Wall Street Should Note Metz Success

"Men of genius do not excel in any profession because they labor in it, but they labor in it because they excel." - William Hazlitt

Hang on to your portfolios, folks, we've got news about ready to strike you directly between the eyes.

But as both faithful readers know, if we got to the point instantly, all the remaining metaphors and similes would be greeted by deaf eyes. Or is it blind ears?

This much can be told now: It relates to famed analyst E. Michael Metz, his remarkable ability to make market calls, his visit to Seattle tomorrow, interest rates as they relate to the Federal Reserve and most of the rest of the world, and the impending, shoot-up-straight-to-the-sky bull market.

But no more can be said at this point, because you might skip all the rest of the good stuff, and then where would we be? (The savvy reader knows he or she can turn the page, skim to where the jumped portion of this epic says, in big, black italic letters, Stocks and bonds, and then read the few paragraphs preceding that subhead. But please, don't tell everybody this shortcut, or we'll be talking to our reader in the singular.)

When the definitive account of Wall Street is written, Mike Metz will be one of a kind at least twice over. For a quarter century, Metz, 61, has toiled at Oppenheimer & Co. With an accountant named Norm Weinger, the two popularized the concept of the leveraged buyout in the 1970s.

As a disciple of the teachings of Ben Graham and David Dodd, Metz has been an expert practitioner in the value school of investing: find stocks selling well below their value, and hang on until the rest of the universe discovers them. Since 1990, he has been Oppenheimer's chief investment strategist.

OK, you shout (assuming everyone else in the house still isn't asleep). So the guy is a hot-shot investment guru. What's he really like? Normally, such crude interruptions would be ignored. But something happened last week that brought Metz into broader focus.

If you compete with someone else for business, and your competitor is accused of something that might tarnish his image, rightly or wrongly the tendency to capitalize on your competitor's troubles becomes obvious. Here's what happened:

Robert Citron, the defrocked treasurer of Orange County, Calif., squandered a couple billion dollars rolling the dice on interest rates. He had a chance to ask for the world's forgiveness. Instead, he blamed Merrill Lynch, the biggest brokerage in the land. Specifically, he said Merrill's Charles Clough, himself a chief investment strategist, had vowed interest rates would stay down for years, justifying Citron's bad bets.

The polite thing to do, for a competitor, would be to remain silent. Metz not only didn't remain silent, in comments to The Wall Street Journal, the nation's No. 1 financial information source, he stridently defended Clough.

Among other things, Metz said, Citron's bellyaching reflected a common investor theme: ". . . a client shopping for an opinion that's close to his. My guess is that's what has happened here."

Metz's analytic skills were honed early, as a youth in Washington, D.C.'s Capitol Hill area. He became a congressional page. Bobby Baker, who later got in trouble for stealing campaign funds while working for Lyndon Johnson, was a classmate.

His undergraduate degree, in philosophy, was from Dartmouth. He collected two law degrees from Harvard, and was an attorney in the U.S. Navy. In a key case once, the attorney he beat was L. Patrick Gray, later of Watergate/Nixon infamy.

By the late 1950s, he was ready for a change. For the next 10 years, preceding Oppenheimer, he worked for Standard & Poor's Corp. as an analyst and Nuveen & Co. as a portfolio manager.

A chief investment strategist is charged with giving a broad overview of the investment landscape, providing hints as to when stocks or bonds may be strong, what sectors may be good (retailers or aerospace on the stock side, for example, short-term bonds or long on the bond side) and, once in a while, when critical market junctures are at hand.

Chief investment strategists also serve as a brokerage's primary marketeer: the up-front voice of the company.

Even before he was chief investment strategist, Metz was cool under fire. He may be Wall Street's most accessible savant. He is on CNBC television's financial programs so often you wonder if he is a co-anchor. He will respond to financial writers anywhere, whether it's The New York Times or The Seattle Times.

Still, although he is not afraid to make the cataclysmic market announcement, those events don't come along every day. It is ironic that his latest "sea change" market view was made only last Monday, a week before his Seattle visit.

Nothing that has happened since last Monday has suggested he will be right, but maybe that will make the vindication all the better.

"The period of tightening by the Fed is over," Metz said, two weeks before many expect the Federal Reserve to tighten interest rates for the seventh time in a year.

"My guess is they will not raise rates this month," Metz said, referring to the Fed's next scheduled meeting Jan. 31-Feb. 1. "The next event will be a radical slowdown in the economy."

Metz was bearish through late 1993 and throughout 1994. He turned bullish on bonds last November. Now, for the short term and with vigor, he likes stocks.

"In the American stock market, you make all your money in a few weeks of the year," Metz said. After a short but powerful climb, "the market won't do much the rest of the year."

Worries that interest rates will jump to 9 percent or 10 percent will evaporate.

"Investors will perceive a major change in stocks and pile back in," Metz said.

But soon, consumers overburdened by debt will pull back, and a strong picture for exports will dissipate, based on weakening conditions in Canada and Mexico, our two biggest trading partners. The pending economic slowdown will persuade the Fed to avoid tightening, Metz reckoned.

How much can one make of such forecasts? Metz is candid, as usual.

"There are no magic answers in this business," Metz said. "But there are informed guesses and uninformed guesses.

"I've been wrong, but I've been premature more often than wrong. I'm usually early. This time, I think I'm a bit late."

The Oppenheimer function is tomorrow at 4 p.m. at the Rainier Club in Seattle. It's already oversubscribed, but those interested still may call 447-6289 or 800-531-3110. Those who would like a copy of Metz's current recommendations may call Oppenheimer as well.

The seminar and information are free. Metz is worth more.

Stocks and bonds

The Dow Jones industrial average of 30 blue-chip stocks last week lost 39.03 points to close at 3,869.43.

The Murphey Favre Northwest 50 of 50 stocks weighted by their regional economic impact fell 13.48 points to 2,433.83.

The U.S. Treasury's 30-year bellwether bond dipped $11.25 per $1,000 of face value to close at $955. That was priced to yield 7.89 percent, said Pamela Warren, Seattle-Northwest Securities vice president.

Brief thoughts a week ago that the Federal Reserve Board might not tighten quickly were erased, Warren said.

Now, "everyone's waiting for the Fed," Warren said. "Investors are in a sour mood. No one wants to do anything."

The rally in municipals continued, advancing about $5 per $1,000 of face value.

"The tax-exempt market continues to be fueled by retail demand," reported Judith Cochrane, Seafirst Bank municipal trader. "Looking at how far we've moved in three weeks, the market feels a little toppy," meaning a correction may come soon.

Wall Street Recap appears Sunday in the Business section of The Seattle Times.

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Readers' portfolio 10 NW stocks preferred by readers

% change Stock since 1/94 Boeing +1.3 . Eagle Hardware +3.2 . Micron Technology +3.7 . Microsoft +0.8 . Midisoft +17.1 . Paccar +0.6 . Price/Costco +4.9 . Starbucks -10.9 . Washington Mutual +4.4 . Weyerhaeuser +5.3 .

Average: +3.0% .

What $1,000 invested in those stocks would be today: $1,030.

Readers' non-portfolio 10 NW stocks picked randomly, excluding readers' top 10.

% change Stock since 1/94 American Pacific Bank -6.3 . Cascade Financial +15.6 . Data I/O +2.3 . Flir Systems +5.8 . Fluke -5.0 . MK Gold -13.5 . National Securities -11.8 . Safeco -0.7 . Sequent Computer -5.1 . Williams Controls +1.8 .

Average: -1.7% .

What $1,000 invested in those stocks would be today: $983.