Funny thing about this article is the bulls rooted Meeker, Blodget and other on and didn't want to hear otherwise.
Now they look to for the guilty!
mad2
</font>MICHAEL DEN TANDT<br>
<br>
Saturday, March 24, 2001 <br>
<br>
It seems inevitable, with the benefit of hindsight, that the poster
children of the greatest stock market mania in history -- the analysts --
should be cast down and reviled in the aftermath of the meltdown.<br>
<br>
But even so, the ferocity of the current backlash against brokerage
analysts is intriguing. James Surowiecki, writing in the March 19 issue
of the New Yorker, flatly declares that "the age of the Analyst is
dead on Wall Street." In the selloff of the past five months, he
argues, "the clued-in analyst has been exposed as clueless, and the
equity analysis game has proved to be something of a scam."<br>
<br>
Henry Blodget, the Merrill Lynch analyst who became world famous at the
height of the Internet bubble for correctly predicting that Amazon.com's
stock would hit $400 (U.S.), was the subject of a mournful profile in The
Washington Post, chronicling his fall from grace. Morgan Stanley's Mary
Meeker, the earliest prominent Wall Street backer of the Internet
phenomenon, "hasn't appeared on CNBC-TV since October,"
according to a breathless piece in The Wall Street Journal.<br>
<br>
Even Abby Joseph Cohen, once known as the "Queen of the Bulls"
for her consistently accurate predictions of market gains during the
1990s, has been tipped off her golden pedestal. "I've heard of Abby
Cohen and I've seen her on TV, but I don't really listen to her
much," sniffed Kathleen Greer, a bank employee in Chicago, in an
interview with the Associated Press.<br>
<br>
Is all this criticism unfair? Probably not. It was clear several years
ago that brokerage analyst research is skewed by a fundamental conflict
of interest. Brokerages earn the bulk of their revenue from underwriting
and advising services, as well as trading commissions. They are not in
the business of selling pure research, and never were. Brokerage equity
research is an adjunct service, and its primary function is equity
marketing.<br>
<br>
Even though there is, ostensibly, a Chinese wall between the research and
underwriting arms of any brokerage, there is always pressure -- sometimes
subtle, sometimes not -- on an analyst to sell the firm's deals. Ms.
Meeker, for example, earned a fortune for Morgan Stanley by touting the
stocks of a series of companies, including Priceline.com., Ask Jeeves
Inc., Women.com Networks Inc. and HomeGrocer.com, that Morgan Stanley
took public, and sold advice to, at the peak of the tech frenzy. All of
them cratered last year.<br>
<br>
The tricky part, though, is that any competent financial journalist knew
about this conflict in the brokerage business years ago. So why all the
wailing and gnashing of teeth now? Where were we, the collective media,
in late 1999, when Mr. Blodget became "King Henry?" Most of us
were interviewing him. That's how he got the nickname.<br>
On March 18, The New York Times carried an excellent front-page article
by one of its leading business writers, Gretchen Morgenson. The piece
went into painful detail about why the so-called New Economy valuation
metrics -- page views per month, engaged shoppers and so on -- were bogus
all along.<br>
But why are we reading that now, after the crash?<br>
<br>
Clearly, the media also bear some responsibility for perpetuating the
market hype around the Nasdaq Stock Market in 1999. We collectively gave
Mr. Blodget and Ms. Meeker a platform to air their views. Market mania is
a mass-culture phenomenon, and journalists are as prone to it as anyone
else.<br>
<br>
As though public ridicule weren't bad enough, brokerage analysts also
must contend with Regulation FD, the U.S. Securities & Exchange
Commission's six-month-old fair disclosure rule.<br>
<br>
The rule outlaws selective disclosure of material information to
brokerage analysts. In the past, they could trade on their exclusive
access to corporate managers. Now, the analysts have to slog it out on
the conference call just like everyone else.<br>
<br>
"Whatever it is they've been doing for the last decade,"
chortles Mr. Surowiecki in the New Yorker, "channelling company
pronouncements, making headlines with ludicrous forecasts -- they can't
get away with it any more."<br>
<br>
That's all well and good. But the media aren't governed by Regulation FD.
Nor are financial journalists shackled by ties to corporate finance
departments.<br>
Does that not then place an even greater responsibility on financial
media to write and report more critically, during stock frenzies as well
as afterward?<br>
A fascinating side effect of the recent harsh spotlight on analysts is
that some have gone public with scathing self-appraisals.<br>
Edward Kerschner, chief global strategist at UBS Warburg in New York,
recently wrote that neither he nor any other strategist has the faintest
idea where stocks are headed, because the earnings picture is so
murky.<br>
<br>
And Byron Wien, chief U.S. investment strategist at Morgan Stanley, late
last month published a wide-ranging criticism of analyst research
practices. "It is clear that the profession has some serious work to
do to rebuild confidence," he wrote.<br>
<br>
"Investment bankers may believe they will have better relationships
with their clients if analysts say nice things about the companies they
cover, but they must realize opinions have little value if the person
delivering them has no credibility."<br>
<br>
It would be good to see signs of similar self-examination, as well as the
usual gleeful finger-pointing, in the media. <br>
<br>
Michael Den Tandt is Investment Editor. <br>
<font color="#0000FF">mdentandt@globeandmail.ca<br>
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