ORANGE COUNTY IN BANKRUPTCY : When Chuck Clough Talks, Streeters Listen : Portfolios: Merrill Lynch’s chief investment strategist is not accused of wrongdoing in the municipal crisis.


In the days when Orange County’s investment success was the envy of many municipalities, Treasurer Robert L. Citron enjoyed grabbing most of the credit. But in the moments when Citron needed the words of a Wall Street heavyweight to justify his high-risk strategies, the man he quoted was Merrill Lynch’s chief investment strategist, Charles I. (Chuck) Clough Jr.

If Citron was looking to drop the name of someone with a lot of clout, he made a nifty choice.

For each of the past nine years, the 52-year-old Clough has been picked as one of Wall Street’s top portfolio strategists by Institutional Investor magazine, winning a place on the publication’s signature “All-America Research Team.”

The soft-spoken Clough--a deacon at his Catholic parish in the Boston area--is known among his colleagues for a lack of pretension. And some on the Street laud Clough as the atypical investment pro willing to run against the conventional wisdom.


“Very often, people in this business look over their shoulder to see what’s the popular, acceptable approach to take. He doesn’t do that,” said Michael Metz, chief investment strategist for Oppenheimer & Co.

On the other hand, Clough had plenty of company on Wall Street early last year when he wrongly predicted that interest rates would stay low. But even if Clough came to be embarrassed by that advice--which Citron, who kept in regular touch with Clough, often cited--Wall Streeters say the strategist’s reputation suffered only minimal damage.

“I’m sure Chuck Clough never asked them to leverage, and that’s the real problem here,” said Metz, who knows Clough and has appeared with him as a guest on TV programs. Orange County officials, Metz said, “weren’t investors. They were speculators.”

The Boston-born Clough earned a bachelor’s degree in economics at Boston College and an MBA at the University of Chicago; he joined Merrill Lynch in 1987 after working for a string of other securities firms. His strengths are considered to be his insights on monetary policy and the Federal Reserve Board; he gets lower grades as a stock picker.


Reflecting the extent of his influence, Clough made business headlines recently when he broke with the Wall Street consensus that the first quarter of this year will be a bad time for stocks. Instead, Clough is urging investors to add more stock to their portfolios. His argument is that the slowdown many analysts are anticipating will turn out to be gentle, in large part because when the economy shows signs of cooling, the Fed will quit raising interest rates.

Normally accessible to reporters, Clough declined to return phone calls from The Times on Wednesday. He is not accused of any wrongdoing in Orange County’s financial crisis, though Merrill Lynch--the county’s principal financier--is the subject of state and federal investigations of its role in the debacle.

In a Sept. 10, 1993, letter to the Orange County Board of Supervisors, Citron spelled out the county’s investment strategy, indicating that it was predicated on interest rates remaining low for the following three years. He credited Clough with being the first to put forth a “theory of lower interest rates through this decade.”

Calling Clough “prophetic,” Citron went on to say: “Certainly there is nothing on the horizon that would indicate that we will have rising interest rates for a minimum of three years.” In fact, rates began rising within months, as the Fed tightened credit to keep inflation under control.


Merrill Lynch officials disclosed Tuesday that even while Clough was hewing to his low-interest rate theory, other strategists at the firm were counseling Citron to reconsider his high-risk investment strategy.

Still, Clough was hardly the only prognosticator to guess wrong on interest rates early last year. “I don’t think anyone got the magnitude of the change in short-term or long-term rates right on the money,” said portfolio strategist Marshall Acuff of Smith Barney.