Lehman sacks guru Garzarelli: Wall Street's most colourful strategist predicted Black Monday but not her own sacking, writes Larry Black

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The Independent Online
With Wall Street losing jobs at a rate that rivals the cuts following Black Monday in 1987, it seems appropriate that the economist who predicted the crash should lose hers.

Lehman Brothers said yesterday that it had dismissed Elaine Garzarelli, Wall Street's best-known market strategist, as part of its cost-cutting drive. Ms Garzarelli, who has a wide following among individual investors, earned almost dollars 2m (pounds 1.2m) a year. She insisted on costly computer support and travelled extensively at Lehman's expense in the company of her dog, a Maltese named Coco.

Her penchant for personal publicity - her face, framed by red curls and adorned with expensive jewelery, is a fixture on US business television, and has appeared in advertisements for No Nonsense pantyhose - is also believed to have offended sensibilities at the troubled firm.

'Wall Street is looking at staff from top to bottom to see who is contributing to the bottom line,' said Michael Flanigan, a securities industry analyst with Lipper Analytical Services in New York. 'No one is sacred in this process.'

Lehman, which has laid off hundreds of high-cost executives this year, said it had conducted a cost-benefit analysis of Ms Garzarelli's contribution to the firm's profits and decided it could no longer afford a quantitative analyst. Ms Garzarelli's 'sector analysis' approach to the market is out of favour with institutional investors. Lehman lost most of its retail clients last year when its brokerage arm, Shearson, was sold to Smith Barney.

Ms Garzarelli, 47, achieved international fame in October 1987, when Wall Street was conducting post-mortems on the 600-point crash in the Dow Jones Industrial Average. Using a sophisticated computer model that uses market indicators to predict industry performance, she had warned Lehman clients a week earlier that share prices were dangerously inflated.

Her advice saved the firm's customers tens of millions of dollars, and she quickly became a media star. She reinforced her reputation in 1990 by calling the end of the last bear market, and Lehman, then a division of American Express, was happy to promote her to the investing public as its main oracle.

But as her reputation for forecasting the market has waned with the rise in US interest rates, Ms Garzarelli's high profile has become increasingly awkward for Lehman, which American Express spun off as a free-standing firm in May. The twice-divorced economist was arrested for alleged drunk driving in the Hamptons two months ago, soon after clashing publicly with Lehman's chief equities strategist, the even more telegenic Katherine Hansel, over the market's direction.

Contradictory recommendations by the two Lehman analysts appeared in the same report, which went out to thousands of clients and journalists in September. Ms Garzarelli, who started the year predicting the Dow would top 4,700, has become increasingly cautious, but believes 'the market correction' is over.

Ms Hansel, who has won respect for her thoughtful research and who earns less than half as much as Ms Garzarelli, urged investors to keep raising cash.

'It's too early to know who will be right, but the damage to Lehman's credibility has already been done,' one Wall Street analyst said.

The firm's shares have slumped from their opening- day price of dollars 207 8 to under dollars 15 yesterday, and its profit for the last quarter was off 80 per cent from 1993.

Nick Knight, head of strategy at Nomura, said no one questioned Ms Garzarelli's abilities. 'Even if her forecasts were not always right, her ability to act as a brand name was impressive. It is the hallmark of someone who has made it.'

However, many Wall Street executives believe Ms Garzarelli will have little trouble finding a new employer. Speculation centred yesterday on Paine Webber and Prudential Securities, two large retail firms whose brokerage operations would benefit from the addition of a media star.

(Photograph and graph omitted)

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