According to Bloomberg,  Barton Biggs, the 77-year old chief of the $1.4 billion hedge fund Traxis,who was for a long time the Morgan Stanley equity strategist, gave two interviews to the news service last week in which he artriculated head-spinningly different views on the stock market from one interview to the next.  he went from positive on the US stock market to negative–and, while still on the record for Bloomberg as a bull, sold a huge chunk of the US stocks he owned.

On Tuesday, June 29th, Mr. Biggs reportedly told Bloomberg News that he was a bull–he was “definitely” not a seller and would be a buyer on weakness.

On Friday, July 2, with Wall Street a couple of percentage points lower, Mr. Biggs gave an interview on Bloomberg Television in which he said he was now a bear (he feared a double-dip recession might occur in the US) and that in the time since the first interview he had sold 30%-40% of his domestic long equity positions.

Bloomberg, which called Mr. Biggs after the second interview (presumably to reconcile the two stories), seems to be attributing the change in stance to “pressure” on hedge fund managers to deliver short-term performance.

what to make of this

1.  Mr. Biggs’ conduct is certainly eyebrow-raising, even if it turns out to be technically legal.  It’s hard to believe that Mr. Biggs was not harboring some reservations about the stock market on last Tuesday when he gave the first interview.  It seems somewhat dubious to me to publicize a positive opinion on stocks, lending at least some support to the market, and then rapidly sell into that strength.  While we don’t know whether Mr. Biggs was still net long on Friday or had turned net short, he delivered a message that would, if anything, tend to send the market lower.

After once giving public advice to buy, did he have an ethical or legal obligation to announce equally publicly that he had changed his mind before–later that day or the next day–he began his massive (relative to his holdings) sell program?  Did he have an obligation to at least try to do so, even if Bloomberg wouldn’t air his views?

Would his obligations be different if Mr. Biggs ran a large amount of money? 

I don’t know.  I’m sure that if he worked for a large mutual fund of pension investor, Mr. Biggs’ conduct wouldn’t be deemed acceptable.  It will be interesting to see how quickly Bloomberg calls on him again for his opinion, if they do so at all.

2.  When Mr. Biggs was the Morgan Stanley strategist, professional investors read his work for two reasons.  First, he was, and doubtless still is, a brilliant writer–entertaining, engaging, persuasive.

The second reason for reading him was that Mr. Biggs was that most valuable–and at the same time most humorous–of investment information sources, the guy who is always wrong.  Of course, no one wants a source like this to begin to second-guess himself and censor out his strongest opinions.  So durng his Wall Street career, professional investors were at pains to keep this prevailing opinion a secret from Mr. Biggs himself.

The trick to using an information source like Mr. Biggs is to note that while he is invaribaly wrong at all times, he’s not wrong in all respects.  The Wall Street game with Mr. Biggs’ advice was not to predict that he would be wrong, but to guess how.

In his Friday interview, Mr. Biggs seems to be saying: 

a.  the US stock market has very little chance of going up from here, and a signfificant change of declining by 10% or so;  and,

b. economically-sensitive sectors, especially technology, will be the weakest part of the market; and

c. the US market will be a relative laggard.

Given Mr. Biggs’ past record, we should assume that at least one, but not all three, of these major assumptions will prove woefully wrong.  But which one?

My guess is that non-US markets will be stronger overall than the US.  I also think we are in a bull market, so that economically-sensitive stocks will do relatively well.  So I think he’s right here.

Whether tech overall follows suit will depend, I think, on whether older, larger tech stocks like MSFT, CSCO or INTC can keep up with their next -generation brethren.  So although I think he’s wrong in this area, I think he’s got at least a shot at being right.

That leaves the idea that the US market will drop by 10% from here.  Today–as oppposed to a week ago–Mr. Biggs thinks the economy is radially dependent on continuing government stimulation, which will not be forthcoming.  I think the US is stronger than that, so here’s where I think his real error lies.