Streetwise
Lauren Rudd
Sunday, February 7,
2010
Dueling Groundhogs Get Political - But Can They Forecast Wall Street
The rampant discourse over the Nation’s economic future took
a back seat to some more important forecasts this past week as fractious
factions faced off over the issue of who was the superior groundhog on Groundhog
Day.
Selected members of Marmota monax found themselves yanked out
of their comfortable dens at 7:34 a.m. to view their shadows, the purpose being
to predict the weather six weeks into the future. Staten Island Chuck found
himself up against the powerful PR machine of Punxsutawney Phil. Not to be
outdone, General Beauregard Lee of Georgia, who holds honorary doctorates from
the University of Georgia and Georgia State in "Weather Prognostication," took
on Sir Walter Wally of North Carolina.
Given the expertise most groundhogs have with the English
language, not to mention meteorology, there is probably some doubt as to
scientific strength of this forecasting approach. Nonetheless, honors go to
Staten Island Chuck for his comment on the nation’s political situation...he bit
New York City Mayor Michael Bloomberg on the finger.
Unfortunately, many on Wall Street are in the same league as
your local groundhog. Consider, for example, those who believe the Super Bowl
can forecast the stock market. Supposedly accurate 34 out of 43 times, the Super
Bowl predictor states that at least two of three major market indices will rise
when an original NFL team wins.
However, if a team from the old AFL wins, at least two
indices from among the Dow Jones industrial average, the S&P 500 and the NYSE
composite index are headed downward.
You can relax, your portfolio is safe. This year it will not
matter which team wins because both have roots in the old NFL, therefore a
market rally is in the offing. One well known Wall Street veteran was given to
say, "The Super Bowl predictor is better than any package of Ph.D.s, gaggle of
gurus or assemblages of analysts I've ever heard of.” Oh, how I yearn for the
late Madam Marie and her crystal ball.
Yes, I am aware that there is a modicum of statistical data
that correlates various aberrations in the financial markets with certain
calendar or non-financial events. A good example is the so-called January
effect, a calendar-related anomaly where stock prices supposedly increase during
the month of January. Based on what happened this past January, maybe we should
go back to using football games.
Yet, despite the adherence by some to a medley of unorthodox
ideologies, the Street’s prognosticators are a rather tame bunch when compared
with the lively group of elected officials tasked with bringing order to
financial markets. Gail Collins of the New York Times affectionately referred to
them as a pack of rabid otters.
She succinctly pointed out that the House hates the Senate.
The liberal Democrats hate the moderate Democrats. The normal conservative
Republicans hate the hyper Tea Party types. The Tea Party types are having so
many internal fights that there’s a definite danger of broken crockery. And, of
course, everybody hates the bankers, except the Republicans who sat on their
hands when the president called for taxing the banks.
Meanwhile, Goldman Sachs, the firm that stated indignantly it
did not need the $10 billion taxpayer bailout, or the $12.9 billion handout from
AIG, or the taxpayer guarantees behind its borrowing, is now considering
awarding CEO Lloyd Blankfein a $100 million bonus.
“This is Lloyd thumbing his nose at Obama,” a Goldman rival
was overheard to say at the recent World Economic Forum in Davos, Switzerland.
At a minimum we need the Volcker Rule. Its implementation
would prevent commercial banks from owning hedge and private equity funds, as
well as bar them from speculative or proprietary trading.
Recoiling in horror, banks have countered that it's
impossible to define proprietary trading. Nonsense, says Volcker, "Every banker
knows very well what 'proprietary trading' means." Hmm...Maybe we let Congress
look for its shadow, while groundhogs regulate Wall Street...and hopefully bite
Blankfein on the finger.
