Why Dennis Gartman went from riding the bull to riding the pine

Dennis Gartman, an economist and newsletter editor, said he abandoned his bullish view of stocks in March because of the possibility the market will retreat.

“The only things that I own at this point are a few shipping companies and a little natural gas, and I have those completely hedged with S&P futures,” Gartman, the editor of the Suffolk, Virginia-based Gartman Letter, said today in an interview on Bloomberg Radio’s “Bloomberg Surveillance” with Tom Keene and Ken Prewitt.

The Standard & Poor’s 500 Index (SPX) declined 0.7 percent last week, failing to build on the biggest first-quarter gain since 1998. The measure slumped 1.1 percent to 1,382.20 today after the U.S. government’s monthly tally of job creation in March missed economists’ projections. Gartman joins strategists at the biggest Wall Street firms in predicting that the rally will stall.

“I had been quite bullish until about three weeks ago, and then I went to the sidelines,” he said. “I’m market net neutral, fearful” that the market may fall 5 percent to 8 percent, he said.

Strategists see the index ending 2012 at 1,362, according to the average of 11 forecasts in a Bloomberg News survey.

Gartman said companies should distribute excess funds to shareholders rather than continuing the current pace of stock buybacks. Dividends would be better than repurchasing shares, as buybacks have historically been poor investments for companies, he said.

‘Making Acquisitions Elsewhere’

“They can’t figure out what to do better with their own business, so they end up buying back shares of their own company or making acquisitions elsewhere,” Gartman said. “It’s a way, they suspect, of increasing earnings per share over time. History doesn’t bear that out. I wish they wouldn’t do it.”

Stock buybacks among S&P 500 companies dropped 23 percent to $91.5 billion in the fourth quarter of 2011, falling for the first time since the second quarter of 2009, preliminary data from S&P showed on March 28. Amgen Inc. (AMGN), Hewlett-Packard Co. (HPQ) and 1,971 other U.S. companies repurchased $397 billion of stock last year, while they issued $169 billion of new equity, data compiled by Birinyi Associates Inc. and Bloomberg show. The pace of equity buybacks was the fastest in four years.

Companies are returning record amounts to shareholders. In March, Apple Inc. (AAPL) announced its first dividend since 1995 and JPMorgan Chase & Co. increased its payout after the Federal Reserve reviewed its financial strength. Both the S&P 500 and its total-return version reached 12-year lows on March 9, 2009. They have since risen 107 percent and 120 percent through April 5, respectively.
–Bloomberg News–