'Remain Calm! All Is Well!'

Sunday, March 16, 2008 | 12:00 PM

Penalty_flag_3 Nothing really surprises me anymore. I may shake my head in disgust and wonder -- Eliot Spitzer's horrific judgment, or the reality denial from wingnuts -- but by and large, I mostly mutter "Barely Monkeys!" under my breath and then move along. Having opposable thumbs and a big brain is meaningless if you don't bother to use 'em.

The latest subprime subprimate nonsense is the pushback on the "What bullshitters Bear's management are" meme. I rarely invoke this, but I am throwing down the too-inane-to-be-seen-linking-to flag -- you will have to go find the stupidity by yourselves (which we both know you won't bother doing, but trust me, its real, not a straw man).

This whole conversation does give me the opportunity to relate a story to you. I did a Street.com panel several years ago -- Jim Cramer moderated, and Jon Markman was on with me and a few other guys. At one point, I mentioned I almost never speak to senior management, don't listen to conference calls, don't read press releases, don't care what the CEO or CFO claim.

This amazed Jim Cramer -- he all but stopped the panel discussion, made me repeat it, asked me why -- I responded:

Very few are truly forthcoming. (I make a mental note of those who are, and know I can go to them with very abstract questions).

They are all salesman whose job it is to present their company in the best possible light. (Hence, whatever they say is mostly unverified assumptions, spin, and wishful thinking. What good does that do for any investor?)

• I'm gullible. Someone tells me something, I tend to believe them. Even more so when  they look me in the eye, shake my hand and say it.

• Not speaking to management has enhanced my investor returns.   

Along those lines, I came across a very interesting piece by Michael Rapoport. It was hidden away in the offline version of Dow Jones Newswires. (Hey Mike! Great Animal House reference). Rapoport discusses what happens when corporate management get revealed as untrustworthy: "So beyond the liquidity problems, at this point Bear would seem to have a credibility problem. In fact, there's a lot of that going around lately."

What's interesting to me about this is that its not just Bear: Thornburg Mortgage, CountryWide, S&P, Moody's all have lost much of their credibility. Think back to the originally announced write-downs of Citibank, BoA, Morgan Stanley, Merrill, UBS -- then look at what was actually written down: You get even more credibility issues.  Nothing to see here, move along. 

Here's a few paras from Rapoport's column:

"Within a couple of days after Bear Stearns Cos. (BSC) swore up and down that it didn't have any liquidity problems, it admitted Friday morning that it had a liquidity problem.

Bear Stearns announced it was getting an influx of financing from JPMorgan Chase & Co. (JPM) and the Federal Reserve Bank of New York -- a move that amounts to a bailout of Bear amid mushrooming concerns about its liquidity. The company said its liquidity had "deteriorated significantly" within the past 24 hours.

This despite the fact that Bear had insisted all week that its liquidity wasn't at risk, persistent market rumors notwithstanding. The company said Monday there was "absolutely no truth" to the rumors. On Wednesday, Chief Executive Alan Schwartz said, "Our liquidity position has not changed at all. Our balance sheet has not weakened at all." (A Bear spokeswoman couldn't immediately be reached for comment Friday.)

So beyond the liquidity problems, at this point Bear would seem to have a credibility problem. In fact, there's a lot of that going around lately.


Still, it strains credulity to think that a bank as large and sophisticated as Bear Stearns detected no warning signs whatsoever that a liquidity problem might be in the offing. And even if the market has gotten panicky, and thus endangered companies which by all rights should be fine, this is something that's been building for months. Shouldn't a reasonable company have taken steps by now to reduce its exposure to these violent dips in the market?

In short, when companies contend they're blameless for the way things unfolded, and shouldn't be held responsible for things they said that turned out not to be true, they may not be entirely, uh, credible.

So in addition to "Animal House," let's haul out another pop-culture touchstone for advice. As they used to say on "The X-Files': Trust no one."

That's pretty good advice for even experienced investors . . .




Bear's 'Remain Calm! All Is Well!' Problem
March 14, 2008 3:28 p.m. EDT   

Michael Rapoport is one of four "In the Money" columnists who take a sophisticated look at the value of companies, and their securities, and explore unique trading strategies.

Sunday, March 16, 2008 | 12:00 PM | Permalink | Comments (62) | TrackBack (0)
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After a while, people can begin to believe their own bulls**t. Schwartz would probably have passed a lie detector on Wednesday. But talk is cheap, and at some point the rubber has to meet the road. The wink and nod can only go so far, as the Street smelled blood and went for the kill. But what can you expect from the CEO of one company when the President states that there is no recession, and the Secretary of the Treasury states that we have a strong dollar policy. I am not sure who these messages are geared to. Nobody believes them. Why not just come out and tell people the truth. I guess they feel we "can't handle the truth".

Posted by: njdoc | Mar 16, 2008 12:29:55 PM

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