Bay Street’s big bear

Investment analysts aren’t exactly a glass-half-empty crowd. Most rate the stocks they cover a “buy.” Bearish ones might begrudgingly issue a “hold.” But a “sell” from a big Bay Street or Wall Street firm is rare. Which explains why a report last week from Mark Steele, an analyst at BMO Capital Markets, has drawn so much attention. Steele’s advice: sell everything.

In his report, entitled “Go to Cash—In Plain English,” Steele details the many risks facing markets in Canada and the U.S., such as the European sovereign debt crisis, a slowdown in Asia, falling commodity prices and tightening credit markets. “We advocate switching out of equity positions and going to cash,” he states. “We see credit crisis II as just beginning. We are now at the tipping point when the crisis becomes more obvious. Markets will get more dangerous during this phase.”

In no time traders and other Bay Street types were passing the report around. Then it hit the blogosphere, instantly becoming part of bear market lore. One well-known financial blog, Zero Hedge, dubbed it “the most bearish, and easily most comprehensive, report that we have read in a long time.” The real surprise, the blog noted, was the report comes “from Canada, of all places.”

Steele says he’s been surprised by how much attention his report has received online. (He’d actually been warning about a correction for weeks, but his earlier reports were much more technical in nature.) But he’s also concerned bloggers are posting it around as if it is advice to retail investors. The report was prepared for BMO Capital Markets’ institutional clients, he says, who use such research while determining their overall investment strategies. It was never meant for mom-and-pop investors. “I work for an institutional house that’s dealing with professional money managers,” he says. “I write with that specific purpose. I’m not writing a blog that goes out to get mass marketed.”

Maybe, but when a top-ranked analyst cuts through the Street’s usual exuberance, people are going to notice. Now the question is, will Steele’s dismal forecast become reality?