Rallying cry – debate over market direction

Last week’s impressive stock market rally, while welcomed, also prompted questions about its staying power and the seeming…

Last week’s impressive stock market rally, while welcomed, also prompted questions about its staying power and the seeming disconnect between the market and the economy.
Jeremy Siegel, well-known author and professor of finance at The University of Pennsylvania’s Wharton School in Philadelphia, came out strongly on the bulls’ side, arguing in a Financial Times column that not only are U.S. stocks “very attractive for investors” but that “future stock returns may even be higher.”
Bears, or at least skeptics, countered that corporate profits are at a cyclical peak with projected earnings growth being overly optimistic.David Rosenberg, chief North American economist at New York-based ,Merrill Lynch & Co. Inc., pointed to the disparity between the less than 3% annualized economic growth over the past year and the 18% rise in the Dow Jones Industrial Average over the same period. That disconnect, he told The Wall Street Journal, signals a higher risk for a recession than the markets are reflecting.

BofA as Borg
No matter what happens with the hotly contested battle for ABN AMRO Holding NV of Amsterdam, Netherlands, it became clear last week that Bank of America Corp.’s appetite for big acquisitions has not abated.
The Charlotte, N.C.-based banking behemoth’s planned purchase of Chicago-based LaSalle Bank Corp. last week from ABN AMRO for $21 billion may not hold up after the dust settles in the Dutch takeover drama. Nonetheless, the deal revealed how anxious — some would say desperate — BofA is to secure a significant share of the country’s third-largest banking market.
The LaSalle deal also reveals that BofA’s recent stumble on the way to an impending purchase of New York-based U.S. Trust Corp. from the San Francisco-based Charles Schwab Corp. isn’t slowing it down. (U.S. Trust head Peter Scaturrosaid this month that he would resign after being frustrated by what he perceived to be BofA’s determination to diminish U. S. Trust’s high-end identity.)
As one California asset manager put it, making a “Star Trek” reference to an organism that integrates artificial and natural systems: “BofA is the Borg. They will assimilate U.S. Trust, and that brand will be gone inside a year. Resistance is futile. Peter Scaturro found that out.”
LaSalle wealth managers: Beware.

Alpha bucks
OK, you can stop envying The Goldman Sachs Group Inc.’s Lloyd Blankfein now. Yes, the head of the Gotham-based investment bank made big news and caused many a head to shake when he pulled in $54 million in salary, cash, restricted stock and stock options for doing his job last year. But last week, we learned that was a mere trifle compared with the top dogs of the hedge fund world.
According to New York-based Institutional Investor’s Alpha magazine’s annual rankings of the top 25 fund earners, James Simon, a former math professor who used to break codes for the Defense Department, earned $1.7 billion as head of East Setauket, N.Y.-based Renaissance Technologies Corp. Also earning more than $1 billion, including gains on investments, were: fund chiefs Kenneth C. Griffin of Citadel Investment Group LLC in Chicago and Edward Lampert of Greenwich, Conn.-based ESL Investments Inc.
“There is some question as to what the hell they are doing that is worth [that kind of money]” J. Bradford DeLong, an economist at the University of California in Berkely told The New York Times. “The answer is damned mysterious.”

Heat warning
The U.S. markets may be hot, but they pale against the furious 26-month bull run in Chinese equity markets. But Gao Xiqing, one of the country’s most powerful investors and vice chairman of the National Council of Social Security, cautioned last week that the rally has gone on “too long.”
Like our spin? E-mail comments or suggestions to Charles Paikert at cpaikert @crain.com.