ING’s Coté Tells Traders to Get Defensive

Douglas Coté, chief market strategist at ING Investment Management, is bearish on the market, and he isn’t afraid to tell you about it.

Coté was the highlight of Wednesday’s TradeTech Conference in New York, encouraging a room full of traders, portfolio managers and other Wall Street pros to take a defensive position in the market, all while calling out Europe, Federal Reserve Chairman Ben Bernanke and communist China in his unique tongue-and-cheek style.

Historically speaking, the market follows one key indicator, he said: corporate earnings growth. And in the third quarter of 2012, year-over-year earnings growth among S&P 500 companies swung to the negative, just like it did in 2007, a year before the market nosedived.

"The notion that our industry didn't see [the credit crisis] coming. It’s rubbish,” Coté said. He also pointed to softening manufacturing growth and various salutary measures being undertaken by the Federal Reserve.

The sequestration cuts being debated on Capitol Hill amount to $85 billion, roughly the same amount the U.S. government is pumping into the economy each month through quantitative easing and other measures, he said.

“It feels like the Fed is covering something up,” Cote added.

He then pointed to the U.S. market’s reliance on Europe, which he called a “disaster,” and larger economies in Asia, which he assumes may be less than forthright about their economic health.

“China says it’s doing well, but I tend not to believe Communist dictators on their statistics,” he said, eliciting a laugh from the crowd.

While falling short of calling for a market collapse, Coté encouraged Wall Streeters to tilt their clients away from equities and toward fixed income, like bonds, which in some cases outperformed equity-rich funds even last year, he said.

Other highlights of the conference include Coté dismissing consumer confidence studies – “as consumers all think they’re miserable anyway” – and a testy exchange between a trader and a panel of executives from exchanges including NASDAQ, NYSE Euronext and Direct Edge.

The trader essentially called out the exchanges for the pricing of data feeds and other “technological innovations,” which he sarcastically put in hand quotes. The fees for market data capturing products are ten times higher than they were a decade ago, he claimed, giving bulge bracket firms that can afford them a huge advantage over smaller competitors. The high-priced technologies have essentially become “table stakes” for brokerage firms to get in the game, the trader said.

The panel was uniformly blunt, telling the crowd that exchanges needed to find other streams of revenue to counteract volume lost to alternative trading platforms. Go back to the old days – where exchanges were essentially utilities – and we’ll be happy to lower prices, quipped an exec from NASDAQ.