elaine garzarelli

As today is the 20th anniversary of the 1987 stock market crash, 24/7 Wall St. wanted to go back in time to review how the individual DJIA components held up around the time and how they have run to today. Out of 30 DJIA components today, only 16 of today's components were DJIA components at the time. Out of these 16, it looks like only about 7 of these components are 'mostly' the same businesses as in major acquisitions or divestitures. Almost all of these companies have made strategic acquisitions, so understand that the picture is somewhat distorted. Also, these are all rounded numbers and meant to show the general themes only.

We wanted to see how each component did on the day of the crash (Oct. 19, 1987) and compare the price change at December 31, 1987 to pre-crash levels. Lastly, 24/7 Wall St. wanted to compare today's price changes to stock prices from the same day before the crash (keep in mind, this is 20-years later, and today's price is a multiple of the pre-crash 1987 price).

Read on as we have some exclusive commentary from Elaine Garzarelli, who predicted the 1987 crash. If you look at today's multiples to the prices even before the crash, you'd start to even wonder if crashes really matter for long-term investors and retirement funds on a big picture basis. You'll also wish you had a time machine. These DJIA components are broken up into two groups today:



We also wanted to ask market pundits of the time how today is different 20 years later, and Elaine Garzarelli was one of the more recognized pundits that was credited for having predicted the market crash in 1987. This week she responded to an inquiry and told 24/7 Wall St., "It is a different world today..In October, 1987 inflation was 5%, long rates were over 10%, and the S&P500 was 35% overvalued. In
Predictions


・ Although the stock market may not rise as fast as it did before the bear market began, Garzarelli expects gains in certain sectors to outpace the increases in the S&P 500 index. Her largest overweight positions are in financials, basic materials and consumer cyclicals. (Garzarelli Capital, April 15)


・ Garzarelli believes there's "a good possibility" that economic growth will slow in the second quarter relative to the first. Potential drags include higher mortgage rates, a decline in refinancing activity, rising oil prices and slowing money-supply growth. (Garzarelli Capital, April 15)


・ The strategist downgraded two industries this month. Due to recent price appreciation, she reduced newspapers to Neutral from Attractive and electric utilities to Unattractive from Neutral. (Garzarelli Capital, April 15)

Biography
It was the summer of 1987 when a little-known number-crunching Shearson analyst named Elaine Garzarelli first warned that something terrible was about to happen to the stock market. As it turned out, Garzarelli was one of the few to accurately predict Black Monday, and she wasn't little-known anymore. Suddenly, the young prognosticator was everywhere. She even got tapped to do a pantyhose commercial.
But before Garzarelli could be inducted into the Wall Street hall of fame as its first high-kicking strategist, she ran into a few hurdles. Her mutual fund continually lagged behind the S&P 500 over the next seven years, prompting Garzarelli to leave Shearson for Lehman Brothers. But Lehman sacked her, and her reported $1.6 million salary, in the fall of 1994.

After traveling for a few months, Garzarelli relocated to Boca Raton, Fla., set up her own capital-management firm, Garzarelli Capital, and racked up a banner year. Over the course of 1995, she said there would continue to be low inflation, a sharp rise in the Dow, a long-bond yield of 6.5% and, for good measure, she liked bank and semiconductor stocks. Correct, correct, correct and correct. Now, Garzarelli has embraced the Internet with her own subscription-based Web site.

It should come as no surprise to market followers that she came back so strongly. Born in Springfield, Pa., Garzarelli was a tomboy who played with rifles and drum sets as a kid. She built up her self-confidence (and her well-honed computer models) as a graduate student at Drexel University. "I was locked away in a computer room, figuring out how the stock market works," she says. "I knew if I could get the resources, I'd have the best product in the world."

A quantitative analyst who uses a combination of economic indicators ― such as earnings, industrial production, interest rates and cash-flow levels ― to predict the direction of the market, Garzarelli's market philosophy is to identify industries that are currently undervalued relative to their historical averages. Garzarelli has been ranked first in quantitative analysis in Institutional Investor magazine's All-Star Poll for 11 consecutive years.

It was on CNBC back in July 1996 that Garzarelli shocked Wall Street by turning bearish for only the second time in 10 years. Looking back, Garzarelli realized her bearish call was dead wrong and promptly turned bullish in early 1997. She hasn't revised her views since. Even during the near 20% decline of late summer 1998, she advised her clients to hold on to their stocks and to also buy Treasury bonds, two reputation-saving calls. But she fell from grace this year after declaring on CNNfn in January that "the bear market is over for all intents and purposes."

PAUL KANGAS: My guest market monitor this week is Elaine Garzarelli, president of Garzarelli Capital and welcome back to NIGHTLY BUSINESS REPORT, Elaine.

ELAINE GARZARELLI, PRESIDENT, GARZARELLI CAPITAL: Nice to be here, thanks.

KANGAS: Does the recent pickup in stock market volatility suggest we`re in for a major change in direction in this market?

GARZARELLI: Well, I think we`re in a major bull market that -- cyclical bull market that started three and a half years ago and it`s likely to continue as far as I`m concerned until my indicators turn negative and they`re still bullish. And I think the reason is that corporate profits, as a share of GDP, are at an all-time high. Even if they slow down a little bit, the margins are still going to be very high compared to this stage of the business cycle.

KANGAS: So you don`t believe we`re in a short-term bull market and a long-term bear market? You believe it`s (INAUDIBLE) all the way.

GARZARELLI: Absolutely. I think we`re in a secular bull market and a cyclical bull market. And I think the Dow and the S&P 500 the next six to 12 months will reach new all time highs. Now seven indices already have, including the Amex, the small stocks.

KANGAS: So your question is how can we be in a secular bear market with all these index hitting new highs?

GARZARELLI: Exactly, not the NASDAQ but the S&P and the Dow. The Dow`s only 6 percent away from an all-time high.

KANGAS: And a new one this year right?

GARZARELLI: That`s right. I think so.

KANGAS: So your 14 market indicators probably are fairly bullish, are they not?

GARZARELLI: They are. They`re still bullish. They`re at 46 percent, higher than they were six months ago. I think the Fed is near an ending, maybe another two, possibly three hikes, but they`re closer to the end than the beginning and that`s always bullish for stocks three to six months before they stop. The economy looks fabulous as far as I`m concerned. It`s likely to slow but that`s what we want.

KANGAS: Fair enough. The question is now what do you think of the new Fed chief Mr. Bernanke?

GARZARELLI: I love him. I think he`s a prince.

KANGAS: And Greenspan was a good friend of yours, wasn`t he?

GARZARELLI: He was great. Yes. We went to school together. And Bernanke actually got almost a perfect score on his college boards. Can you imagine? He`s not just genius, he`s a super genius. He`s fabulous, I love him.

KANGAS: All right, fair enough, so you`re very bullish on the economy and corporate profits. Now I want to go back and ask you about the five recommendations. You were here late September. You gave us five recommendations. Let`s see how they fared, up 3 percent on Energy Select spider, the Technology Select sector spider up 3 percent on energy select, the technology select sector spied up 7 percent. You`re batting a thousand so far. Let`s have a look at some of the others you recommended back then. Caterpillar up 26.6 percent. That`s a winner. And Carolina Group, that`s the Lowe`s tobacco company up over 30 percent. You`re really doing well here. How about the fifth one? We had one more that you recommended. Eastman Chemical and that`s up 7.4 percent. One thousand percent batting. That`s a great record Elaine. Congratulations.

GARZARELLI: Thanks.

KANGAS: Now, do you have some new recommendations?

GARZARELLI: I do. I think the strongest area of the economy this year will be capital spending and that should actually last through late 2007. And so I like the XLI. It`s an exchange traded fund and that`s for the industrial sector in the economy and that`s where the strength will be.

KANGAS: All right, moving right along.

GARZARELLI: The next one would be Motorola. There we`ve got China spending billions on wireless network for the Olympics in `08. Motorola is going to be a benefactor there. The stock`s down 60 percent from it all time high.

KANGAS: OK. We have a minute left for one or two more, perhaps.

GARZARELLI: OK. Another one is Oracle, down 70 percent from its all time high. Earnings growth at 20 percent, software company. And the last one is Dupont which hasn`t done anything.

KANGAS: An old industrial. There we go.

GARZARELLI: Excellent, excellent value at a 3.6 percent dividend yield and down 50 percent from its all-time high. I think they should all outperform the S&P over the next six to 12 months.

KANGAS: Do you personally own any of these securities you`ve mentioned?

GARZARELLI: I think I own all of them.

KANGAS: OK. Fair enough.

GARZARELLI: I`m sure I do.

KANGAS: All right. Excellent, so you are really very bullish. New high on the Dow this year and the NASDAQ will keep pace with the Dow, do you think there? Not a new high but...

GARZARELLI: Yeah, I think the NASDAQ will outperform the S&P and the S&P should hit a new high because the financials, when the Fed stops tightening, will move quite nicely.

KANGAS: Got to run, Elaine but thanks for sharing your expertise with us once again.

GARZARELLI: My pleasure, thank you.

KANGAS: My guest, Elaine Garzarelli of Garzarelli Capital.