Is Mistrust of Wall Street Pointing to New Lows?
By Ron DeLegge, Editor
March 17, 2009
SAN DIEGO (ETFguide.com) – As if a sour economy and unstable stock market weren’t bad enough, America has been back-stabbed by Wall Street.
Multi-billion dollar tax-payer financed bailouts, platinum (not golden) parachutes, lack of accountability and a bonus compensation frenzy that makes Amazon piranhas look like goldfish.
Symbolic of the fall from grace is none other than General Electric (NYSE: GE), one of the greatest light bulb companies in history. In a recent letter to GE’s shareholders, CEO Jeffrey Immelt admitted the company’s performance has been miserable.
Immelt stated, “Our company’s reputation was tarnished because we weren’t the ‘safe and reliable’ growth company that is our aspiration.” Over the past 52-weeks, GE’s stock price has fallen harder and faster than the Dow (NYSEArca: DIA), the S&P 500 (NYSEArca: SPY) and the Nasdaq-100 (NasdaqGM: QQQQ).
Don’t worry about GE’s “reputation”, Jeff. On Wall Street, reputations aren’t tarnished, they’re re-affirmed.
Millions of people, from investors to employees, no longer trust Wall Street. Is this mistrust indicative of new market lows?
Before we answer that question, let’s look at a few examples that have led to the lack of faith.
Government Sponsored Ponzi-schemes
Deflated insurance giant, AIG (NYSE: AIG) has been one of the largest recipients of financial aid from the U.S. government. As we’re now learning, the beleaguered company redirected some $90 billion of its own bailout winnings to other companies (also referred to by company insiders as “financial partners”) many of whom already received their fair share of bailout winnings. Isn’t this the definition of “Robbing Peter to pay Paul?”
If AIG’s reported handling of its bailout winnings is true, this would make it the largest government sponsored Ponzi-scheme of its kind.
From the very start, we had our doubts about the $700 billion financial bailout of Wall Street and ailing banks. Early on we warned our subscribers in the October 2nd edition of our ETF Profit Strategies newsletter that government financed bailouts would end miserably. So far we’ve been right.
Depression Era “Popularity”
During the Great Depression, did you know that bankers become so unpopular that bank robbers like Bonnie & Clyde and John Dillinger became folk heroes? I don’t think our generation is ready to crown bank robbers as folk heroes, but let’s just say the unpopularity of today’s bankers is nearing its historical highs.
At the end of February, the U.S. government increased its investment stake in Citigroup (NYSE: C) from 8 percent to 36 percent. Forget about the massive dilution to existing Citi shareholders because it’s just a matter of time before the U.S. taxpayer has a 51% stake in the banking version of AIG. For everyone keeping track, which is nobody, this is the third time in five months that Citigroup has had to be rescued by the U.S. government. Will Act I, II, and III be followed by Act IV and V? Stay tuned. Shakespeare’s tragedy is about to be outdone.
AIG’s ex-CEO, Maurice “Hank” Greenberg is the epitome of the moxie and chutzpah that has become a Wall Street standard. Greenberg recently filed a lawsuit against his former employer claiming the company misled him and subsequently destroyed his fortune. (Hank, don’t worry about your destroyed fortune, now you know what he feels like to have your wealth looted and set ablaze. Welcome to the club of burnt shareholders.)
This raises a few more questions.
How could AIG lie about its financial condition to Greenberg, when he was the company’s CEO for 38 years? You mean to tell us, he didn’t know that AIG was a warehouse full of dynamite, just waiting to explode? (See Dr. Victor Frankenstein, who, like Mr. Greenberg, was “surprised” by the monster he created.)
The truth is Hank Greenberg probably knew everything there was to ever know about AIG, including its despicable financial condition. Lest we forget Greenberg is the same individual that was such a meticulous control freak, he refused to agree to a succession plan that could’ve included one of his own sons. As it turns out, Greenberg took an “early retirement”, which means he was forcefully removed. Greenberg’s management style has been compared to that of controversial Army General, George S. Patton III. Both will be remembered as “Old Blood and Guts.”
This provides an invaluable lesson for all corporate executives; you cannot sue the companies that you help to demolish and then claim yourself as a victim. Sorry, that’s not how it works.
Lack of Accountability
Wall Street’s lack of accountability has even infected the Street’s largest media properties. In a one-on-one interview last week, Jon Stewart, host of the Daily Show, roasted CNBC’s Jim Cramer. “I understand that you want to make finance entertaining, but it’s not a....game,” Stewart told Cramer. Shortly thereafter, Stewart went on to hammer Cramer about putting entertainment ahead of the investing public’s interest.
Isn’t it funny (pun intended) that some of the best financial journalism being done today is not in the mainstream financial media like it should be, but on Comedy Central?
This raises more questions.
Does CNBC purposely avoid posting the actual performance of Cramer’s stock recommendations on Mad Money to sidestep accountability? To this day, no one (not even CNBC itself) knows the true stock picking record of Cramer. Isn’t it the network’s responsibility to start reporting Cramer’s true stock picking record? And shouldn’t that performance be compared to major stock benchmarks like the Dow Jones Wilshire 5000 (NYSEArca: TMW) or to some other respected benchmark? America (including “Cramerica”) is tiring from circus clown skits.
Barron’s is one of the few publications that has attempted an honest evaluation of Cramer’s performance. Do you know what they found? They estimate that people would’ve been better off in a low cost index fund or index ETF versus buying into Cramer’s stock picks. (See the August 18th, 2007 and February 9th, 2009 editions for detailed analysis.)
Before investing can be “fun” it first needs to be profitable. Once your investments are profitable, then you can have all of the fun you’d like. Now is not the time for frolicking around like Tarzan the Ape Man.
In our March issue of the ETF Profit Strategy Newsletter we included target levels that point to an “ultimate market bottom”. We further defined the target range for new lows on January 15th. Here’s the warning our subscribers received: “At this point, the best target for a temporary low is 6,700 for the Dow and 700 for the S&P 500. Extreme pessimistic sentiment may drive the indexes even towards Dow 6,000 and S&P 600."
Defining the “ultimate market bottom” is based on detailed analysis of the four most reliable long-term indicators available: dividend yields, P/E ratio’s, investor’s sentiment and the Dow measured in the only real currency, gold (NYSEArca: GLD).
Just like the above mentioned forecasts, this “ultimate target level” will help investors to protect their wealth and thrive.