It’s Medication Time
Gary Kaltbaum is an investment adviser with over 18 years experience, and a Fox News Channel Business Contributor. Gary is the author of The Investors Edge. Mr. Kaltbaum is also the host of the nationally syndicated radio show “Investors Edge” on over 50 radio stations. Gary is also editor and publisher of “Gary Kaltbaum’s Trendwatch”… a weekly and monthly technical analysis research report for the institutional investor. If you would like a free trial to Gary’s Daily Market Alerts click here or call 888.484.8220 ext. 1.
As I sit here tonight reading the news that has crossed and is crossing the wires, the only thing I can think of is the movie ONE FLEW OVER THE CUCKOO’S NEST! As you know, this report used to be only about the condition of the market. But as I saw more and more nonsense occurring over the past couple of years, I just had to write about it. Unfortunately, everything I have written about has come to fruition as the nut jobs continue to take over. The latest:
The WSJ reports that the U.S. government is close to committing billions in additional aid to BAC as the nation’s largest bank by assets tries to digest its Jan. 1 acquisition of Merrill Lynch & Co., according to people familiar with the situation. The discussion began in mid-December when BAC, already the recipient of $25 billion in federal rescue funds, told the U.S. Treasury Department it was unlikely to complete its purchase of the ailing Wall Street securities firm because of Merrill’s larger-than-expected losses in the fourth quarter, according to a person familiar with the talks. Treasury, concerned the deal’s failure could affect the stability of U.S. financial markets, agreed to work with the Charlotte, N.C. lender on the “formulation of a plan” that includes new government capital.
The terms are still being finalized, this person said, and details are expected to be announced with BAC’s Q4 earnings, due out Jan. 20. Any possible arrangement might protect Bank of America from losses on Merrill’s bad assets. There would be a cap on the amount of losses the bank would have to absorb with the federal government being on the hook for the remainder, according to one person familiar with the matter. The possible deal is further evidence of the banking system’s delicate condition and its hunger for more capital, despite billions of dollars already invested in financial institutions by the federal government.
Thus far, BAC has received $25 billion in federal rescue aid, including the $10 billion Merrill Lynch would have received if the sale to Bank of America had not closed. BAC is expected by some analysts to report a loss for the fourth quarter, or at least a smaller profit than expected. It is not known exactly how much Merrill lost in the same time period.
Let’s start with this latest episode. I have a simple question. Isn’t it a serious securities violation when a public company has material information that would negatively impact the stock price and holds onto that information? You can see the sentences in bold. BAC stock has dropped from $18 to $10 during that time…while the market actually bounced up. Who knew of these problems and who acted on these problems? Who is going to investigate and why isn’t the government making BAC disclose all this bad news? I am sorry. These are all valid questions as the government and these financial companies are turning our markets into a nuthouse. There is no way the markets will ever get a foothold if this nonsense continues. How can anyone trust any of these people right now? The government itself is guilty in this case as well as BAC.
Next up:
Apple CEO Steve Jobs sent the following email to all Apple employees: “Team, I am sure all of you saw my letter last week sharing something very personal with the Apple community. Unfortunately, the curiosity over my personal health continues to be a distraction not only for me and my family, but everyone else at Apple as well. In addition, during the past week I have learned that my health-related issues are more complex than I originally thought. In order to take myself out of the limelight and focus on my health, and to allow everyone at Apple to focus on delivering extraordinary products, I have decided to take a medical leave of absence until the end of June. I have asked Tim Cook to be responsible for Apple’s day to day operations, and I know he and the rest of the executive management team will do a great job. As CEO, I plan to remain involved in major strategic decisions while I am out. Our board of directors fully supports this plan.”
First off, let me say Steve Jobs is a business icon. It is not very often someone can bring back a company from the brink by creating new products that have over-the-top demand. Secondly, I wish Mr. Jobs only the best of health. No one wants to see anyone in bad health…but I have a serious problem. I do not trust Steve Jobs and I do not trust how they have been running the company for the past year and change. This is a public company that has treated shareholders like second class citizens. Yes, health is a private matter but for private companies. Steve Jobs is arguably the CEO most attached to his company by name, reputation and success. I believe only Warren Buffett is more important to his company. Yet, this company has found it necessary to selectively release material information. And I am not just talking about this episode…which has been handled badly. The other problem I have had with AAPL and rightfully so is their constant b.s.ing of their earnings report. There has not been a quarter in the past couple of years that they did not guide earnings waaaaaaay lower only to beat the number by waaaaaaay higher. This is nothing more than gaming the street…and I don’t like it. I will not invest in this company until they go back to treating the shareholders like they matter.
The following memo was distributed from Vikram Pandit to Citi employees earlier today. “Dear Citi Colleagues, I want to make sure you know that we’ve moved up our Q4 2008 earnings announcement to this coming Friday, January 16. Since we are ready to release 4th quarter earnings and talk about 2009 and the future, we saw no need to wait… The economic model of our business is sound and positions the company for success over the long term. The clarity we provide as we report earnings should address the psychology of the market. Until then, here are the things you should know: While we are embarked on a long-term transformation of Citi, our core mission is unchanged. Our goal is to streamline our operations, strengthen our balance sheet, position ourselves to take advantage of historic global growth opportunities, and deliver to clients all the benefits of our strength, insight, and unique global reach; We are and will remain a bank. We will continue to help clients save, borrow, invest, transact, and we will provide them advice; Our commitment to our clients remains unchanged. We will continue to deliver what our clients expect from us. That is our firm commitment. Please reiterate that to the customers and clients you speak with today…”
I don’t know how to react to this imbecile. “The economic model of our business is sound and positions the company for success over the long term!” HUH! The only person I can think of right now is Jon Lovitz…”yeah, that’s the ticket!” Who is this dude trying to kid? What economic model? The one where you leveraged your balance sheet infinitum? The one where you constantly lied to the street about your losses? The one where you hid your losses? The one that was putting you out of business until the government came in with $45 billion in taxpayer cash on top of guaranteeing $300 billion in bad loans? The one in which all your employees have watched their stock holdings in CITI turn to dust? The one where you have been laying off thousands? Oh…that economic model! Commitment to clients? Are you kidding? Mr. Pandit…please remember, the only reason you exist is because of other people’s money…you are lucky you still have a job!
Barack Obama’s chooses Tim Geithner to be our next Treasury Secretary…which in turn oversees the IRS…It turns out Geithner’s tax problems surfaced publicly Tuesday – but Obama’s team has known about them for at least six weeks. This according to documents from the finance committee. This man failed to pay taxes in which he prepared and only after called on it, pays half the amount. Yes…just the man to instill trust into the markets. Zoe Baird, Kimba Wood…level playing field anyone? Of course, the media who has lied down when it comes to Obama now says this is nothing and just a mistake. Many say this is much ado about nothing. Maybe it is. My issue is that it seems no one is cognizant of the outside world right now. I just don’t think you should shrug this off so easily. Hank Paulson has showed that he is nothing more than a walking conflict of interest and now this? I do not need perfect people running the show…but at this time, especially at this time, I am not so sure I want someone who heads the IRS who has had problem with his taxes. Maybe I am nuts!
The markets are not just about fundamentals. The markets are about trust and psychology. How can the markets do anything but what we are seeing when on a daily basis, we get this type of nonsense? And it continues to come right from the top. This must change and must change soon.
In my last report, I told you we were back in the soup as the market’s internals were deteriorating. Nothing I have seen in the past 3 days changes that stance. Frankly, it has only become worse. Most major averages are now falling off their 14 week ranges with some right into the meat of important support. If there was ever a goal line stand needed, it is this market…and soon. Markets are due to bounce as they are oversold and are now headed into the 3-day weekend and the “feel good” Obama inauguration. Bounce or not, a break below support outlined in previous reports…well, let’s not go there just yet.
Disclaimer: The opinions expressed herein are those of the writer and may not reflect those of Wunderlich Securities, Inc. or any of its affiliates. The information herein has been obtained from sources believed to be reliable, but we cannot assure its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results.