Interesting take on recent analyst downgrades from a newsletter....
Was Morgan Stanley making an honest call or trying to take out the last
strong tech sector to try and finally get everything washed out for a move
back up? Or, was the brokerage giving some payback to the SEC for its new
rule, basically saying we are going to downgrade any stock still standing
as we think things are slowing and we are not going to be able to get the
cozy, inside information we usually get to make profitable trades ahead of
everyone else? Instead, we are going to short those stocks, drop the
bombshell, take the money and laugh. Hell, it is legal for them to do it,
but woe be to some poor slob who tries to do the same on his own. Not
that the latter is right at all, but the former certainly cannot be right
either. If the SEC wants to control these shenanigans, it needs to put a
lid on the free hand analysts have to issue these reports. We are not for
more government intervention, but obviously the current system is far, far
from the best. A simple solution, or at least deterrent, would be to
require the analysts and their brokerage houses to list all of their
positions in the security (short, long, you name it), when it was taken,
at what price, and any other information an interested party would need to
make a decision as to whether the upgrade or downgrade had any real merit.
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Another question we have to ask is how did Morgan come up with its
information? Not two weeks ago Cisco upped its own earnings estimates for
the coming year and talked of increasing demand. JNPR reported blowout
earnings in October and it too stated that demand was huge and it was
taking market share. And these two companies, particularly Cisco, are not
ones that make such assertions lightly; they have a good track record with
their projections. As one of our frustrated subscribers stated today
"What gets me is that if Cisco has already issued forward guidance for the
next few quarters re strong demand and no profit warnings, what are the
facts behind the "brainless" analyst's comments re "the likelihood of a
slowdown ... blah blah blah" except that he was JUST TALKING at the
expense of the entire networking sector and their faithful investors?" We
have seen a lot of analysts that have been simply speculating on the
future of sectors, not based on real research, just "anecdotal evidence",
i.e., a gut feeling.
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We are seeing a combination of themes. The SEC just took away favored
nations status in brokerages regarding financial information. There is a
lot of pressure to perform or get a leg up on competition, but there is
not that cozy pipeline of information anymore. They still want to make a
name for themselves, but they have to do it alone. Thus the calls made on
'anecdotal evidence.' The implication is that is all they have to work
with now that the SEC has cut off the milk run, and now investors are just
going to have to deal with the 'uneven flow' of information (as if one
small group getting the information ahead of time under the previous
scheme was somehow more even or fair). Finally, way too much emphasis is
put on these calls by these folks who have vested interests in certain
stocks, and who have no better information than anyone else. Think about
it. Without the inside pipeline or illegal information, they have no
better resources than any investor. Moreover, we would bet that they are
not as good at using these resources as the rest of us who do this for
ourselves anyway. The field has been leveled regarding information, but
the power of these analysts is still lingering for now. It is our hope
that it fades as investors realize their calls are more or less bogus. |
