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Sell on rumor, buy on fact

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  • Sell on rumor, buy on fact

    Pace professor has been right before, now advises selling stocks
    March 19, 2007 (Jay Loomis - The Journal News)

    Pace University's Robert H. Parks remains bearish about stocks

    Seven years ago at the peak of the Internet mania, Robert H. Parks warned that a dangerously overvalued stock market could plunge by 20 percent.

    "This is the biggest financial bubble in U.S. history," Parks told The Journal News in January 2000. "You have to worry about these Internet stocks. I call them butterfly stocks. They are blindingly beautiful, but without substance. By that, I mean I can't see earnings on 98 percent of them."

    Parks, a finance professor at Pace University for 29 years, was right then about his predictions of a crash - and the shakiness of the dot-com companies. Two months after he made those statements, the tech-heavy Nasdaq Stock Market peaked at 5,048 and began a painful collapse that wiped out more than 70 percent of its value by the fall of 2002.

    Since then, the market has rallied significantly and pushed the Dow Jones industrial average to record highs, as the excesses of the tech bubble diminished and investor optimism returned.

    Despite the recovery, Parks sounds as bearish about stocks as he was seven years ago. The Ossining resident is still warning about economic excesses and overinflated bubbles. Only this time, he said, it is a bursting housing bubble that could lead to mounting stresses in the financial system, double-digit declines in stock prices and a recession. He also is worried about the costs of the war in Iraq and rising budget deficits.

    AntiSpin: Sure, Business Week and others give iTulip credit for calling the tech stock and housing bubbles before others did, but we were not alone. A chorus of skeptics arose, especially toward the end, Dr. Parks among them. The question is not who gets the credit for being right. Who cares? The question is, what to do now? The answer is troubling: no one seems to know.

    Tomorrow we continue our four part interview with Dr. Michael Hudson, and over the next few months extend our reach to others as we refine Ka-Poom Theory. Recent additions to our thinking bring us closer to reaching a conclusion, but the process is asymptotic.

    In a pinch, the government does not, of course, bail out the various groups of its citizens evenly after an asset bubble ends. It can't afford to, politically. Campaign contributions have been made. Future contributions are forthcoming. A wage and all-goods inflation is a progressive tax, hammering what were once called "owners of capital," today known as "creditors," and coming to the rescue of "debtors," once known as "wage earners." An asset bubble is a regressive tax program, moving income from high tax rate wage income to low tax rate capital gains. The excesses that produced the tech stock and housing bubbles, as we can now see disproportionately injuring first the retail stock buyer and now the sub-prime mortgage borrower, demonstrate the willingness of government to take advantage the most vulnerable–not coincidentally, the least financially contributory–of its citizens.

    The former was yet another New Era economy scam, the latter an appropriation of future income packaged as dream of ownership via the sale of profitable, government guaranteed loans.

    The economic pain has already been pre-undistributed. How about the follow-through bail outs?

    We shall see. By way of example, here in Massachusetts our liberal, democrat
    governor Duval Patrick found himself in political hot water when he found himself returning a favor to a contributor who is at the moment out of favor with the public.
    "Perhaps the biggest blunder was Patrick's decision to call Citigroup executive Robert Rubin on Feb. 20 of behalf of ACC Capital Holdings while ACC sought an infusion of cash from Citigroup. Patrick had served on ACC's board but resigned the $360,000-a-year post during the campaign. ACC is the parent of Ameriquest, a mortgage company that has been accused of predatory lending practices."
    I'll let you draw your own conclusion. Mine is that in order to get elected to office in the U.S. you need friends in the FIRE Economy. A FIRE economy, whether in the U.S. or in China, seems to evolve into a one party political system.

    Meanwhile, while we wait for a credible third party to emerge, we can call "invest" in U.S. stock markets with this guy.

    Last edited by FRED; 03-20-07, 09:19 AM.

  • #2
    Re: Sell on rumor, buy on fact

    Originally posted by ej
    The excesses that produced the tech stock and housing bubbles, as we can now see disproportionately injuring first the retail stock buyer and now the sub-prime mortgage borrower....

    one remaining question, the bail-out question, is what happens to the buyers/owners of the debt and debt-derivative products. those mbs, rmbs, cdos, cds are sitting in the portfolios of... whom? how much is still on the books of big banks and brokers, and how much was able to be destributed to pension plans, large investors, endowments? who is the new "orange county"? [remember when orange county went bankrupt after following the advice of merrill to invest in i-forget-which-miracle-financial-product?]

    my guess would be that the more of the garbage that remains with the goldmans and merrills of the world, the bigger the bailout. althought the bailout will look like it is aimed at protecting the poor borrower, it will in fact be more effective in protecting the current creditors-debt holders. if the big banks have managed to move the product off their books and into the holdings of the world's "orange counties," the bail out will be smaller. orange county, you might recall, sued merrill and recovered several hundred million, but not nearly enough to make up for its losses. expect lots of litigation. but orange county, even winning in court, went of a severe austerity budget for some time. who is holding the financial toxic waste?


    • #3
      Re: Sell on rumor, buy on fact

      On the Cramer thing, there are a couple of articles by Corporate Crime Reporter Lies, Market Manipulation and Wall Street - Jim Cramer Comes Clean and Jim Cramer Backpedals, Tells Imus Mistakes Were Made