Week in Review

[5:25pm] Why was there not public outrage over the hiring this week of a young Goldman Sachs employee to run a supremely important office at the SEC, which is the protector of the public? This person does not have 29 years experience to be chief operating officer of the SEC enforcement division; he is just 29 years old, 10 years removed from being a teenager. I don’t care how much of a “whiz-kid” he is; he is still a kid. This is wrong, and America has gone off the rails.

I feel like the bully has taken control of the beach and sand is being kicked in our face. As the SEC chairman and its commissioners are appointed by the President and confirmed by the Senate, those are the people responsible.

>http://www.sec.gov/about/commissioner/schapiro.htm

Just who are the President and the Senate working for? It cannot be the people who voted them into office because people in the know, from professors, lawyers, business people, small town bankers, etc, would never put a 29-year old into such an important role in government. The fact he was a Goldman Sachs employee, and had never previously worked in the civil service; the appointment has all the wrong optics besides being just flat wrong.

And Mary Shapiro, a relatively new hire herself, would surely not make such a high-risk decision herself; this is politics at its smelliest worst. Just when the public is being told that change is on the way, it’s nothing but same old, same old.

As I wrote here a week ago, “maybe I need to take time off or do I re-focus?”

On another matter; this week I have been denied the Econoday service, unless of course I pay for it and I won’t, probably cut off because I dared to point a finger at their chief economist for regurgitating the Goldman Sachs and JP Morgan press releases for the past couple months. So be it; there may be a glass wall around Wall Street, but I will not be deterred. We’ll march on without that service. Maybe we’ll find a replacement; maybe not.

You are starting to get the picture that I am deeply troubled by what I see in every direction.

Let’s now review in depth what’s happened in the capital market this week. As I say, it’s always interesting – even when you get sand kicked in your face or, as I wrote a week ago, your head handed to you on a platter, as happens on occasion. At least trading wise this week, we held our own.

Bear in mind that I have now put everything on cruise control, preparing to avoid the inevitable crash that will happen at some point. That US T-bill yield of 0.04% is telling you that the risks in capital markets are as high as they have ever been.

There are too many cracks in the market. So many that nobody really knows if it is broke and will one day simply crumble into tiny pieces. On Friday, the share prices of three of America’s leading companies, General Electric, Bank of America and IBM, literally crashed between -4.25% and -5.0%. Intel shares dropped -2.37% and JP Morgan’s -2.33%.

Incidentally, over the past 12 months, the shares of these five leading blue chip corporations are up an average of less 5.2%, while the S&P 500 gained more than +16.1%. Despite the fact that for more than seven months now the US equity market indexes have surged, this group of five, which many believe represent the best of America, is struggling.

Something is phony about this market. A puppet and strings come to mind. I have given the matter a lot of thought obviously, but I still cannot put my finger on it. I ask myself, for example, how the XLY Consumer Discretionary sector ETF can be up +29.42% in the past 12 months when there have been so many revenue declining, money-losing companies, bankruptcies, plant closings and lay-offs, and a consumer that is flat out tapped out, in a country that imports most consumer goods using a Dollar noted for being worth little more than 20 wooden nickels.

I just don’t get it. I don’t understand how the shares of American Express, for instance, are up +47.1% over 12 months, more than any other in the Dow 30 index, at a time when consumer travel spending is way down, airlines are going bankrupt, and credit card losses are skyrocketing. Over the past three months, more Wall Street analysts have rated these shares Under-perform and Sell than Buy or Strong Buy. Slightly more call AXP a Hold. Yet over the past six months – a monster rally time in the market – AXP has gained +68.92%, which is the most of any Dow 30 stock over that time-frame as well, and the PE is up to 26.5. Why?

American Express [GICS 40, Dow 30]
(AXP: Google Finance file)
(AXP: Yahoo Finance file)
(AXP: StockChart chart)
(AXP: Billcara2 chart)
(AXP: ADVFN Financial Data)
(AXP: Value Line Report Aug 22: next one is due Nov. 22)

With American Express, revenues have nose-dived and are not expected to return to 2007 levels until maybe 2012. Earnings for this year AND next combined are expected to be less than 2008’s, and 2008 earnings were just 70% of 2007’s. Value Line doesn’t even rate the American Express balance sheet an A, and in fact earlier this year lowered the Safety rating to a 3.

But American Express is a player, obviously. I am sure that Hank Paulson and Tim Geithner never left home without it; despite never having taken a loss in any year, for at least the past generation and maybe forever, the company managed to be the recipient of $3.4 billion in TARP funds. Of course, that money was repaid as management feared pay limitations. But what did management do with that gift loan of $3.00 per share in cash? Did they just lend it at zero rates to their friends who agreed to buy their stock on the cheap? We need to know.

Investing is supposed to be based on common sense and the prudent man rule, but now serious persons like me who are responsible for Other People’s Money are being told fuhgeddaboudit, just follow the crowd. I ask a simple question, why?

At the end of the day, I don’t think the mob wins; but the truth is I don’t know.

I hope you get my point. There is a RICO statute that I think applies. That my friends is why you ought to be shocked and outraged that a 29-year old “whiz-kid” from Goldman Sachs was parachuted into the chief operating officer role of the SEC enforcement division this week.

>http://en.wikipedia.org/wiki/Racketeer_Influenced_and_Corrupt_Organizati...

Americans, you need to be on the phone with your Senators and representatives in the House. They cannot tell you why TARP happened if I or any of my experienced associates can’t tell you, but they can tell you why they approve of young Mr. Storch moving from Goldman Sachs into SEC enforcement at the sotto capo level.

You cannot accept that the mob wins.