Dow 20,000? From Bernstein’s Lips to Everyone’s Ears

Dow Jones Industrial Averages for the 2000s

I had lunch earlier this week with Ryan Martinez, a savvy, Los Angeles-based financial advisor with Alliance Bernstein, one of the nation’s most highly respected portfolio management firms, who told me his chief investment officer predicted that the Dow Jones Industrial Average will hit 20,000 in the next five to 10 years.
 
If the prognostication came from a brokerage firm, a cynic would  say the forecast was  biased, unveiled to spur more demand of  stock buys generating larger commissions.   But Bernstein is not a brokerage house.  They are in fact the  purchasers of equities and not stock sellers.
 
“Our projected stock returns may sound optimistic, but they are not,” wrote Seth J. Masters, chief investment officer of Bernstein Global Wealth Management, in a position paper. “They are well below the long-term average for U.S. and global equities and are based on conservative assumptions about economic and market conditions.”
 
Even though interest rates are at historic lows, institutional and individual investors nonetheless have been rapidly moving their capital to cash and bonds and away from equities. So maybe now, or soon, it is time to take the less-traveled  road, despite the unsettling news we read every day about the shaky economy.
 
Martinez, always the voice of reason, told me that the 20,000 Dow projection “in no way reflects short-term positioning.  It’s hard to time the market, and you don’t want to be extreme on either end of the spectrum.”
 
The cynic in me thinks Alliance Bernstein may be  using its clout and media know-how to start a rumor, albeit one that we all hope is true and becomes a self-fulfilling prophecy.  But these are smart folks, their hypothesis seems sound and conservative, and their prediction is receiving widespread publicity, including a Sunday column in the NewYork Times.
 
So all I have to say is …  From Bernstein’s Lips to Everyone’s ears.

 

Roger Pondel, rpondel@pondel.com
 
 

Bankruptcy’s Impact on Brand Perception

Largest Bankruptcies

20 largest bankruptcies of 2012 (Source: Good.is)

San Bernadino this week became the third California city in the last month to seek bankruptcy protection because it could not close a $45.8M budget gap.  Similarly, Stockton and the small resort town of Mammoth Lakes both sought financial protection due to large budget deficits.
 
Lack of funds is the primary reason for the filings.  Basically, these municipalities are spending
more money than they actually earn from taxes, fees and other revenue.
 
According to the Administrative Office of the U.S. Courts, bankruptcies in the U.S. have more than doubled from 2007 to 2011, topping its highest point ever at 1,571,183 filings for the year ending March 31, 2011, although 2012 saw a 13 percent drop over last year.
 
The soured economy certainly impacted the rise in bankruptcies.  While the ability to secure credit may be hampered, and for cities like San Bernardino, bond ratings may be downgraded, the question remains: Does bankruptcy have the same negative brand impact it did a decade ago even in today’s soured economy?
 
Take General Motors for example. The company filed for bankruptcy protection on June 1, 2009, the fourth largest in the nation’s history.  The brand initially took a big hit in the media and financial markets.
 
GM however quickly emerged from bankruptcy only 40 days later with the help of the U.S. Treasury and recently announced June 2012 sales of 248,750 vehicles in the U.S. alone, the company’s highest since September 2008.
 
General Motors today is a company with a new, reinvigorated brand identity.  Yes, new vehicles, increased revenues and good earnings help.  It’s sometimes hard to remember that only a couple of years ago the company was on the brink of financial disaster.
 
The key to success is effectively managing communications during the bankruptcy process.  At the time of the Detroit automaker’s bankruptcy filing, GM’s CEO Fritz Henderson promised that the fallen corporate giant will be reformed and that “business as usual is over.”
 
The strategy seemed to work. Making sure all audiences are informed of a company’s reorganization plan is essential for success. Bankruptcy is not permanent, but a tool to help protect companies and individuals from creditors while a restructuring is put into action.
 
So, the answer might be that bankruptcy does not have the same negative connotation it once had given today’s uncertain marketplace.  Done right, the results can be positive and even generate new investment opportunities.  Done wrong, the repercussions can be disastrous.
 
All eyes now are on Scranton, Pennsylvania.  The cash-strapped city last week cut the pay of its municipal workers to $7.25 an hour and might be the next local government to declare bankruptcy.

 

George Medici, gmedici@pondel.com