"Market Monitor"-Frank Cochrane, President of Investment Timing Consultants
Friday, February 06, 2009SUSIE KANGAS: My guest "Market Monitor" this week is Frank Cochrane, president of Investment Timing Consultants, a financial advisory firm based in Bloomfield Hills, Michigan and Frank, welcome back to NIGHTLY BUSINESS REPORT.
FRANK COCHRANE, PRESIDENT, INVESTMENT TIMING CONSULTANTS: Great to be here, Paul. Thank you very much.
KANGAS: Despite today's dismal news of big job losses in January, stocks staged a solid upturn? How do you explain that?
COCHRANE: Well, I think what the market's looking at today and probably into very early next week is the mark to market and the accounting with respect to the financials and people hope a lot will happen. Also, TARP two. (INAUDIBLE) what has happened since TARP one though is the financials are down about 50 percent. So I think this is going to be a buy the mystery and sell the news when it comes out next week. I think this will be a short-lived rally.
KANGAS: OK. Give us your scenario for what lies ahead this year for Wall Street.
COCHRANE: Well Paul, I think there's three scenarios that are going to unfold, all of which are not optimistic for the market. The first one is, I think the market will sort of scrape along the bottom here, so an L- shaped pattern where we go say between 8 and 9000 on the Dow, 8, 900 on the S&P and we do that through most of the year and that's probably my most optimistic projection. I don't see any major break out with respect to the averages. So the NASDAQ today has done well. But I think that will all be for naught some time t in the not too distant future.
My second scenario is this, is that we have, see another 25 percent pull back in the market taking the Dow Industrials down to a 6000 area and the S&P down to say, 6.25-650. At current earnings levels, that would be about a 10 multiple which is obviously well below the historic norm but that's something that happened in '82 and back in the '50s, so that's very possible. Worst case scenario is this, is that if you look at a long-term chart, a very long-term chart and if you think for example the banking situation that has happened was brought on by what happened in the 90s and that a sort of free wheeling business, then the market at that point in time went into a parabolic from about 4000 on the Dow up to the levels that were reached back in 2007. So my worst case scenario is we could see the Dow over the course of the next six to 12 months and this is an outside shot, going down to the 4000 level. And correspondently you could see the S&Ps go down to say the 4.25-4.50 area and the NASDAQ Composite would go down to about the 700 level. That's an outside shot. But this year, I'm not really optimistic and I don't think these programs are going to help. Anyways that's where I stand right now.
KANGAS: In late August on that last visit, you did say Wall Street was in a protracted bear market and it'll last until late this year or early 2010. I didn't know you were going to be that bearish. But the Dow has fallen 3500 points since when you were last with us. So does this make you at all bullish on gold or silver?
COCHRANE: Put it this way, I think there's too much people right now that are bullish on gold. I could see it certainly moving to $1000 an ounce. But I think longer term, if you're looking out maybe later on this year, it might be a buy then. I don't think there is a real reason in my opinion at this point in time to be (INAUDIBLE) the gold.
KANGAS: In late August you gave our viewers three recommendations. Let's see what they have done since then. You first of all gave us the FXE scenario there. It's down but you shorted that, did you not?
COCHRANE: Yes I said to short the euro. That was around 1.48 now around 1.28-1.29. That's a position. I think the euro could go lower longer term, but if that happens, I would start covering that.
KANGAS: And then UYG, the ProShares Ultra Financials, you've taken a hit on, a bad one.
COCHRANE: Yes. That was not a good recommendation. Although I did say at the time at 20, it could trade up to 25 or 27 which it did do, but certainly that's not one of my proudest moments.
KANGAS: Being a Detroit area resident you said I would be loyal to General Motors (GM). That didn't work out. Our time is short so how about a couple of recommendations?
COCHRANE: OK, the first thing I would do is -- I was in a mutual fund right now I would seriously consider on this recent rally here going into a money market fund, raise cash for this year. Worst thing that happens is you lose opportunity. Second recommendation is to buy the SDS, which is the Ultra S&P 500 ProShares as I think the market's going to decline. That should increase in value. It's an inverse ETF.
KANGAS: Right and one more.
COCHRANE: And finally, the last one is the TWM, inverse two times on the Russell 2000. That would increase in value as the market drops too. These are trading vehicles remember.
KANGAS: Right, two bearish investments though.
COCHRANE: Yes, sir.
KANGAS: Do you personally own or have any other discloses to make about these securities that's mentioned here?
COCHRANE: Paul, from time to time we trade in and out of these and so from that standpoint, yes.
KANGAS: Frank, thanks for sharing your views with us once again. My guest Frank Cochrane, president of Investment Timing Consultants.
