-- Posted Friday, 23 October 2009 | Digg This Article | | Source: GoldSeek.com

Rick’s Picks

Friday, October 23, 2009

“Phenomenally accurate forecasts”

With draconian pay cuts looming in the banking industry, the last thing we’ll have to worry about is mass defections of talent. In fact, the financial sector is deflating these days as fast as the Heene’s balloon, causing the number of job openings for “financial products” specialists to shrink by the hour. How times have changed! Just a few short years ago, Ken Lewis, Bank of America’s recently deposed CEO, might have taken his whole team of traders and MBAs and started a new bank. These days, though, they’re a glut on the market. About the only place the leverageurs are getting sympathy is on the op-ed page of the Wall Street Journal -- the last sanctuary in America for the crackpot belief that a company needs to offer $30 million in salary and bonuses to get the right person for the job.

Some might argue that these guys are worth every penny of it, since a well-run company can increase in value by far more than $30 million a year. But this ignores the fact that the stock market’s cyclical ups and downs are a far more powerful force in driving share prices than a company’s actual performance.  Looking back at the collapse of the technology bubble earlier in the decade, and the more recent collapse of financial stocks, one might infer that the higher a company’s share price, the more recklessly the company was run.

If and when the banks recover, we can only hope their shares trade at the kind of earnings multiples that have obtained in, say, the fast-food sector.  After all, why should banks be growing so much faster than McDonald’s or Taco Bell?  If banks must leverage their capital 30-to-1 to turn an impressive profit, the incentives will always verge on insanity -- or criminality.    

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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 b 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 © 2009, Rick Ackerman. All Rights Reserved. www.rickackerman.com 

-- Posted Friday, 23 October 2009 | Digg This Article | Source: GoldSeek.com

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