Celebrity Analysts Hit ‘Bubble Scrap Heap’
This was the story line in one of the many fine
articles I read over the weekend, this
particular one came from the Financial Times. The angle of the article
was simple: In the wake of the conflict of interest stories between analysts,
investment bankers and the investing public, many firms are considering either
separating their research departments and making them independent and not
closely tied with the investment bankers or completely doing away with the
research department all together.
Naturally, the biggest reason for this is the potential
for further litigation if changes are not made, but the more striking reason
cited by the article was that research firms are incredibly costly to operate
(many analysts’ salaries are several hundred thousand to millions per year) and
do not produce any direct revenue. Gee, anyone with a basic knowledge of how to
operate a business would tell you that unless you put out a quality product, you
won’t sell it no matter what the price. So, brokerage firm executives, quit your
bitching. Have you ever seen your research reports? They are a joke. Do your
shareholders a favor and axe the whole thing so that you can enhance your bottom
line or pay the endless fines and lawsuits that will be coming at you in the
years to come.
The next argument was that clients have grown
accustomed to getting the research for free in lieu of other paid-for services
(investment banking, etc.), so how can they possibly expect them to start paying
now? And without the “funding” from the investment banking division,
they will not be able to continue their thorough research. Well, I for one think
that is a good thing. How much does it really cost to call a bottom every
time the market goes down? Industry insiders further claim that the
emergence of so-called “boutique” research firms simply do not have
the resources “or the high-level access to chief executives that their Wall
Street peers enjoy” in order to produce quality reports.
Thanks goodness they don’t have that access. That is
why they did not have buy recommendations on stocks like Worldcom
(WCOM) and Global Crossing
(GX). What good does access to a CEO do you if his/her salary is directly tied
to stock performance? If anything, all you will get from most CEOs is the proper
amount to spend on a shower curtain. (Tyco’s former CEO spent a reported $6,000
on one). It simply boils down to sour grapes, these people know they cannot
compete, and they are scared. I suspect most people reading this right now have
managed to outperform not only the market, but these high-paid analysts. And to
answer the argument about a lack of quality research, B.S. There are several
independent/boutique firms out there that provide excellent value, some are
expensive, some are reasonable, but they all provide solid analysis. The list
below is but a few that I look at:
-
TradingMarkets
-
The Economist magazine
-
The Belkin Report
-
Apogee Research
-
Marc Faber
-
Bill Fleckenstein
-
Fred Hickey
-
Kurt Reichbacher.
In the meantime, if any of you Wall Street executives
are looking to cut overhead in your research department, I am willing to work
for half of Jack Grubman’s annual $20 million and provide you with far more
value. Please send offers to my e-mail for consideration.
Moving on, but not completely abandoning the “beat
up on Wall Street” party, I will simply point you to a series of articles
in this week’s Economist. From time to time I write about the
markets/economy from a fundamental viewpoint (remember, according to those Wall
Street types at CSFB, technical analysis does not work) because I truly believe
that from an investing (not trading) standpoint, fundamental analysis does have
a place. So rather than me summarizing what I consider to be on of the finer
pieces I have read on the current state of the global economy and markets, I
simply point you to the special section titled:Â The
Unfinished Recession.
Now you will remember that funding a research
department costs hundreds of millions of dollars per year to churn out cutting-edge
forecasts, so I find it ironic that I paid less than $5 for this issue of The
Economist and received truly outstanding research. But hey, what do I know?
I look at charts all day and make a living as a trader. Man, I must be
delusional. On that note, I’m off to Nordstrom’s to get me some ties!
The Day Ahead
Well, as we all know by now, Friday’s selloff once
again put the knee to the stomach of the bulls who once again were convinced
that the bottom was put in. The resistance levels mentioned in my column earlier
in the week, the 855-60 level on the S&P futures, held like a rock, and with
the break of 828 on Friday afternoon, it puts the S&Ps below the 62%
retracement of the weeks high/low. Technically, not very encouraging. I am
looking for the next major area for support on the S&Ps to come in around
808.
For the SOX, look for upside resistance at 259 and the next price target of
223, which should offer support.
Make sure your fingers are ready at 10:00 a.m. ET today for the release of
the ISM report. A reading significantly away
from the consensus of 53 will offer some great volatility spikes which
translates to great HVT (High-Velocity
Trading). These are the types of situations where you
throw out the rules in terms of trading with the trend, overbought/oversold,
etc. These are trades that are based on pure emotions, in the extreme sense of
the word. For me, these are typically the highest probability trades and many
times quite lucrative. Thinking about these trades is not required, it is simple
reaction. Â
The remainder of the week is also setting up pretty
well with many more economic reports due throughout the week.
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| *872* | 901-04 |
| 857.50 | 881 |
| 846 | 872 |
| *842-43* | 859-63 |
| 832 | 850 |
| 829 | *830-32* |
| 815.50 | |
| 811 | |
| 778 |
* indicates that this level is more significant
As always, feel free to send me your comments and
questions. See you in TradersWire.
Also, today at 3:40 p.m. PST I will be appearing on Gary
Kaltbaum’s radio show, you can tune in here.
And tomorrow at 5:00 a.m. PST (yes, the time is
correct) I will be on The Trade
radio show, you can listen here.