The headline on CBS MarketWatch was dramatic: “Goldman Sachs hits a 52-week low.”
In addition, Bank of America also hit a 52-week low.
Why is this happening?
I’ve heard all the excuses on television, from hosts to analysts and from executives to stock traders. When I sifted through all the data myself, it seemed to me that the old tale of the Emperor’s New Clothes was more true than ever.
The major banks have been protected by the Federal Reserve, the Treasury, and the White House since the credit crisis of 2008, and some would contend they’ve been protected a lot longer than that. Excuses of a repeat Great Depression, financial armageddon, and return to normality have all been offered, and I find these explanations totally unconvincing.
For quite a while, the markets only recognized the headlines when it came to these zombie banks. Fostered by the media’s love affair with President Obama, the obviousness of the internal decay and corruption is either overlooked or simply ignored.
From robot-signings to prop desk high frequency traders, it was only a question of time before true valuations started to take hold and were reflected in stock prices. Being an old Wall Street veteran, I believe the truth of a company’s well being, or consequently a company’s ill-being, will ultimately be reflected in the stock’s valuation.
It may take longer than we think because of the inevitable smokescreens, but it will always happen.
The sad fact is that the media still buys the bogus numbers that financial companies continue to spew. Most recently, the accounting trick du jour has been to move money from reserves to the active balance sheets and count those reserves as profits because some CFO has decided things have gotten so much better, and fewer reserves are required.
While the media has bought this charade, it would appear investors have not. For quite a while, Wall Street saw the investing public as the little boy who was given a crisp new $1 bill from his father. Subsequently, the child trades the new $1 bill for two new shiny quarters, thinking that two was better than one.
Further, the child then trades his two quarters for three dimes, then four nickels, and finally, five shiny new pennies. Returning to his father, he exclaimed how proud he was in his trades, since five is more than one. Compared to the recent questionable earnings reports churned out by the banks, the little boy’s trades look spectacular.
Along with his 40-years of dedication in the financial services industry, Bill is the President and CEO of GPSforLife, has recently authored a highly successful book entitled 44th: A Presidential Conspiracy, publishes his dynamic monthly financial newsletter MacroProfit, and faithfully continues his third decade on the radio with It’s All About Money, which can be heard weekdays on Money Radio in Phoenix and in podcast form on his website (and on smartphone apps) published at billtatro.com weekdays at 5pm Eastern. Bill can be reached via email at firstname.lastname@example.org and on Twitter @tatroshow.