30%, following a 20% decline in 2008 (Ed. David, you follow?). Assuming a 30% fall in 2009, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 global forward P/E is closer to 15xessentially a ‘fair value’ multiple, not cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 compelling valuation suggested by a simple trailing multiple."

So in short:

David is saying a 20x P/E multiple (1300 S&P tgt based on 63 in 2009E, which btw is a 6% decline from his 2008 67) is sufficient grounds for him to recommend "unequivocally buying stocks".

Larry on cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 ocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r hand, is saying 2009 earnings will likely drop "20-30%" (47-54 2009 E range), and concludes that "No. Global Equities are not that cheap. The global forward P/E is closer to 15x (Ed. 15.8x based on Jan 12 value of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 S&P of 870 and assuming cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 high end of his 2009 E range).

Of course David's agenda is to sell cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 "UBS Sweet 35" index, while Larry is pitching something about Corporate bonds being cheap, so clients should go ahead and call cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir UBS HY salesmen and buy bonds... lots of bonds...

Looks like in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 regulatory vacuum left by Spitzer wall street peddlers are regressing to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir old ways... and that's fine - we believe in making a buck like cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 next guy. But when cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 same brokerage comes out with two opposite conclusions within a couple of days, well, that's just smells of bad editing.

**********UPDATE***********

Late on January 12, Bloomberg quoted Larry Hacá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365way, who, just in case clients missed his earlier note, is quoted as saying "The current global recession will be one of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 longest since World War II, with deflation possible in some economies by cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 middle of this year. Financial deleveraging is at an intermediate stage and may extend into 2010. China's export growth has collapsed"... Larry, i think David missed cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 memo.
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