Wednesday, March 21, 2012

Another Goldman Sachs Idiot

In the echo chamber, people in Wall Street fail to realize that Wall Street does not exist unto itself. Production, profit, and economic growth does not come from that sliver of land we bought from the Indians 250 years ago for a couple of beads. The prices and values of the stocks they trade and see every day in the NYSE are not representative of the productive efforts of the bulge bracket.


It's not "Lance Winthrop" blue blood nepotist of the P&G empire and graduate from Harvard's Business School producing the wealth.

It's not "Chip Rockefeller" trust fund baby extraordinaire and NYC socialite who works at Morgan Stanley's M&A division.

It's Bob Jones, farmer who produces food every day, or Jill Johnson chemist who develops new drugs to treat cancer, or Mike Malloy who builds industrial machinery that produces the wealth.

This they do not understand.

So it should come as no shock that another Goldman Sachs "expert" claims US equities are the best priced they've been in a generation. Never mind trillions of dollars in retirement dollars has effectively made the US equities market a bubble for the past generation. Never mind the P/E ratio is still about 20-25% over its historical average. And never mind the dividend yield is squat (point duly noted about stock repurchases). Set these legitimate criticisms aside. He's erring in another area, namely, ignoring the rest of the country.

I'm sure an overpaid Ivy League blue blood employed in the echo chamber of Wall Street can't understand why people aren't buying stocks. But if he were to come to the west side of the Hudson and maybe a couple hundred miles inland, he might realize that (much like the housing market), people can't buy stocks if they don't have the money.

Yes, ignore the macro-economy, ignore unemployment rates, ignore disposable income figures, ignore income per capita, ignore the private and public debt-loads and just sit there and wonder why aren't these stupid people just gobbling up stocks?

I'll cite Zero Hedge again in its spectacular observation of the declining trading volume of the US stock markets. I'll also make it simple for you East Coasters who seem to think the remaining 49 states have nothing to do with those numbers flashing up on the trading boards:

1. The country is poorer.
2. Nobody has faith in the future of the country
3. More people are suspicious of whether or not their retirement plans will be confiscated
4. People just plain don't have the money to buy stocks
5. And if they did, why would they invest in an inflated market anyway?
6. Let alone in equities based in a country that is seemingly hell-bent on becoming a socialist state?
7. And dare I suggest the financial services industry has earned itself a craptastic reputation and most people just plain don't trust you?

You crazy hip cats on the coast keep trading amongst yourselves. Ask Dick Fuld how well ignoring cash flow and profits works as an investing strategy.


Anonymous said...

Cappy, items #1-7 pretty much nail the entire national economic scene, not just Wall Street.

I don't hate capitalism... but I hate most of the upper tier of Wall Street. I don't hate government... but I hate the guys who are there mainly to serve the crony capitalists. I don't hate the people in our country, but I hate that they are using their votes to force us down this road to serfdom.

Pat Sullivan said...

Same old Wall Street BS. That is all they ever say, it`s a great time to buy.
Check out what guys like Marc Faber and Jim Rogers are saying. They give out the real story, because they are not Wall Street stooges.

I wonder if there is anyone left, that actually listens to these Wall Street "forecasters"?

Steam said...

Cappy, not sure I completely agree with you on this. You are viewing it with the view that the Wall Street people produce nothing and are just leeches who drain the system and only if we could get rid of them all, how the system would function so much better. But if you actually got rid of those Wall Street people and all the trading, you'd cripple the economy. They DO create wealth, as they provide services which involve the allocation of capital and the management of risk. They also provide the financial system with liquidity. They are not just parasites that produce zero wealth and instead take it from others for themselves. They provide services just like other industries.

Now I'm not saying these people are saints or anything, but they're like bankers and lawyers, they don't have the best reputation but society still needs them.

Captain Capitalism said...


Actually I agree with you 100%. Their job is vital to the efficient operaiton of an economy and that is the efficient allocation of capital.

My problem is how they're so bad at their jobs.

Pulp Herb said...

And never mind the dividend yield is squat (point duly noted about stock repurchases).

Gee, Cappy, I commented once.

Actually, you've inspired me and I've been digging through old annual reports on the S&P 500 to get how much they're putting into stock repurchases to see if, once the tax treatment of capital gains and dividends diverged so much, if stock repurchases became poor substitute dividends.

Once I have some data (don't hold your breath, playing with Reason and FL Studio is more fun) I'll make sure to share (and eat lots of crow if my theory that companies have been doing it is wrong...can we at least smoke though with a nice sweet Texas tomato based BBQ sauce).

Even if they are it's a piss poor substitute:

1. Only some share holders benefit.
2. You can only do it so long.
3. It inflates prices and thus even for those in #1 over charges for the share of earning you get.

Skillet said...

Stocks? What a farce! Maybe if I had a supercomputer directly plugged into the exchange so it could execute some HFT for me all day.

Guns and ammo-- now there's some good investments!