Thursday, June 26, 2008

Analysts Trash Dow and S&P Averages

Continuing in the current financial grain, which has mostly included discussions of the oil pricing nonsense by Luther and Wonk, I'd also like to toss in another typical bit of folly today.

Stock analysts, most of 'em employed by large brokerage and/or financial firms, make a lot of money. But for all the bucks they pocket for their prognostications, the info they often put out is so little and so late that it proves to be an excellent contrary indicator.

Take today's action. This morning, at approximately 11 AM, the market, of course, is tanking again and oil is exploding back to the upside after taking a break yesterday. This morning's open was a mild downer, as stock darling Research in Motion (RIMM) announced good numbers but maybe a wobbly quarter or two upcoming. Undeclared reason: there might be a little competition from the newly upgraded iPhones going on sale in July. Gosh, who knew? The stock was hammered at the open.

But more conspicuous was analyst action. Analysts hadn't had much to say about RIMM except buy, buy, buy. So if you did, you got whacked yesterday.

But most analysts also didn't have much to say, action-wise, about two of the worst Dow stocks, Citicorp (C) and General Motors (GM). Citi, of course, has been an ongoing disaster with prospects for more gloom before the financial mess is finally put to bed. Any prescient investor would expect a bad quarter. And most investors have, already driving the stock down continually so that it rests near its lows.

Likewise, GM. Like Ford, dependent on selling mass quantities of trucks and SUVs the size of McMansions for a substantial profit in spite of each vehicle getting about negative 20 miles per gallon, GM has been announcing for weeks that it's cutting back production and clearing inventory--even offering an astounding 0%-6-year financing deal on models nobody wants in order to move the 2008 inventory out so they'll have room for the 2009 models nobody wants. Sure tells you something about the numbers they might be expecting for the quarter, right? First grade math might give you a clue here.

So over the past couple weeks in particular, GM stock has likewise been pummeled, down to the single digits at one point. Since most single digit stocks are considered (rightly or wrongly) near-death experiences, that tells you something about investor sentiment, doesn't it?

So what do we get this morning? The analytical geniuses at Goldman Sachs (which is actually a pretty good firm) DOWNGRADE CITI to a "Conviction Sell" AND CUT GM's ESTIMATES! Gosh, what a concept! When all your investors have already gotten killed, when the stocks have gone down pretty much as far down as they can go, NOW the Goldman IQ kings and queens tell you to sell. Hey, do you think they knew what they claim to know now maybe a few quarters ago? Could they have issued those SELLs then, when you still had some chance to convert your holdings of C and GM to a little mattress money?

Nahhh.

Like the lemmings in the media, most analysts don't like to get too far out in front of events. They are basically chickenshit that they'll piss off a large corporate client. (These are technical terms.) So they tend to wait for the obvious to occur before making their moves. Then someone at Goldman (usually) ascertains the coast is clear to declare the obvious. They do. All the other analyst monkeys follow, and ta-da, the stocks get crushed a little more, killing the poor saps (you and me) who were hanging on to their C and GM because the analysts, well, had told you they were a "hold."

To be perfectly blunt, when you start to get an analyst gang-bang of a stock or a group of stocks on the sell side after said stock or stocks have already had the crap beat out of them, it might just be time to buy a little nibble at a time rather than sell and get completely wiped out.

Who do these bozos think they're kidding? Let's say your neighbor's house caught on fire and burned completely to the ground. The poor family returns the next morning and stands in their front yard holding each other close, staring at the still-smoking hulk and sobbing bitterly at their disastrous loss. So you walk over to them. And say, "Damn, did you know your house has completely burned to the ground?" Well, that's the equally stupid thing the analysts did this morning with C and GM.

The fact that they also cheer oil prices up every time they fall by predicting newer, higher highs (protecting their firms' long positions in the commodity) is another sacrilege best discussed in a later diatribe. My advice: do your own homework if you invest in stocks.

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