Add this Page to Facebook!   Submit to Twitter   Submit to Reddit   Submit to Stumble Upon   Pin It!   Fark It!   Tell A Friend  
Printer Friendly Page Save As Favorite Save As Favorite View Article Stats
2 comments

OpEdNews Op Eds

Wall Street Analysts--Nobody Knows What the Hell They're Doing, But the Pay is Great

By (about the author)     Permalink       (Page 1 of 1 pages)
Related Topic(s): ; ; ; , Add Tags Add to My Group(s)

View Ratings | Rate It


Become a Fan
  (2 fans)

opednews.com

Just a week ago, Intel (the chip-maker) posted quarterly earnings that shattered all company records for profitability and growth. Intel’s reward was to lose 12.5% of its stock value.

Recently I wrote a piece about three other quarterly reports; two of them in the dumper and one doing OK. Guess what? The Dow rose 171 points on the basis of nothing more substantial than investors desperation for something to cling to in the rising waters of national economic disaster.
SAN FRANCISCO (AP Jan 16, 02) -- Intel Stock Hammered on Economy Fears--Shares of Intel Corp. fell more than 12 percent Wednesday, a day after the world's largest chip maker reported disappointing fourth-quarter results that investors saw as a sign the company is more vulnerable to U.S. economic pressures than many investors had believed.
My God, a quick look at that headline would send most investors to their broker to dump Intel before it tanks. What on earth could have so spooked the pundits that they got all twitchy and disappointed?
  • True, Intel had $10.71 billion in sales during the latest quarter, which was an 11 percent increase from the period a year earlier—a sure sign of weakness
  • There’s no denying they posted a profit of $2.27 billion for the three months ended Dec. 29 and management apologizes that, compared with $1.5 billion during the same period a year earlier, profits are up only 50%--pretty shaky
  • Embarrassingly, gross profit margin (gauged by how well a company manages pricing and manufacturing costs) came in at 58.1 percent of revenues—apologies are due for the increase.
So, if I have this straight, in a market where things are going to hell everywhere you look, Intel lost about an eighth of its value because the best numbers in company history were not good enough for the experts from this or that investment firm.

The same guys who were out to lunch or on a yacht with their girlfriend, while their own employers swindled their way to the worst economic disaster of this young century, devalued a worthy firm because it missed their Ouija-board projections by two cents. These geniuses had Intel marked down for a forty cent dividend and got thirty-eight instead.
The increase was driven by higher sales and lower costs of producing chips.

Intel is ahead of its rival Advanced Micro Devices Inc. in moving to the latest generation of chip technology, which helped Intel drive down the cost of producing its chips while making them more powerful.

Certainly no one can be actually paying these analyst guys for that kind of advice. Punishing a company 12.5% for missing the dividend by 4% seems a little harsh, when they cost their employers tens of billions for missing a sub-prime fraud crash that everyone with eyes could see coming. Certainly these bozos can’t be making more than minimum wage. Read on . . .
(TheStreet.com—Don Colarusso) Being a Wall Street analyst these days is a lot like being in the NBA: Even the guys at the end of the bench are living large.

The bull market, the unprecedented interest in initial public offerings and CNBC celebrity status have driven the market for sell-side analysts who help the top firms hold institutional clients and bring in new underwriting deals. Over the past two years, fresh-faced newcomers to Wall Street became overnight sensations, covering the explosion of New Economy issues and pulling down seven-figure paychecks. Established analysts could land multiyear contracts with huge guaranteed bonuses.

The tales abound. In 1999, Credit Suisse First Boston telecom analyst Frank Governali got a two-year, $14 million package to join Goldman Sachs. Pricey? Sure, but it was a lot less than the Shaq-like $24 million deal it took Salomon Smith Barney to keep famous telecom analyst Jack Grubman from jumping to Goldman.

No. Tell me it isn’t so.

Citigroup wrote off $24 billion and plans to let 24,000 employees go. T hat’s a million bucks a throw for back-office folks. Does anyone explain how a company functions after letting 24,000 employees take a hike? What the hell were these people doing on a Monday that will not be required of them on a Friday?
 
In the Back-to-the-Future department, here’s a little tidbit from Business Wire;
SHERMAN OAKS, Calif. -- Lewis S. Alexander, chief economist and head of Citi's Economic and Market Analysis (EMA) department, will discuss national economic trends at the 2007 San Fernando Valley Economic Summit, co-presented by the Economic Alliance of the San Fernando Valley and California State University Northridge. The Summit will be held on Thursday, May 17, 2007 from 7:30 a.m. to 1:30 p.m. at the Sheraton Universal Hotel in Universal City.
 
It will also feature video game pioneer Nolan Bushnell, CEO and founder of uWink, Inc., who will address entertainment technology and creativity in the 21st century and its significant presence and impact on the Valley region.

You can make the case that the SFV Economic Summit had the wrong guy heading the billing. Entertainment technology and creativity in the 21st century was far more the name of the game than mortgage-lending in the run-up to the Wall Street boys getting caught with their pants around their ankles. Send Nolan up with his fastball.

Onstage, killer-hair and all, Lew Alexander suggested in his outlook summary for the country (parentheticals mine);
  • Looking forward, we expect the drag from the housing sector to dissipate allowing the economy to move back toward trend growth. (Dissipate? Trend growth? Do those terms come with definitions?)
  • The correction in the U.S. housing sector is ongoing, however, and it continues to be the most significant source of uncertainty in the U.S. outlook. 
  • The economic and financial context should help limit its broader impact (read that 'six months to impact'):
  • The rest of the global economy continues to do well. (Snake oil)
  • Financial conditions are supportive for the U.S. economy overall. (Missed kinda big on that one)
  • The economic backdrop is actually reasonably supportive for housing. (Trying to stave off a Citigroup meltdown)
  • Consumers’ financial position is strong. (Wrong—only rhymes with strong)
  • The financial system is well positioned to handle the strains from losses in the mortgage market. (Like Dunkirk was well positioned for evacuation)
  • Inflation should moderate giving the Fed flexibility. (Flexible, as in drop rates and print money)
  • Until the housing market clears, material downside risks will persist. (You got that one Lew)
How much do they pay you for this, Lew? That much and a golden parachute and a stock-options deal and deferred retirement? All while your company goes down the tube?

Amazing.


Meanwhile, back in the real world, the place where they actually make something of value instead of skinning an imaginary rabbit;
For the full fiscal year, Intel reported net income of $6.98 billion, or $1.18 per share, up 38 percent from 2006. Annual revenue rose 8 percent to $38.33 billion. In the first quarter, Intel expects revenue between $9.4 billion and $10 billion, in the lower end of the range analysts were expecting. Gross profit margin is expected to be 56 percent of revenues, plus or minus a couple percentage points.
A scenario Citigroup can only dream of. There has been no $24 billion loss at Intel, no co-conspiracy in fraud, no enormous loss of jobs, no impending scandal that would bring the American and world economy to its knees.

Just a great year, with a great year to come unless the over-paid and under-trustworthy analysts get in the way.

Oh, and California Pizza Kitchen Inc. fell $2.08, or 17 percent, to $10.19 after the gourmet pizza chain reduced its fourth quarter and fiscal 2008 forecasts, citing lower spending by diners.

Go figure.
________________________________________________________
Media comment;

 

http://www.jim-freeman.com

Jim Freeman's op-ed pieces and commentaries have appeared in The New York Times, Chicago Tribune, International Herald-Tribune, CNN, The New York Review, The Jon Stewart Daily Show and a number of magazines. His thirteen published books are (more...)
 
Add this Page to Facebook!   Submit to Twitter   Submit to Reddit   Submit to Stumble Upon   Pin It!   Fark It!   Tell A Friend
The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.

Follow Me on Twitter

Contact Author Contact Editor View Authors' Articles

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

WASHINGTON POST DEAD-WRONG IN CHILD PORNO EDITORIAL

The Trans Pacific Partnership, Yet another Opportunity to Chop-Shop America

Eric Holder Exposes A Nation of Law, Going Lawless

Liar's Poker at the Federal Reserve--"Can't anybody here play this game?"

Dressing Up Space Defense in Dominatrix Clothing

ARRIVAL TIME, 2010; A VIABLE THIRD-PARTY OPTION

Comments

The time limit for entering new comments on this article has expired.

This limit can be removed. Our paid membership program is designed to give you many benefits, such as removing this time limit. To learn more, please click here.

Comments: Expand   Shrink   Hide  
2 people are discussing this page, with 2 comments
To view all comments:
Expand Comments
(Or you can set your preferences to show all comments, always)
These jobs are probably going to India or China. T... by Anton Grambihler on Wednesday, Jan 23, 2008 at 4:00:04 PM
Your thoughtful remarks, distinguishing wealth-cre... by Tom Chechatka on Thursday, Jan 24, 2008 at 2:19:17 AM