1. SBC Clearly Now the Rain Has Gone
We at the Five Dumbest Things Research Lab can't find it in ourselves to get outraged over the latest example of a Wall Street analyst privately believing one thing and publicly stating another.
Maybe we were mellowed by the research lab's annual beer bash. Or maybe we're just sick of it all.
This fresh illustration of What Hath Blodget Wrought comes courtesy of the National Association of Securities Dealers, which this week said it suspended Andrew Hamerling, formerly a telecom analyst at Banc of America Securities.
While the NASD came up with several cases in which Hamerling's published research was materially different from unpublished opinions, we'll focus on just one stock: SBC Communications (SBC) , upon which Hamerling initiated coverage in February 2001.
From his first report on SBC to his last, notes the NASD, Hamerling had a buy rating on the stock. Though Hamerling lowered his target price for the stock on several occasions, that target was always above wherever SBC traded at the time. In other words, Hamerling's research said, "Up, up, up."
Yet privately Hamerling's forecast for the stock was down, down, down, according to findings that the NASD published this week. "Short SBC," he advised one hedge fund manager in September 2001. "It has nothing fundamentally sound going for it..."
Within a week, he emailed another hedge fund, "I'd short a lot of SBC ... the company is clearly overvalued and has to lower its growth rates materially going forward."
Yet despite this apparent egregious dishonesty, we feel a twinge of sympathy for Hamerling. Reason one: A report he issued the same week of those emails did, in fact, raise one bold-faced question about SBC's future: "Overall line growth trends leave us wary about SBC and the Bells' growth prospects going forward," wrote Hamerling, though it was right next to that bold-faced "buy" rating and the $51 price target (implying 15% price appreciation).
Reason two: In its report, the NASD also produces a relevant August 2001 email that one of Hamerling's managers wrote to someone else higher up at BofA:
Hamerling ... determined the company beat the street in the recent quarter through one time stuff, wrote a note stating such, showed it to the company before sending it out, the company has threatened to 1) pull out of the
Fall Conference and 2) pull potential corp fin business if he publishes it. His research appears solid,
a certain BAS research manager doesn't care about the conference, however
a second BAS research manager and the bankers are opposed to losing business ....
Hamerling is not good with controversy and will fold to
the second research manager and the bankers unless you have a different opinion. Thoughts?
Hamerling's managers, says the NASD, subsequently told Hamerling it was his decision whether or not to publish the draft report.
Neither SBC nor BofA responded to our requests for comment.
Reading this, it's easy for us to imagine the pressures on Hamerling. SBC certainly didn't want to hear anything negative from him. Nor did he get any particular encouragement from his bosses at BofA, according to the NASD; telling him it was his decision whether or not to publish his research -- thus losing the firm millions of dollars in potential banking business -- isn't exactly a show of support.
Which all goes to confirm our suspicions of why research analysts were paid so much money during the waning days of the bull market. It wasn't for their stock-picking. It wasn't for their insightful analysis. No, it was for their ability to publish "buy" ratings while keeping a straight face.
Iraq-ing Up the Profit
2. I Want Iraq All Night -- and Party Every Day
You've got to hand it to the U.S. government. When it comes to persuading the rest of the world that Iraq is a financial candy store, that we're the ones doling out the gumballs to our best buddies -- and that we take criticism as well as SBC does from a BofA research analyst -- we win the prize.
And how do we do it? Well, first by paying
more than double what other firms are receiving to import gasoline and other fuel into Iraq, according to a report this week in
The New York Times
. Halliburton, we hardly have to remind you, is the oil firm once headed by Vice President Dick Cheney.
Of course, this week
also reported that the Army was taking back about $1 million out of a $769.3 million Halliburton contract -- a reduction it said was not related to the price-gouging allegations. But we're not quite sure that this 0.13% fine will do much to keep Halliburton in line.
The second suspect thing we did was, of course, tell the world, "It is necessary for the protection of the essential security interests of the United States" to limit competition for major Iraq-rebuilding contracts "to companies from the United States, Iraq, Coalition partners and force contributing nations." Which cuts out folks from Canada, Russia, France and Germany.
"Coalition partners share in the US vision of a free and stable Iraq," says the Department of Defense. Apparently those other countries do not.
Yes, some countries supported the U.S.-led action in Iraq, and some did not. Some sent troops, and some did not. But "essential security interests?" Cut it out.
It all comes down to did you support the U.S.' invasion/liberation? Or did you not? If you, like a telecom analyst covering a Baby Bell, spoke kindly of us, we'll reward you with a big deal. If you questioned our decisions, we won't.
Don't try to persuade us it's anything else.
3. How Now, Dow 10,000?
Just to keep Thursday evening's Dow 10,008 close in perspective, let's take a little trip in the Wayback Machine, shall we?
when the Dow Jones Industrial Average first closed above 10,000 -- that was March 29, 1999, to you of short memories -- here is where a few representative stocks closed on that particular day:
Lucent (LU) closed at a split-adjusted $54.97. Today it's at $2.94.
iVillage (IVIL) rose $25.75 in a single day to close at $104.63. It's now at $2.57.
Eastman Kodak (EK) closed at $65.63. It's now at $23.87.
Enron closed at a split-adjusted $75.60. It's now in the toilet.
So ask yourself this question, everybody: The next time the Dow crosses 10,000, which of the stocks you own today will be in the Lucent/iVillage/Eastman Kodak/Enron Hall of Shame?
4. China in a Bull Shop
Which reminds us: Any day now, China Life Insurance is slated to go public.
It's richly priced, according to reports. And it's losing money. But hey: China promises to be a huge market. If China Life can hold onto its market share, it'll be a whopping success. It will only cost you more to get in later.
No Dim Sum IPO
We know we've heard arguments like this before, but we can't quite remember where.
Actually, the red flag for us was a story about the excitement raging in Hong Kong over the $3 billion initial public offering. "Retail buyers, who queued outside Hong Kong bank branches this week to apply for shares in a bout of IPO mania not seen since the dot-com days, borrowed so much on margin that they bled some local brokerages dry and pushed up local lending rates," reported Reuters.
This is the one they'll be reminiscing about during the Dow 10,000 celebrations in 2007.
5. Swing, You Sinners, Swing
Of course, we might end up getting all nostalgic about
, which is slated to start trading today on the Amex.
As you may recall, Natural Golf is a "golf improvement company,"
the prospectus explains, based on the swing of Moe Norman, "legendary Canadian golfer and a member of the Canadian Golf Hall of Fame."
We're reminded of a question that often arose during the heyday of the dot-com IPO: "Is this a company? Or is this a feature."
We never answered that question as much as we should have back then. Maybe now's the time to start.
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