Monday, February 4, 2008

Draaisma: stand by for a bear market rally

From FT Alphaville:

Even when things are glum, Morgan Stanley former super-bull Teun Draaisma is unreformed. In his latest note, the MS equities man is starting to grow weary of all that bearishness since November.

Strategically, says Draaisma, the dominant themes for the next 6-18 months will be recessionary:

…earnings recession, continued deleveraging, lower commodity prices & inflation, and more reflationary policy initiatives. In addition, we expect further fears about the global economic cycle as a result of the US recession. Therefore, the equity trades we favour on a 1-year view are large over small caps, defensive over cyclical earnings, and low over high leverage.

But - and here’s the bullish bit - in the short term, expect a bear market rally....MORE

...So the prognosis in the short-term? Looking at bear market rallies of the past as a yardstick - as the above indicates - we’re looking at a median bounce of 21 per cent over 4 months.

Roll on Spring.