Streetwise

Lauren Rudd

Sunday, May 29, 2011

A Somber Reminder

Memorial Day is upon us once again. For many it will simply be a day off from work and a time to drag out the barbeque grill. However, for others it is a somber reminder of those who sacrificed their lives to ensure our freedom.

Yet, the devastating impact of armed conflict has a way of fading from memory. Few are left who can recount the untold horrors of the Holocaust. A younger but graying generation pushes remembrances of the sickening sweet smell of Napalm and burning flesh ever deeper into the dark recesses of their minds.

Nonetheless, the jarring impact of seeing young soldiers with missing limbs not only unleashes a gushing torrent of emotion, but hopefully will act as a constant reminder of the seemingly never ending violence that takes place across the globe in the name of peace...oh, and yes religion.

If you saw Vietnam, Afghanistan or Iraq regurgitate the remains of your friends and classmates then Memorial Day cannot help but be a day of sad remembrance. Nevertheless, for all of us it should be a time to remember and honor those who have been called upon to make the ultimate sacrifice.

You are probably wondering how those comments relate to investing on Wall Street. They do not...except to point out that Memorial Day is an excellent time to reflect on, “Not what your country can do for you but what you can do for your country.”

Tragically, Wall Street’s supercilious attitude stands as a monument to unvarnished self-indulgence. As a result, the recovery that now floats freely within the Temples of Wall Street is unlikely to make its way to Main Street

Consider the recent public offering by LinkedIn in which the underwriters priced the offering at $45 per share. Under normal circumstances the price when the shares began trading should have been in the $45 range.

However, the shares opened at $85 and after a brief run to over $100, settled back at $85. If the underwriters knew or suspected that the shares would trade so far above $45, why did they not price the issue higher, thereby providing LinkedIn with additional capital? After all, LinkedIn did not undergo some miraculous metamorphosis during the hours between when the shares were priced and when they began trading.

In actuality, the underwriters likely sold much of the initial offering to their best institutional clients at $45 a share, giving them a gift of a one day 90 percent gain. At the same time Wall Street convinced LinkedIn, and the investing public, that having a quick first day gain was de rigueur. What they leave out is where much of that gain found a home.

Wall Street’s titans are not the only ones who would do well to reflect upon the meaning of Memorial Day. The oil industry’s overwhelming greed is also contrary to the ideals that many of us hold dear. Consider the comments by John Watson, CEO of Chevron, who said, "I don't think American people want shared sacrifice, I think they want shared prosperity."

Wrong, they want both. Our troops fighting in Iraq and Afghanistan, is that not a degree of shared sacrifice? Maybe it should be shared a bit more. Yet, the oil industry is adamant that they cannot get by on the miserly $123 billion in profits they are expected to earn in 2011, they need the extra $2 billion in taxpayer-funded subsidies.

Unfortunately, greed and self-indulgence knows no limit. As the nation's major health insurers move towards a third year of record earnings, they continue to be enriched by a recession-damaged American public that is postponing or forgoing medical care.

The companies meanwhile continue to press for higher premiums, even though their reserve coffers are flush with profits that go to pay larger executive bonuses and increased shareholder dividends. The industry defends double-digit rate increases as a need for protection against a future demand for medical services.