-- Posted Tuesday, 6 November 2007 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Tuesday, November 6, 2007
“Phenomenally accurate forecasts”
The Dow Industrials rallied to finish a hundred points off their lows yesterday, suggesting that Wall Street half-believes that Citigroup and Merrill Lynch are the only financial giants with really big problems. After the close, the Wall Street Journal reported that “the markets wobbled amid continued investor concern over the financial sector.” We see things very differently, though, and view any weekday on which the Dow Average has failed to fall by at least 500 points as evidence that investors remain hopelessly in denial about the dimensions of the crisis.
So how big is it, in dollars? A lot bigger, for sure, than the $11.5 billion (and counting) write-off that Citigroup has said it will take. In fact, residential real estate is a $23 trillion item on household balance sheets, and 59 percent of the loans made by American banks are for housing. And while Citigroup may turn out to have been among the biggest and most aggressive players in this market, you can bet there are hundreds if not thousands of other banks that have played the same game.
As a result, two of the most highly regarded executives in America have been sacked so far -- Citigroup’s Charles Prince, and Merrill’s Stan O’Neal. In days of yore, their very public castrations might have kicked off short-covering rallies and a flurry of articles about how new leadership is going to put the companies back on track. In reality, if Merrill and Citi were to get religion by turning prudent, they would be dead ducks in the business world. You see, there are no Horatio Algers in the board room these days. In banking, as in baseball, the only way to compete at the highest levels is to use steroids.
OPM's Last Fling
Not that Wall Street has really been shaken by these revelations. For, however much the stock market “wobbled” yesterday, and notwithstanding last Thursday’s 362-point plunge in the Dow, the blue chip average is still within five percent of all-time highs. Moreover, market leadership continues to come from such psychotic story-stocks as Google, which yesterday was up as much as $20 on evident speculation that it would someday own the world’s phone business. At $810 per share, you’d better believe it was not the little guys who were putting GOOG through its paces. Nor have the little guys likely bought into the brazen absurdities of supposed 3.9 percent GDP growth, strong consumer spending, and a banking system and economy that, according to Bernanke, Paulson et al, remain a picture of health.
This is OPM’s last fling, is all, and anyone who mistakes the hubris for economic fact is going to pay a heavy price.
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2007, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Tuesday, 6 November 2007 | Digg This Article | Source: GoldSeek.com
