Market Analysis

Games of Wall Street

UselessMy old man was not easily fooled and he was a pro at spotting a fib: “Don’t bullshit a bullshitter” was his adage every time I tried pass a fast one by him as a teenager. Most kids learn along the way, but it appears Wall Street never learns. And why would they? Banks get fined pittance fees for their misdeeds and book even larger profits from the same. Economists project all over the map yet keep their jobs, analysts do their firms’ bidding consequence free and sell false promises to an eager public desperate to find returns in a Fed constructed world of no yield.

None of this is new but April 30, 2014 should go down as an epic day of embarrassment and shame for an entire industry my old man would have had a field day with.

The highlights:

Goldman has supposedly the dream team of analysts, the creme de la creme. Yesterday Goldman decided to upgrade $AAPL. Yesterday. Someone is paying the Harvard boys big bonuses for forward looking investment advice. This is what investors got:


In short: Useless. Think I’m harsh on Goldman? Well take the whole lot if you want. Their job is to get you to invest and so the ‘advice’ you get is geared toward that goal. So Goldman tells you to buy $AAPL after the stock has popped. Will they advise you when to sell? Wall Street’s track record suggests clearly no. Example $AMZN: A stock based on the eternally elusive promise of large earnings has been Wall street’s cult stock for years on end. And the analyst cabal is always virtually unanimous: Buy. Doesn’t matter what actually happens to your portfolio. It’s a game.

AMZN analysts

Was this really a surprise? It shouldn’t have been. The trend for $AMZN has been there for a long time:


One would think there would be consequences for someone providing such a poor service advice. But quite the contrary, analysts receive large bonuses for this work. Why? Because they do succeed in getting the public to hand over their money buying the narrative that they sell. Wall Street has been experiencing a bonanza in issuing IPOs and of course selling debt:


This of course all works as long as one can keep up the promises of instant wealth creation. Yet cracks are starting to appear. The latest very public fiasco? $TWTR. Unless you traded the stock any investor who bought the stock looks to be taking a bath. Wall Street’s role in pushing a glorious growth narrative to investors? Banking fees of course and collecting trading commissions.


And so the tech drubbing of the last few months is starting to create cracks in the game of perception and confidence and it’s all at risk really as tons of IPOs are still scheduled for 2014. Yet signs of trouble are appearing:

But don’t worry. Wall Street is hard at work to convince you to keep buying stocks. It’s a uniform message that is propagated across the various media platforms:


“Stocks closed out April with a bang” it says at the bottom there. Yes indeed, the headlines are everywhere:

Dow Record

It certainly is true, the Dow closed at all time closing highs yesterday. Wonderful. What they won’t tell you of course is the following: There is significant deterioration occurring across the board. The wonderful record Dow? Its monthly chart reveals a nasty RSI divergence (h/t @mellatrades) reminiscent of the 2007/2008 time frame indicating weakening strength: $INDU

Nor will they point to any of these other concerning charts. Don’t worry they say, growth is coming. Who is they? This crowd:


By beginning of February 2014 the ‘growth is coming’ crowd had to revise their Q1 GDP estimates from 2.5% down to 2%. The consensus ultimately came down to 1.2% by last week. That didn’t stop the top smear merchants of the perception game to keep pushing a relentless growth agenda via various media outlets. One of the worst offenders: Joe LaVorgna of Deutsche Bank. Even last week his projections were in wonderland:

Lavorgnanomics indeed. Just don’t call it forecasting. Of course we now know the result, 0.1% GDP growth. Not 2.5%, not 2%, not 1.2%, but 0.1%. Sounds like a Goldman Sachs $AAPL buy recommendation or an $AMZN no matter what buy rating:

0.1% GDP

It doesn’t matter. The Dow had to close on a record. It was month end and mark-ups had to save what could be salvaged. Nobody wants to see redemptions after all.

So how many economists had projected a Q1 GDP growth of 0.1%? You guessed it. None. Useless.

The big excuse? Cold weather of course. Excuse it all you want, but if a more than $4 trillion cumulative stimulus effort can be unraveled by a couple of snow storms this recovery may be a lot more fragile than one is led to believe. But results should have consequences no? Not according to Wall Street:

In late 2013, when GDP growth for Q1 was projected to be 2.5%, Wall Street ‘strategists’ released their 2014 S&P price targets and earnings projections. Lofty figures in some cases:


Have Wall Street strategists lowered their 2014 price and earnings targets as result of a gigantic GDP miss? Nope. After all, a lowered GDP has no impact on 2014 earnings, at least that’s the narrative that is implied. Yet data FactSet data shows a horrid earnings growth picture in Q1 of a measily 0.2%:

FactSet 0.2%

Was this projected? Nope. FactSet shows a frighteningly regressive chart:

S&P earnings growth

So how does the disconnect resolve itself? Not to worry. Wall Street has a buy rating on the stock market. Just remember the $AMZN chart when you consider buying what they are selling: Games of Wall Street. Will you keep playing?

AMZN analysts


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