Paul Farrely: SHARE WORLD
The irony is delicious. The despair in markets the world over has just made Wall Street’s biggest optimist very, very rich indeed.
Last week, Abby Joseph Cohen, cool- headed chief investment strategist at Goldman Sachs and the United States’s most influential market guru, finally claimed one of the biggest prizes on Wall Street: a Goldman partnership.
Two years after controversially passing her over – the bank’s big (male) cheeses hand out the prizes only every other year – Goldman finally paid overdue recognition to its favourite daughter.
Last month, mighty Goldman bowed to the inevitable and, amid the market turmoil, postponed its long-awaited $25-billion flotation, billed as the biggest ever.
The price last week was the award of 57 new partnerships, worth a minimum $50-million apiece, as the bank moved rapidly to tie in top talent. Just three were women, making a total of 14 out of 245 partners in all. Not for nothing is Goldman known as “The Brotherhood”.
Cohen can, after all, hardly be called a rising star. Her reputation has been in the ascendant since 1991 when, just after the benchmark Dow Jones share index bottomed at 2 365, she correctly called the longest bull run in Wall Street history.
While other stock market fans have twitched and turned, Cohen has stuck to her guns throughout every dip and dive. Just three weeks ago, as investors in Russia and Brazil ran for cover, she pronounced that her 9 300 forecast for the Dow this year held good. “What many investors have been pricing in is the expectation of recession,” she said. “We do not think that’s right.”
Right now, US President Bill Clinton, British Chancellor of the Exchequer Gordon Brown and governments the world over will be joining Goldman’s top brass in praying that she’s right.
Certainly, her pronouncements have helped settle the markets. At the beginning of the month, the Dow stood at 7 600, having plunged 20% since its record peak in July. And where New York leads, London, Tokyo and the rest of the world follow.
And that is the relevance of people like Cohen. They may be obscure to the man or woman on the street, but as most of our pension plans are invested in shares, they affect the comfort of our retirement.
In the US, with its far wider share ownership, the sages hit the punter more directly in the pocket – and with it the world’s biggest economy. That perhaps explains why the US throws up, more than any other country, this fted breed of forecasters, on whose every word the investing public hangs.
In the Seventies it was Henry Kaufman, the arch-bear, who caught the mood of the oil-induced depression. In the Eighties Wall Street threw up Elaine Garzarelli, who correctly called the 1987 stock market crash. In the Nineties Cohen has had few rivals.
The closest is Ralph Acampora at Prudential Securities, which flogs untold billions of mutual funds to the US masses, but he cut and ran to the bears as the Russian onslaught began.
Acampora sent the Dow down by 300 points in one day in the first week of August by doing a 180 turn on his 10 000 forecast for the Dow, predicting the onset of a bear market instead.
It is telling that when Cohen issued her upbeat rejoinder the next day, the stock market not only rallied, but the television news caption flashed neither Goldman Sachs nor her surname at the bottom of the screen, but just plain “Abby”.
No wonder Cohen now ranks alongside Warren Buffett, the “Sage of Omaha” and history’s most successful investor, as the voice the markets heed most.
That reputation is enhanced no end by Cohen’s image as sensible mum-next- door. Not for her the Wall Street brashness that might otherwise accompany a punishing schedule, full of 14-hour days in the office, lectures and television chat-show appearances.
Stints at the Federal Reserve in Washington and with a Baltimore fund manager honed Cohen’s forecasting expertise before she finally succumbed to Wall Street’s lure, in the shape of now-defunct bond house Drexel Burnham Lambert.
Reassuringly for us mortals, Cohen’s crystal balls – the fiendishly complex market models she builds from scratch – have occasionally been flawed.
Drexel collapsed, after the biggest fraud case in history. Cohen then spent a brief period at Barclays’ BZW and in October 1990 joined Goldman. Her arrival in the big time at Drexel, run by jailbird junk bond king Michael Milken, was just as harrowing as the exit.
After four years as an underling, Cohen was promoted to chief strategist in 1987 – just in time for Black Monday’s crash.
At the time she was just as dismissive of recession as she is now. Any correction would be small and short- lived, she said. Well, after the biggest one-day fall in the markets ever, at least she got the last part right. After the market over-reacted, Cohen advised investors to buy, and Drexel’s clients certainly thanked her for it.
So has it been luck or judgment that has propelled Cohen to stardom since? “Actually, clients don’t care,” one rival market strategist said. “She’s been right. She’s been on the bull tack. Many people have been burned badly trying to call the top of the market in the past couple of years.”
Working for Goldman, part of Wall Street’s dwindling premier league, certainly helps. “Whoever is doing that job there is always going to be listened to,” one strategist said. “As in the case of [English footballer] Alan Shearer, it helps to play for a top team.”
In the markets, however, obscurity is just around the next forecasting corner. Cohen’s own longevity appears inextricably entwined with the canniness of undoubtedly the most powerful man in world financial markets: Federal Reserve chair Alan Greenspan.
Like Greenspan, Cohen is a “new paradigm” economist. Her faith in the robustness of the US economy stems from her conviction that new technology will deliver persistent high growth with low inflation. The boom, it follows, has much more steam left in it yet. And the bust? Well, that’s just for those behind-the-times bears.
Like Greenspan, Cohen learned a trillion-dollar lesson from the 1987 crash: that derivatives, and the growing fragility of financial markets, were the jokers in the pack.
Last month’s bailout of Long Term Capital Management, the biggest speculative fund to collapse in the chaos so far, brought that home in spades.
It is quite appropriate, then, that Greenspan’s surprise interest rate cut 10 days ago makes Cohen’s 9 300 Dow forecast far more likely. Luck? Maybe the lady second-guessed a like mind.
ENDS