Streetwise
Lauren Rudd
Sunday, August 2,
2009
Will We Ever Learn
Wall Street reminds me a little of the weather here in
Florida, volatile. It is either dry as a bone or you are engulfed in water.
Although I can probably predict the financial markets with the same degree of
accuracy as I can the weather, I believe the markets will remain volatile but
with an upside bias throughout the remainder of this calendar year.
Unfortunately, in an effort to counteract the ills of today’s
economy, investors continually chase after phantom opportunities in a relentless
search for profits beyond the norm, as evidenced by the uncovering of several
new Ponzi schemes.
The tragic part is not just the losses involved. It is also
that many victims were introduced to the investment schemes not by the
perpetrators but rather by friends and associates. To quote from Idiot America
by Charles Pierce, “Fact is that which enough people believe. Truth is
determined by how fervently they believe it.”
There is nothing wrong with reading about or listening to
investment ideas, especially when you are not paying for the privilege. It is
when you act on those ideas without due diligence that the price tag can
escalate exponentially. Proceed imprudently and your investment will resemble
one of Florida’s renowned alligators...and you a hot lunch.
Ignore the parasitic investment letters, TV performers and
commission sales people whose messages always seem to be the same; they have the
answers and you do not. Believe me, if they really had the answers they would
not be living off subscriptions, advertisers and commissions.
Meanwhile, the economy is improving and I continue to believe
that we will begin to see solid economic growth sometime within the first
quarter of 2010, although the gross domestic product number could turn positive
during the fourth quarter.
In a perverse way, you can see the improvement as those who
feasted on the largesse of the real estate bubble are beginning to chafe under
the new rules and oversight being put in place to reign in the excess gluttony
of those earlier days.
For example, Andrew Hall, the head of Citigroup's Phibro
energy trading unit, is complaining about the hesitancy of Citi to honor a
previously agreed upon compensation package of $100 million for his work in
2008. That such a compensation package even exists speaks to the competency of
Citigroup’s management
Goldman Sachs, not long ago in such dire straits that it
became a bank so as to qualify for government assistance, suddenly decides it no
longer wants to be tethered to compensation restraints. So it pays off its
favorite Uncle and proceeds to announce billions in earnings and future
compensation. Of course no mention is made of the outstanding bonds issued by
Goldman that are backed by the government.
A large real estate broker recently complained bitterly that
the new Home Valuation Code of Conduct governing appraisals is holding back home
sales. An example cited was a dispute over whether a home had three bedrooms,
per a local appraiser, rather than a non-local appraiser’s report of two.
The bank sided with the non-local and probably more
conservative appraisal and the deal went south. Heck, in the good old days a dog
house in the back yard would have passed for a guest suite. Does anybody
remember how and why we got into the current economic morass?
Meanwhile, politicians are under fire for the excessive
influence being exerted on the regulatory bodies responsible for accounting
standards. Congress, under pressure from bank lobbyists, has tried to force a
loosening of those standards.
Pushing back is an international group comprised of regulators and corporate
officials whose recent report stated that accounting rules did not cause the
financial crisis, but rather a lack of them. Furthermore, the group warned
against forcing changes that would enable banks to manage earnings. Will we ever
learn?
