A Beatles' Guide to the Bear Market
What the Fab Four can teach us about those reviled ursines.
In Penny Lane there is a barber showing photographs
of every head he's had the pleasure to know.
And all the people that come and go
Stop and say hello.
There were many bears growling long before the bear market in stocks, credit and derivatives began in 2007, present company included. While highly negative on financial-company shares, even the grizzliest of bears would have had trouble believing how many large corporations would eventually become penny stocks - those that trade below $1 per share.
Penny stocks usually trade on the Pink Sheets, where no self-respecting institutional investor will venture. But alas! Some of the companies now making up the list of penny stocks (after horrible bets in derivatives and too much leverage), once maintained market capitalizations that rivaled the cream of the crop. They include: Citigroup (C); AIG (AIG); Fannie Mae (FNM); Freddie Mac (FRE), Lehman; Genworth Financial (GNW); Office Depot (ODP); and E*Trade (ETFC).
There are many other companies that I expect to end up on Penny Lane soon. They include: GM (GM); Ford (F); Fifth Third (FITB); Bank of America (BAC); and Huntington Bancshares (HBAN).
These stocks residing on Penny Lane will likely be joined by many more before all is said and done in this bear market. Of note, the New York Stock Exchange has made exceptions for these companies that would normally be de-listed and left them alone to trade at embarrassingly low levels. I suspect this is as a result of the NYSE’s hope that someday some of them will re-enter the world of the living at some later date.
If there’s a silver lining to these stocks maintaining such low market caps, it’s that they can no longer have a direct impact on the overall market (whether a market-capitalized index like the S&P or a price-weighted one like the Dow Jones Industrial Average).
Since I doubt these companies will be de-listed anytime soon, they’ll remain a mere distraction to portfolio managers, and will likely become playthings for retail speculators trying to scalp a few pennies here and there.
One last thing about Penny Lane: The companies that live there seem to have one thing in common: They’re part of our portfolio as taxpayers.
Not quite what the Beatles had in mind.
You Never Give Me Your Money
You never give me your money
you only give me your funny paper
and in the middle of negotiations
you break down.
Where have I heard “you never give me your money”? Banks and brokers with their hands out after annihilating themselves, their clients, and anything that stood in their way.
Why didn’t banks, automakers, investment banks, mortgage companies, insurance companies do what so many knew they should: Cut dividends, suspend stock buybacks, cut workforce and expenses, and acknowledge they were in trouble? Instead, the very same institutions that helped create this crisis were the first in line for taxpayer money to help pay for their sins.
Only now are nearly all of the sinners cutting their dividends. The list includes GE, JPMorgan (JPM), US Bancorp (USB), Wells Fargo (WFC), Allstate (ALL), Bank of America, Citi, PNC (PNC) and many, many others.
But let me tell you what makes me really ill. The reason they say they’re cutting dividends: To conserve capital and repay TARP funds.
So let me get this straight: The Finance Committee (led by Barney Frank), the Treasury Department (then headed by Hank Paulsen) and the Federal Reserve (led by Chairman Ben Bernanke) handed over our hard-earned cash to a bunch of cowboys who were taking on risk and creating esoteric securities that could possibly take the whole system down. Now, after paying dividends, writing off hundreds of billions of dollars of ill-placed bets, paying themselves huge salaries and bonuses, they’re going to pay back TARP? Am I the only one confused here?
They take money from me, pay dividends they shouldn’t pay, then finally cut the dividends only when forced to the brink of bankruptcy - and then give the money back? Even if the TARP funds are repaid, do you expect to ever see your stock prices rise again, your TARP funds repaid, and your dividends restored? Hardly. Instead, the TARP funds will likely go to some other poorly conceived plan.
No wonder consumer confidence is so low.
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