Dow at 20,000? An optimist makes his case

Shoppers at Cabela's in Hamburg, Pa. where an Obama victory may boost gun sales. TOM GRALISH / Staff Photographer
Shoppers at Cabela's in Hamburg, Pa. where an Obama victory may boost gun sales. TOM GRALISH / Staff Photographer
Posted: September 20, 2012

"We wanted to be a bit provocative," says Seth J. Masters, chief investment officer for AllianceBernstein L.P.'s wealth-management arm.

He's touring the country - he's in Philadelphia Wednesday - meeting with Bernstein account managers and clients and making his "case for the 20,000 Dow." Bernstein manages more than $68 billion.

Masters is telling investors the stock market will likely rise 50 percent to a record high - by 2017 - if earnings stay high and keep growing 6 percent a year, and American productivity, population, and inflation remain steady. He added that investors must start to "really believe" American companies are as healthy as they tell shareholders they are. Even if they aren't hiring.

So what will spark this big rally? The November election, once the government's new course is clear?

"I don't believe in catalysts," Masters told me. Stocks are bound to recover because they always do, when they're down long enough and the company keeps growing, he added. Especially with bond yields so "pathetically" low.

Political fallout

Here are some individual companies that may indeed be affected by the outcome of the election pitting President Obama against Mitt Romney:

Cabela's Inc., the outdoor-life mega-store chain, plans to stock extra guns and ammo - if Obama wins and gun collectors respond as they did in 2008, by buying as if the Democrats planned to take their weapons away (which they didn't), reports the Wall Street Journal.

By contrast, "If Mitt Romney is elected and there's no perceived threat on the freedom to own guns, people might decide to spend disposable income on things like outerwear instead," Cabela's spokesman Joe Arterburn told the paper.

Two stocks that would get a special boost in a Romney administration: Wilmington-based student lender Sallie Mae and national cash-for-stuff chain Cash America Pawn, writes Janney Capital Markets analyst Sameer Gokhale.

Romney says he plans to bring back the privately run, taxpayer-funded Federal Family Education Loan Program, which the government took over from for-profit Sallie Mae to cut loan overhead in Obama's first term.

"Cash America would also potentially benefit if Romney were to win," Gokhale told clients. "Romney would reduce the power wielded by the Consumer Financial Protection Bureau and other financial regulators [that target high-interest consumer loans, by putting pro-bank Republicans in key posts]."

"While the bureau appears to have taken a generally reasonable and measured approach thus far, a Romney victory would reassure investors that further negative regulatory changes [are remote]," he added.

Who's watching?

"An unprecedented $3 billion-plus of political TV advertising is about to be unleashed [which] will be great for owners of TV stations" and cable systems, write analyst Todd Juenger and his team at Bernstein Research in New York. "We pity those of you who live in Florida, Ohio," and other battleground states.

Will it work?

"There has been very little marketing research conducted on the effectiveness of ultrahigh levels of ad frequency," but the Bernstein team suspects that "too much frequency of ad exposure could backfire and actually decrease the impact."

How many ads do you need? The old rule of thumb, as 1960s TV ad researcher Herbert Krugman reported, found "a consumer must be exposed to a TV advertisement three times for it to register." More than that won't make it more effective.

If half of the $3 billion raised by Romney, Obama, and their backers gets poured into TV and Internet ads in the last eight weeks of the campaign, that works out to "10-15 spots per day per campaign," or 70 to 100 a week, estimated Juenger.

It's a "ridiculous" ad saturation, Juenger argued.

"Many viewers will become disgusted," he said. Some will decide not to vote. "Perhaps the damage to either candidate will balance out," Juenger said. But there is little chance of a truce.

"No campaign strategist ever got fired for spending too much on advertising," Juenger said.


Contact Joseph N. DiStefano at 215-854-5194 or JoeD@phillynews.com, or follow on Twitter @PhillyJoeD.

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