Wall Street is Trying to Steal Your Money ... Again
Wednesday, April 15, 2009 | Teeka TiwariRating:
All hail the collective trading genius of the brilliant money-men and -women at Goldman Sachs. Goldman’s almost-$2 billion first-quarter profit was shocking, to say the least. It’s a pity that they took all that TARP money last year because they can’t gorge themselves on gigantic bonus money.What’s an impoverished banker to do?
Get out from under the government's thumb, of course -- that’s what! The heck with what’s best for the shareholders ... those bankers need access to unbridled bonuses, gosh darn it! This sentiment appears to be the driving force behind Goldman Sachs' efforts to speedily pay back the government.
The government money that they took comes with all types of compensation strings attached, and this just won’t do. Goldman’s solution is to rid itself of this very cheap source of financing and punish existing shareholders by doing a $5bn stock offering.
It’s an action that is so incredibly selfish that it makes me nauseous. The company calls the speedy repayment of the TARP money a “duty”! A duty to their bonus checks may be a more-accurate statement; these guys don’t give a hoot about their social responsibility to the government. It's naïve to imagine that they do.
The TARP money is only costing Goldman 5% a year. With access to money that cheap, one could argue that they are potentially breaching their fiduciary responsibility to their shareholders by paying it back too early. If they want to pay it back without diluting the existing shareholders, have at it. But, why do they feel the need to pay it back right now at the expense of existing shareholders?
Again, it comes back to bonuses; they want to be free of government intervention so that they can bonus themselves out off the backs of the common-stock holders. It’s wrong, it’s short-sighted and stockholders should be incensed by it.
As the public's appetite for stocks increases, look out for more stock offerings across the board. Most companies know that their earnings picture is still bleak, and they are chomping at the bit to sell inflated stock to the public as a cheap source of financing.
Insiders have been doing this to outsiders for over a century, selling stock to the public at outrageous valuations and then buying it back on the cheap.
Blackstone (BX) recently enacted this strategy with great success. The company sold shares through an IPO back in the summer of 2007 at $31, watched the stock drop to $4 and then announced a $500 million buyback this January! Look for more of the same from the rest of corporate America. The public falls for these schemes again and again because most people like to buy when it's emotionally easiest to buy. Paradoxically, though, this happens to be the worst time to buy stocks.
And it's not just the public that gets taken by these savvy operators. The Chinese Sovereign Fund got smacked for a cool $3 billion by buying into the Blackstone IPO. Welcome to American capitalism, China!
So, where am I going with all of this?
In lieu of a brand-new positive earnings cycle being unleashed, this market has turned us all into traders. So, what can you do? Be a smart trader and don’t buy at the top, because while the recent rally may still have legs, we are seeing lots of warning signs in this market. Don’t buy into the hype of an impending recovery because, even if that’s true, the chances are strong that we will have to retest or near-retest the lows in the S&P 500 and the Dow.
Remember, the time to be rampantly bullish is when it is emotionally uncomfortable to be so. Right now it's easy to be bullish, and that should be a warning signal for you. Stay away from these proposed equity secondary offerings; they are a sucker’s game. Keep your cash liquid and hold your wallet tightly.
Bottom line: Remember the golden rule -- he who has the gold makes the rules. They are your investment dollars, so make sure you are only allocating them under the very best conditions that favor you.
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Teeka Tiwari
Chief Investment Officer
ETF Master Trader
