Traderbill's Financial Markets Weblog

TB saiz: “A company is only as good as what it can do after it’s latest earnings report.”– this is particularly true of Barclays after selling off it’s cash cow Barclays Global Investors or BGI to Blackrock for $13.5 billion (Barclays bought it for $450 million in 1989), making them the world’s largest money manager. $2 billion of that will come from loans FROM Barclays and other banks (money that could have been lent out to businesses, etc.? Due to speculation on the sale Barclays (BCS) stock has risen from a low of $2.75 on 1/23/09 and closed at $19.90 yesterday, a gain of 718%…would you buy it?…or sell it? Deal?…or no deal?    

…it is altogether fitting that yesterday’s Ken Lewis testimony and subsequent comments by CNBC’s ‘Mad Jim’ Cramer occurred on the 10^th anniversary of the IPO of www.thestreet.com (TSCM) of which Cramer was a founder…OK plus one month (May 11, 1999), in the frenzy we know refer to the ‘dotcom boom/bust’.

Perhaps no one in the history of financial markets has evoked more controversy than Mad Jim. The IPO was initially offered at $19 through a syndicate led by his former employer, Goldman Sachs (see not everything they do is ‘golden’). The stock opened at $61 and peaked at $71.25 that day, closing at $60 -$1 above the opening price. On 5/12 it opened at $61.875 and never saw $60 again…two days later it broke $50 also to become a relic. Then after two failed attempts before Y2k, in which it never even reached $25, it plunged to just 92 cents by 10/21/01…a month and ten days after 9/11. It finally began to reemerge in 2006 hitting $16.74 on 12/27/07 before falling with the rest of the market to $1.69 on March 3, just before the market troughed. Yesterday it closed at $2.04.

What has Mad Jim been doing lately? Selling, along with his backer and former client. Martin Peretz…what is remarkable is that since inception it has paid a quarterly dividend of $0.025 which it continues to do today despite a negative EBITDA!?!  What did Cramer do in between? He was consistently buying $5,000 of stock each month. According to Bloomberg, Cramer is the largest shareholder at 12.7% (unfortunately it doesn’t show how much of it he owned  earlier, perhaps a reader would care to do the research…invoking the old Wall Street saw “sell?…to whom???). Peretz still has 6.9%.

Now recall this is from a guru who claims to educate you on investing…who says he has something like 2,500 stocks data in his head…too bad he didn’t pay attention to the one he was and is responsible for as Chairman…if memory serves, he and Peretz haven’t been friends for years. This is not to say that TSCM isn’t a good source of financial stories, merely that Mad Jim is not a source to rely on…interesting as he os a Warren Buffett fan.

Last night he placed Sara Lee Chairman and CEO (there’s that dangerous duo again that TB has been trying to have abolished), on his ‘CEO Wall of Shame’ which means that the company has not had an increase in earnings since they assumed the helm. What gall to have a hall of shame that doesn’t include the name Craaaaaamer???

Speaking with a friend yesterday he was told that when said friend wrote Cramer with a criticism of an analysis he received the following reply: “I’m just trying to do a sow, man, leave me alone.” This reminded TB of when Cramer wrote a syndicated column and loathed dotcom’s, bashing them week after week. Suddenly, he not only liked them, he loved them! TB was perplexed and then he learned that TSCM was going public..aha! Sooooo…TB sent him an email noting that he was in a ‘quiet period’ but wondered if he could explain his sudden love for dotcom’s and whether it had to do with his upcoming IPO. Cramer wrote back: ” My wife loves me (they have since divorced), my kids love me, my dog loves me and I don’t give a damn what (you) think of me.” Wow! What a rebuke! ….but it still didn’t answer the question! Shortly after that the column was discontinued.

TB has banned CNBC from his home now relying exclusively on Bloomberg News but after hearing the appalling Ken Lewis testimony yesterday he tuned in Cramer expecting him to bash Lewis…later he caught Sir Lawrence of Kudlow to get his take on it. But TB was disappointed in both –f or differing reasons.

First, Cramer opened with the Lewis testimony, made no critique, and then shifted to a Morgan Stanley analyst who upgraded the earnings outlook in what Mad Jim referred to as an ‘axe’, the  axe being the analyst with the highest earnings forecast which this one had just leap-frogged over all others…meanwhile the only analyst TB cares about is Meredith Whitney who says if you invest in bank stocks buy the preferred’s not the common! That has been TB’s mantra for months and he is sticking with it. Dutifully, Bof A rose 8.9% yesterday on this not because of but in spite of Lewis’ testimony…more on that later.

Then Kudlow had nothing to say about Lewis but rather spoke of and showed a clip of Bernanke’s testimony where he said he did not pressure Bank of America to complete the Merrill deal. Kudlow asked if his body language betrayed him…a thought TB had earlier in the day when he watched the same clip…read: lying through his teeth!…worse, perjuring himself before Congress (contempt of Congress?), as subsequent emails have since proven.

Despite this, Ken Lewis looked pathetic, especially during questioning by Kucinich and Flake (now there was a name to overcome when running for office…are you going to vote for me or that ‘flake’?). Actually, the two of them asked the best questions in a sort of good cop/bad cop approach with Flake sounding like he was his friend and extracting more information.

Not only did Lewis blame his ills on being forced to buy Merrill, but he said he had been threatened with losing his job and having the board fired…he supported this with minutes of the board meeting when he told his directors as much. Is that really a threat…to a REAL leader? Hell no! This is not a laborer or a secretary being threatened with losing their job) but a wealthy man and wealthy men (cronies if you will), who were obviously more interested in continuing to get paid than in representing their shareholders but such is the way of corporate America these days. What Lewis should have done and at least one of his board members should have insisted on was to call their bluff! Tell Paulson and Bernanke he would not go through with it and that he would go public with their threats. But Lewis is not a man of intestinal fortitude, instead he caved and his board compounded the problem. TB believes had he stood up to them, as one should do with all bullies, they would have made concessions on the deal…a lost opportunity by a weak CEO.

TB was discussing this with a friend who said that had he not gone through with it the entire global financial system might have collapsed. That is the Machiavellian approach and for Bernanke and Paulson he supports it: the end (saving the global financial system) did justify the means (blackmail). Contrast this to Lewis where the end (saving his and the boards jobs in the misguided belief that only he could run BofA…remember he too was Chairman AND CEO), justified the means (misleading shareholders which he had a fiduciary responsibility to do…let the lawsuits begin!).

Paulson is gone, Bernanke is up for re-appointment and the GOP forgetting that he was appointed by Bush (or because of it), will challenge it vigorously. The question is: if not Bernanke…who then?…and please don’t say Volcker, alhough he would be TB’s choice but due to his age even he doesn’t want the job!

As for the market; TB is finally going to make a rare prediction: sometime between Tuesday (6/16…due to Friday’s options expiry – a quadruple witching) and the following Thursday (6/25…last day for T+3 settlement in June), the market rally will peak and end. It will then decline, exacerbated by the golden and silver crosses (40 day above the 200 day and 50 day above the 200 day respectively) will decline thru quarterend and perhaps as far as mid-July. This will not likely be a return to, or even test of, the cycle lows but an opportunity to lock in gains, reload and buy much lower. How much stock (sic), you place in this prediction is your call but just ask yourself whether the economy justifies the levels we have attained. Paper gains are meaningless or worse…didn’t we just learn that over the past 10 years?  

Since TB highly recommended Edmund Andrews book Busted he feels compelled to comment on the negative reviews on Amazon. With most the criticism was based on his failure to disclose his current wife’s two former bankruptcy filings. True, but to trash the book is to ignore the fact that it is an objectively written account of the mortgage crisis and shows how not just ‘dumb’ or greedy people got trapped into living beyond their means. TB would like to look at the reviewers finances and see how many of them could stand up to their own test. TB continues to back the book, as a lesson in what happens when free market capitalism becomes something altogether different: every man for himself!

Another book TB bought but has not started yet is The Myth of the Rational Market by Justin Fox. TB has long commented on the failed Random Walk Hypothesis of efficient capital markets which was the father of index investing, this book is endorsed by both legendary investment guru Peter Bernstein and Nassim Nicholas Taleb, author of The Black Swan. Book are coming out by the minute these days on investing…almost as fast as lawsuits…another one just out is Lecturing Birds n flying: Can Mathematical Theories Destroy the financial Markets”  by Pablo Triana. TB thinks we all know the answer to that as with the Random Walk Theory markets are not efficient (meaning prices represent the intrinsic value of the underlying security), and they are subject to wild manipulation.

Hope you all have a fun and relaxing weekend!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © June 12, 2009. 

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