What Barney Says Now

Tobias Levkovich, chief equity market strategist at Smith Barney, thinks stocks are headed down big-time this summer.

This analyst with Smith Barney (often referred to as just “Barney” in the brokerage community) is one of only a handful of so called “strategists” I know of that are so bearish on stocks. In the case of Levkovich, it’s interesting because he has a high profile in investment circles.

Here are Levkovich’s arguments:

— Rising interest rates in the U.S. will cause price/earnings multiples to go down as future company earnings become difficult to predict with rising interest rates.

— Many analysts are raising company earnings expectations, while Levkovich sees a 95% chance of the revision momentum slipping.

— His investor sentiment model suggests an 80% chance the S&P 500 will fall below 1,000 from its current 1,121 in the next few months.

— The investors Levkovich talks to are more interested in buying on dips as opposed to selling their equities. He believes the market will work against the current positive investor sentiment.

Only a few short years ago, it would be rare to find an analyst telling investors to bail from the market, especially when the analyst’s income is dependent on the commissions and financing fees his or her employer makes from investors buying stocks. I give credit to Levkovich for telling it as he sees it… I give more credit to Barney for letting Levkovich call it as he sees it.

The opinions of Levkovich and the handful of other strategists that are so bearish are very much worth noting. There are many mixed signals coming from the economy. Historically high oil prices could be with us for a while. Rapidly rising oil and home prices are inflationary, but the Fed is expanding the money supply as if it wasn’t worried about deflation. The bond market is telling us interest rates will rise from their 46- year low. And the sea of debt for consumers and government continues to grow.

Among my contemporaries, it’s common to see half-million- dollar mortgages for homes and second homes. Am I and the handful of bearish analysts out there the only ones concerned about the economic issues noted above? Are we being ultra conservative by not joining the ranks of the “spend, spend, spenders?” Time will tell.