Thursday, March 27, 2008

When Meredith Whitney Talks, Must We Listen?

It is fascinating to watch the PR machine(s) thrown into overdrive, pumping up the legend of the moment. Today — Oppenheimer & Co banking analyst, Meredith Whitney, is the toast of Wall Street. Ms. Whitney, ahead of the herd, bravely went out on a limb, issuing a downgrade on Citigroup in an Oct. 31 report, predicting the bank would be hard hit by the subprime market meltdown. I say 'bravely,' for her dire predictions shook the financial giant to the core and brought upon her death threats!

"No one had the moxie to put in print what I put in print,'' said Whitney in an interview recently.

Actually, Ms. Whitney, the 10Q Detective did have the gameness to put in print a thesis that you did—more than a year ahead of your prescient call.

Loyal readers of
the 10Q Detective blog know that Editor David J Phillips, in December 2005, first cautioned investors on the adverse affect to financial performance of sub-prime loan originations:

"HRB is counting on its mortgage origination unit to be a continuing strong driver of top-line growth. For the second half of fiscal year 2006, management believes that the Company can achieve funding volumes consistent with first-quarter levels of $10 billion to $11 billion per quarter resulting in full year origination growth of approximately 40 percent. HRB's mortgage-centric reliance on the subprime mortgage market will be its EPS albatross: tighter credit requirements and higher borrowing rates will lead to smaller interest rate spreads on loan originations, lower average gains on whole loan sales, and reduced net margins on its loan portfolio."

Casting aside the hubris of ego, it is a tiring exercise, nonetheless, to watch as others get the credit, glory, and $$$ that elude me. Perchance, if I had the institutional/banking relationships of Wall Street's new Maverick, some Street outfit would foot the bill to leverage the most of my winning bet, too.

Oops! My mistake. Where is Elliot Spitzer when we need him to lecture us about that alleged firewall between banking and research? Oh, I forgot, Client No. 9 is too busy consorting with prostitutes—riding dirty—to remind us what befell erstwhile Internet analyst, Henry Blodget—who, In December 1998, correctly predicted that's stock price would hit $400 (which it did a month later, gaining 128 percent).

Meredith, are you listening?

Glory is like a circle in the water,
Which never ceaseth to enlarge itself,
Till by broad spreading it disperses to naught.
~ William Shakespeare (King Henry the Sixth, Part 1)

Media attention ensued, and in 2000 Mr. Blodget milked his newfound 'moxie' into a prized position at Merrill Lynch. Of course, Merrill, in turn, leveraged the business media’s worship of their new Internet deity to bring in buckets of web-related investment banking and institutional research fees (trading commissions).

"The glory that goes with wealth is fleeting and fragile," mused philosopher George Santayana (1863-1952).

Shown the door when the dot-com bubble burst, Blodget joins other former Wall Street oracles - and now mere media footnotes of the past 25 years - Joe Granville, Elaine Gazarelli, and Ryan Jacob.

He who pursues fame at the risk of losing his self is not a scholar. ~ Chinese philosopher Chuang Tzu (ca. 369-ca. 286 B.C.)

Maybe its better to toil in obscurity.

1 comment:

Anonymous said...

Good post. I have thought about this very subject and I am glad you brought it up. Every time I see a headline that Meredith Whitney says the banking industry still has to face X number of losses/writedowns it makes me want to go by some bank stocks. It is such a perfect sign that the "mortgage crisis" news hysteria bubble is about ready to pop. It is just another example of someone being the hero of the moment and making every attempt to replicate that glory by making more outlandish claims. Fortunately, I will hardly remember Meredith Whitney 5 years from now, and nobody else will either.