Stock Attack II - A Complete Analysis Message Board

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Strategies & Market Trends : Stock Attack II - A Complete Analysis

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To: Paul Shread who wrote (13713)	8/3/2001 8:15:38 AM
From: stomper	Read Replies (4) of 52237

Nice post by tradermike on analyst machinations: To:Anthony@Pacific who started this subject From: tradermike_1999 Wednesday, Aug 1, 2001 2:03 PM View Replies (3) \| Respond to of 72956 Let me tell you about two stocks. One has a P/E ratio of 100. It has completed a head and shoulders top pattern - the most bearish technical pattern there is - and fallen over 30% in the past few weeks and will most likely to continue to decline. A month ago insiders filed to sell millions of shares. Today an analyst at the firm Dain Rauscher Wessels upgraded the stock. Various talking heads on CNBC reported the upgrade several times today. The stock is up .40 cents today as people bought off of the upgrade news. CNBC did not report on the fact that Dain Rauscher Wessels was one of the lead underwriters that took this company public. In fact it owns several million shares that it will have to dispose of some time in the future. The analyst said that the stock is a "strong buy" because it has a "low valuation." But the stock has a P/E of 100! If you haven't guessed it yet the stock is Krispy Kreme(KKD). This morning Maria Bartiroma - nicknamed the CNBC money honey - reported that Priceline.Com(PCLN) has been upgraded to a strong buy by Merrill Lynch because the people at Merrill think that it will make 14 cents a share next year and they claim that the stock has a "low valuation." Maria did not tell her viewers that Merrill Lynch was the lead underwriter and investment banker for Priceline.Com and owns millions of shares of the stock that it will eventually sell. Nor did she tell people that even if it were to make 14 cents a share next year it would have P/E of 60. She told everyone it was cheap and didn't blink while she did it. At the exact moment that Maria repeated these analyst upgrades over in Washington Congress was holding hearings into the conflicts of interest that analysts have and warning people not to follow them. The acting SEC Chairwoman - Laura Unger - told the committee that the SEC has found that 1/4 of the analysts own stock in the companies that they covered and three out of 57 analysts sold shares while they issued buy recommendations on stocks. This is something that is completely illegal but the SEC does nothing about it. I run a website and disclose my stock positions all of the time. If I didn't and told you to buy stocks that I already owned than I would be fined by the SEC - and I should be! The SEC needs do the same thing to the big financial institutions on Wall Street. The only thing that discourages them is investor lawsuits by people who were taken to the cleaners by these pump and dump operations. These Congressional hearings are unprecedented. When is the last time you can remember Congress going against the power of Wall Street and exposing its unerbelly to the public? This is big stuff, but CNBC has placed a total news blackout on the hearings. Why? We can only look at Maria Bartiromo to see the answer. She typifies the style of reporting that you see on CNBC. She is smart. She has contacts on Wall Street and is very familiar with how pump and dump operations work. Her husband ran a penny stock magazine that pump and dumped stocks. In fact he found himself indicted and fined by the SEC for his operations. She just came out with a book called "Use the News" and has been on Good Morning America and Charlie Rose touting it. In her book she tells investors to use analyst recommendations and press releases that companies put out to know when to buy or sell stocks. In other words they should stay tuned to CNBC to know what is going on. This is her style of reporting. Every morning she gets on TV and spouts off all of the analyst recommendations and never mentions their conflicts of interest. By omitting this information she makes their opinions appear legitimate and the average person who watches the show sees no reason to suspect anything. If they see something an analyst says that they like, such as "stocks will go up", then they believe it because it is what they want to hear. If they are looking for the next hot stock to buy the cut on the TV and jump on something that has a positive spin on it. And here is why CNBC does not cover the Congressional hearings. They depend on analysts for their content. The entire channel is nothing buy a rolling call of analyst recommendations. It doesn't have to be. They could hire reporters who have enough knowledge about the stock market to give you their opinion on what stocks are worth buying and where the market is going. But that would mean taking some responsibility for their content and it is much easier to just repeat what someone else is saying and let them be responsible than to take responsibility for yourself. But the fact that they do nothing but rely on analysts and people with an agenda means that it is completely useless as a source of investment information. In fact it is hazardous to your financial health. Successful investors don't make money by buying because of analyst recommendations or press releases. These "news" stories are designed for one thing - to provoke you into taking the course of action its creator wants you to take. If a firm owns a stock and they upgrade it they do so because they want you to buy it, not because they want to help you make money. Let me give you a real life example. A year ago I was watching a small Australian biotech company that claimed to have created a "miracle vaccine" for skin cancer. It turned out that most of their research was nothing but a hoax and anyone who took the time to do some research on it could easily find this out. A group of cancer researchers at a major university published an article in a medical journal that blew apart the claims of this biotech company completely apart. The stock was being heavily promoted. I got an email message from a major shareholder asking me to tell my readers to buy the stock. The guy even told me that a large financial website would put out an article about the company and make it go higher. And he was right. But those aren't the type of stocks I am interested in buying. I don't invest in frauds. But that didn't matter to Wall Street or CNBC. The Wall Street firm of Gruntal gave the company a credit line and helped it carry out a secondary offering that gave Gruntal several million shares in return. The head analyst at Gruntal, the highly visible Joe Batipagglia, appeared on CNBC and said he was upgrading it to a strong buy. The following day CNBC scheduled for an appearance of the CEO of this company to appear on their show next week. I emailed CNBC and the reporter for this segment - Bill Griffith - information about the company, including the medical research reports. I recieved no reply. The stock rose from $9 a share to $12 1/2 a share on the day of the interview. The second the CEO appeared on TV I shorted the stock. It then fell sharply into the close and now trades at less than $2 1/2 a share. Every single person who bought the stock that day because of Joe Batipagglia or CNBC has lost money. This is how Wall Street and CNBC work. People who depend upon CNBC as their primary source of finanial information are fools. There are so many better sources out there. Read the Wall Street Journal, the New York Times or Investor's Business Daily. Susbscribe to websites or newsletters who shoot straight. You get what you pay for. I hope something good will come out of this bear market and these hearings on Congress. We need to see a real crackdown on the part of the SEC on analysts who break the law by telling people to sell when they buy. It is nothing but robbery and fraud. And we need to see some real reform. We need to see it made a requirement for analysts to disclose any conflicts of interests that they have when they give a recommendation and we need to see the people who depend upon them for their content - the CNBC talking heads - to report on these conflicts of interest. If CNBC doesn't change they will suffer in the long run. People will get fed up and stop watching, especially if the bear market continues. Its rating will plummet. But that would be a good thing for the average investor because anything that takes it place will be better.

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