Overpaid And Useless: A Profession That Needs To Go Away

Weather forecasters get a pretty bad rap for their accuracy.

However, this post isn’t about ripping on weather forecasters.  In fact, quite the opposite.  I bring them up so that I can compare them to another group of individuals whose profession  should really be brought into question.

You see, meteorologists often get blamed whenever a forecast is wrong.  If it rains on a day when sun was predicted, they get called out for a ruined picnic or day at the beach.  Clouds instead of the predicted sun can put a big damper on an outdoor activity.  The list goes on.

As I’ve gotten more interested in weather and looking at things, I’ve actually become a lot more tolerant of meteorologists.  If you look at what they do, it’s in fact pretty amazing that they get it right as often as they do.   They look at weather as it stands, then look at things that are happening hundreds, if not thousands, of miles away, and make predictions on what’s going to happen hours, and even days, down the road.  There are many things that can change, each with potential impact on what actually happens.  If you’re on the East coast and reading this, consider that your forecast for what’s supposed to happen is based on weather that hasn’t even hit land all the way across the continent.

What If There Were No More Forecasts?

So, what does this have to do with another profession that is pretty much useless?  I’m getting there.  Stick with me as I stay with the weather forecaster example for just a bit longer.

Imagine, for a second, that meteorologists stopped forecasting the weather.  What if all they did was talk about what already happened?  Think about tuning into the 5:00 news and having the four minutes dedicated to the meteorologist telling you what happened.  The Weather Channel would just talk about the last few days.  Online weather sites and apps would give up to the minute information about weather that already happened.

It sounds pretty useless, doesn’t it.

You’re right.

So, why do Wall Street analysts get to do exactly that?

Reporting News From Yesterday And Beyond

mb-201402wallstThere are a lot of Wall Street analysts out there, and from what I’ve been told, they get paid a lot of money to do what they do.  Which is to come up with snazzy reports with lots of important sounding language that rehashes information that, for the most part, has already been released and is well known.

Where do I sign up?

Upgrades and Downgrades On Yesterday’s News

I’ve noticed a troublesome pattern over the past several years as I track stocks I own or stocks that interest me.  The upgrade and downgrades that accompany reports seem to come out after big news has been announced, and therefore, after the stock market has already moved the stock in response to that news.

Citi, for example, released poor earnings.  The day of the earnings report, twelve analysts released reports that downgraded the stock, after it lost a few percent in early trading.  Wow, really big leap on that one.

In other words, they effectively said “And yesterday’s weather was..”

Do you know how many analysts downgraded Citi leading up to the reports?

Not a one.

Recently Ford has been under a lot of pressure.  A poor earnings reports, reduced guidance for 2014 sales, and a monthly sales report sent the stock on a slow slide.  After it slid for about six weeks, losing nearly 20% of its value, an analyst downgraded the stock, citing risk from the very items which had already been reported as threats to the stock price.

You don’t say.

Where do I sign up?

The Lost Value Of This Profession

Now, it seems to me, that these recommendations and analysis would have been more useful to investors before the report.

Some would argue that the data isn’t there.  Maybe that’s true, but I know that at many rating agencies, there are analysts dedicated exclusively to one company.  All day, every day, their job is to understand what’s going on.  At one company.  So while the company may not (and shouldn’t) release data to that analyst, if they’re not able to get some sense of what the company is doing and how they’re performing, and the challenges or opportunities that go into a report, what value is there in that job?

I’m thinking very little if any at all.

But, these analysts get paid a lot of money.  Probably a lot more than meteorologists. They get recruited from the best business schools.  They are held in high prestige.   Their information gets printed in glossy reports that get sent out all over the place.

But for what?

So they can release a report after the company in question releases theirs to say the same thing and guide investors to do what they’ve already done in the time between the actual drivers and the report being released.

Where do I sign up?

Once Upon A Time

I’m wondering if there was once value in this profession.  Before the internet when news releases were sparse and data wasn’t available and digested within moments of a company announcement, maybe these reports held value.  Back then, a report released hours or days after an earnings announcement may have held value if the market was slower to respond and there were days available to price in a driving factor.

But, that window doesn’t exist anymore.  Earnings, guidance, profits, sales, whatever the drivers are, those bits of data are processed and priced into stock prices in a matter of seconds.

Thanks But No Thanks

At this point, I take analyst recommendations at face value.  What that personally means is that for about every recommendation I see, it’s too little, too late, and it doesn’t tell me anything that has not already been reported.

If you ask me, I’d just as soon they disappear altogether.  And, if you’re used to reading them and wonder what else you could do, here’s a suggestion.

Go look up the weather forecast.  You might actually get some useful information.

Slow Economic Growth Doesn’t Surprise Me, Nor Does It Concern Me

The economy has been recovering from the lows in 2008 and 2009.  Few would argue this.

Unemployment rates were well over 10% at the time.

Housing prices were continuing to fall.  Mortgage foreclosures were on the rise and getting worse by the month.  Salaries were flat or falling.

For awhile, the stock market was in a free fall.

It’s gotten better.  Unemployment is around 8%, a modest improvement.

Housing prices in most metropolitan areas have started to rise, or at the very worse, have flattened.  Companies, for the first time in a few years, reported that they were planning on increases wages.

Some people don’t think this enough.

Recovery is typically defined when we get back to 6-7% unemployment, and the growth in spending is at a faster rate than what we’re currently seeing.  I’ve seen some articles written where the slow path to recovery seems to indicate that we aren’t really even recovering, and that we could slip back into a recession at any point.  I think this fear has a lot to do with the skittishness on Wall Street.

Quite honestly, I don’t believe any of this is really true.

When you look at the fundamentals of what led to the Great Recession, I truly believe it was in the works for 20 years.  Maybe I’m jaded because that’s right around the age that I was old enough to understand and start paying attention to the economy and global events, and there’s one that sticks out in my mind:


That’s right, the good old North American Free Trade Agreement.  Essentially opening up our borders to Canada, and more importantly, Mexico.

I remember when I first heard about NAFTA and what it was going to do I thought to myself “That sounds like jobs might go away.  I wonder how that’s going to work.”

Well, they told us that it would work by not just taking jobs away, but re-creating them in other areas as the global economy expanded.

Uh-huh, sure, I thought.  It didn’t make a lot of sense to me, and I don’t think what they promised would happen actually happened.

Except for the jobs leaving part.  That did happen.

Unfortunately, it didn’t mean that we formed a bunch of new jobs.  It didn’t mean that the economies of other countries that got those jobs created net new jobs elsewhere, or if it did, that they necessarily were created here.

Long and short, we lost a lot of manufacturing jobs and that…

Wait, let me stop because there’s more to it than just that.  After NAFTA, many plants and various other manufacturing activities shut down.  That affected the people that worked there, but it also affected a lot of other businesses.  The ripple effect of a plant closing means that anybody else working to support that plant also lost their job, and so on down the line.  A plant could have had 500 workers, but in the end, 1,000 people (or more) could have been without a job when those jobs got ‘outsourced’.   So this job loss was not such a small thing, and even if we became more technically savvy, there just wasn’t enough jobs (or skill for those displaced workers) to get those 1,000 jobs back.

But back to my point,

We lost a lot of manufacturing jobs and they weren’t coming back.  We also got a lot better at things that we were doing, so the manufacturing jobs we kept, as well as jobs in all sorts of industries, became less plentiful because we could use technology to find ways of doing more with less people.

Usually a great thing, but not if you’re the people that were no longer needed.

In the end, all of this technology and all this improvement led to a gradual erosion of our job market and our economy.

However, we were able to hide it for about 15 years or so.

We hid it by slowly increasing government spending.  They put some of those people back to work.

We hid it by a tech bubble in the late 1990’s, where wealth was created overnight.

When that didn’t stick, we moved on to real estate.  Values skyrocketed and people pulled cash out of thin air.

All of this worked to hide the fact that we had a lot more people around that didn’t have as much to do.

Eventually, the bottom fell out, and for the first time in almost two decades, we’re having to deal with the repercussions of all this.

We can’t have the government hire our way out.

We can’t use the stock market or the real estate market as our way out.

We aren’t going to suddenly re-discover our way back to the top of manufacturing.

In other words, this recovery is going to have to be based on something real.

And after essentially twenty years of hiding the fact that the economy has been slowing, it’s going to take time.

A lot of time.

Anybody hoping for a quick fix is hoping that we create a new bubble, because from the way I see it, a real recovery is going to take a long time.

I don’t think we have to consider a slow recovery any sort of lost period.  Some will say that if it takes ten years to recover, that would be a lost decade.

I respectfully disagree.

I would call that a rediscovery decade.

Because what that would mean, if we did it correctly, is that we re-built a true economic foundation.  The foundations which we’ve been trying to build on for most of my adult life have been weak and non-existent.  I would love, for the first time as an adult, to see an economy built on real fundamentals, not built on a bubble.

And if it takes time to get there, that’s fine.  Because if we take the time to let the economy build itself the right way, it will not crumble so easily and we will not have the problems that come about virtually overnight as we’ve seen during the last couple downturns.

Slow and steady growth might not be sexy.  It might not look great on paper for the people who look only at six or twelve month charts, but if you want an economy that we can truly believe in again, you have to give it time.

For the sake of the next twenty years, please, no more quick fixes.

What do you think about the economic recovery?  Are you satisfied with the slower pace, thinking that this could mean it’s being handled properly, or are there ways to make it happen faster without creating another bubble?

Why Wall Street Secretly Loves The European Crisis

One of my predictions for 2012 was that Wall Street and the financial markets would begin to ignore the European financial crisis, where Greece and possibly others essentially are having a hard time paying all the money that they’ve borrowed throughout the years.  Last year the market would get hammered on days where anybody expressed a smidgen of fear of something bad happening.

I thought that the dust would settle and that Wall Street would move on.

I was wrong.

For a while in the beginning part of the year, the news about Europe was pretty quiet.  Wall Street did actually shrug off a lot of news, but would still have the occasional freak out about Europe.  In the last couple of weeks, the news is suddenly back out and Wall Street has been freaking out in earnest once again.

I believe they actually love it.

Here’s why.

I believe in conspiracy when it comes to the stock market.  I don’t trust people that do trading, and I think that there is dishonesty, manipulation,and insider trading that goes on all the time.  I believe in the efficient market theory on paper, but in practice, there’s no way.

And, I think traders use Europe as a way to cover up the dishonesty that prevails in Wall Street.

Simply put, Wall Street can use Europe as a scapegoat to do anything that they want and blame ‘Europe fears’.

I’ve watched earnings reports pretty regularly.  One theme that I’ve seen happen lately is that a company will blow out earnings.  I mean beyond what was likely priced in, as I know pricing stuff like this in does take place.  I’m talking 40 cents a share where ‘the Street’ might have predicted 12 cents a share.

The stock will even rise for a little bit in pre-market trading and then at the bell.

Look what just happened.  Investors, many whom are likely individual investors (as opposed to institutional investors) just saw great news and they saw the stock start to rise.  They buy in, hoping to ride the wave, not knowing that the sharks on the other side of their high speed trading computers, are snickering and reeling them in.

Suddenly the bottom drops off.  That stock that just tripled expected earnings suddenly gives back the money it made at the open and actually goes down, often by a few percent.

Individual investors just got taken for a ride.  Who do you think took that money and put it in their own pockets?

The crooks on Wall Street.

And when they’re asked about it, they say ‘Well, yeah, they beat earnings, but uh…we’re worried about their growth.  You know, because of the whole Europe situation at all.’

They might not snicker out loud or on the e-mail that they use to publish this, but trust me, they are.

And, that, is why I was wrong about Europe and the effect it would have on Wall Street.  Because while the news might be bad and there might be trouble, Wall Street has latched on as a way to skim (scam) some additional profits off the backs of investors just trying to do the right thing.

Do you think Wall Street operates on the up-and-up?