Monday, June 9, 2008

Is Greed Good?

In the classic movie Wall Street, Gordon Gecko (Michael Douglas) delivered a speech to the shareholders of Teldar Paper...and explained why the company should be broken up. "Greed is Good...Greed is Right...Greed cuts through and captures... He went on to say that Greed will save the U.S.A."

In a conversation with my father last weekend, I explained that human nature is the downfall of the economic markets as of late. At the end of the day, we can count on people in positions of authority to lie, cheat, and steal from others. For LEH, BAC, BSC, NCC, and COF, it is an easy call. These companies have people who are greedy. One could argue that is has gone far beyond greed to being an outright pig. SIV, sub-prime, and shady accounting practices have placed everyone of these organizations in the hot seat. Lord knows what types of creative business practices are being used a these organizations. Several were willing to work with unscrupulous lenders, or saw the easy money of sub-prime. More importantly, the greed factor is such a powerful force that it has driven company officials to take high caliber risks, squander investor monies, and yes even lie to the public. Now we are seeing the well-deserved punishment of these companies.

BSC was the first shoe to drop in the latest round of the Wall Street financial meltdown, now it looks as though LEH, who this morning announced a 2.8 billion dollar reassuring investors by raising another 6 billion dollars in cash by selling assets and preferred company stock. Lehman CEO Richard Fuld Jr. further insulted the intelligence of investors by adding that the company is "well positioned" Not to be fooled Moody's cut its ratings to negative while Fitch marked teh debt rating to negative. (1)

LEH will continue to help other financials hemorrhage as it appears that the Battle of Little Big Horn is taking place. Thanks guys!

Another interesting story to follow is the fact that many of the companies listed in the SP 500 are cutting dividends. These cuts should be viewed in two ways: 1. Companies are now finding a new way to stay afloat during difficult financial times (at the shareholder's) expense. 2. Earnings and cash flow do not match the dividend, therefore it is being cut. Scary enough, 34 companies paid out more in dividends than they made in free cash flow. It is an unsustainable mark that cannot go on. This surely does not serve as good news to anyone who is holding a broad index of the SP 500...or a couple of the bog losers like GM, MOT, or NYT. (2)

WMT to the Rescue?
This is one member of the SP 500 that just has its act together. I have disclosed my long position in this stock. They are well positioned to take full advantage to the meltdown in the U.S. economy for the next few years! Back in March, WMT took the broad step to cut its margins once again...utilizing the amazing amount of leverage it has...and increasing sales volume. Target is still trying to get the number of the Wal Mart truck that ran them over. (3)

Coke lost its Fizz...
Since I liquidated my position in KO, I have made a list of reasons as to why the stock should actually be shorted at this venue. From higher operating prices such as corn syrup, to delivery truck , to general health concerns... The cola companies in the United States have to re-evaluate their positions...but there is always China. I'll include my list as to why I have turned so negative to this industry.

Sources Cited

Short COF and BAC:)

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