PAUL B. FARRELL
King Henry Paulson
says: 'Buy banks!'
But gurus
say no: Cool Andy, Mad Jimmy, Genius John, Nervy Naomi
By Paul
B. Farrell, MarketWatch
Last update: 8:06 p.m. EDT Oct. 27, 2008
ARROYO GRANDE,
Calif. (MarketWatch) -- "Considering how hard I work to make what I have,
I don't understand why I'm so dumb with money" said Andy Rooney on
"60 Minutes." His admission came after a segment about the mysterious
$55 trillion of credit default swaps that are traded in a shadow banking
system.
"The single
dumbest thing I do is invest in the stock market," Andy says. "It's
OK if you know what you're doing, but I have no idea what I'm doing and I
suspect I'm typical of a lot of Americans too. We know how to make money but we
don't know what to do once we get it."
Has
he got an alternative? You bet: "There's probably a good case to be made
for someone like me keeping his money under the mattress. We turn the mattress
every couple of months, so at least I'd get to look at it once in a
while."
The mattress? Yes, and "Mad Money's" Jim Cramer agrees! Poor guy's in panic mode: On a recent "Today" show he did a flip-flop, telling a shocked Ann Curry: "Whatever money you may need for the next five years, please take it out of the stock market. Right now. This week. I do not believe that you should risk those assets in the stock markets." You heard him, stay out of the stock market for five years.
Yikes! Is Mad Jimmy using Cool Andy's "cash under the
mattress" strategy? Sounds like it. Like Greenspan's congressional mea
culpa last week, Mad Jimmy's admitting he's been misleading you for years. But
can you trust them now? Maybe he and the rest of his Wall Street buddies are
setting you up. That's right, still misleading you so you don't go
bottom-fishing for value deals before them when we finally do hit bottom.
Guess what: Cool Andy's "cash under the mattress" really
was a great idea for the past 10 years, what the Wall Street Journal is now
calling "the lost decade." Here's how USA Today's long-time mutual
fund columnist John Waggoner framed the strategy recently:
"For retirement investors, the bear market has wiped out most
gains for the decade." Get it? Not just all the losses since last year's
subprime-housing meltdown. Not just the losses since last month's collapse. But
all the stock market gains you thought you made the past decade: Yes, all of
them, kaput, nada, up in smoke, vanished forever.
Meanwhile, even as the market was tanking in late 2007 Wall Street
bankers were splitting the $36 billion in bonuses they siphoned off your
hard-earned investments. Here's how Genius John says the "cash under the
mattress" strategy works:
"An investor who put $100 a month into the American Funds
Growth Fund of America for a decade, for example, would have had $14,562 in his
account at the end of September. By Thursday [10 days ago], that would have
shrunk to $11,671, not including the fund's upfront sales charge. An investor
who had put $100 a month into his mattress for a decade would have
$12,000."
Bottom line: You've been scammed: This is total incompetence,
bordering on unethical and criminal. If you put your hard-earned $12,000 under
the mattress for the last decade, it would have been worth more than the
$11,671 accumulated in a mutual fund.
But actually it's far, far worse! Now if you also deduct the
fund's 5.75% load and inflation of more than 30% the past decade, you see the
stock market's a real loser. In short, after 10 years of blindly trusting the
Wall Street's advice about stocks, it turns out that investing in the stock
market is not a money-making machine, but a big fat greedy black hole that
gobbles up your money.
New ratings champ
The good news? Mad Jimmy has been replaced as the leading TV "talk show host" by a much bigger con artist. The new show is called "The Great American Bailout Giveaway" and plays daily on the U.S. Treasury TV Network. Mad Jimmy's worth maybe a few hundred million. Uncle Warren Buffett, maybe $50 billion. But King Henry Paulson dominates the TV screen lately, because he throwing around over $2 trillion with his straight man, Helicopter Ben Bernanke.
So what's King Henry recommending? That's easy: Banks! Yep, bets
on banks! You should too, right? Why not, he's investing $125 billion in them?
He must have a lot of confidence in banks to plunk down that much of our cash.
Long term, banks "must" be a fab-u-lous investment. But which ones?
Well, King Henry's actions speak louder than Mad Jimmy's "take your money
out of the stock market for five years" contradictions.
The truth is, Henry's now the biggest power-player in the world.
If he pulls this hat trick off, history will put him on par with J. Pierpont
Morgan, who rescued the U.S. government twice, from the 1895 depression and the
1907 financial crisis. No wonder he's now the de facto president as well as CEO
and "Chief Securities Analyst" for the "New America
Corporation."
Many in the global press are calling him "King Henry."
I'll bet old buddies at Goldman are calling him "Savior" and will
give him a nice "signing bonus" of at least $100 million if he
rejoins Goldman, paralleling the 1% investment banking fees we used to get when
I was with Morgan Stanley.
Imagine the confidence supporting his recommendations: He tops
Uncle Warren's $5 billion investment in Goldman by upping the ante to $125
billion in new capital for nine banks including $10 billion each to his old
buddies at Goldman Sachs (
GS
Goldman Sachs Group, Inc
Last: 92.88-7.52-7.49%
GS MS
Last: 13.73-2.79-16.89%
JPM C WFC STT BK
Plus as much as $25
billion each to other members of Wall Street's "Old Boys Club;" J. P.
Morgan Chase
BK BAC
BAC
Good bet? Worried? You should be: These jokers drove America into
a recession, brought down the global banking system and lost $10 trillion in
shareholder value in the meltdown. And yet, while some banks have been off
their highs as much as 80%, maybe it is time to think about bottom fishing.
After all, they are the bedrock of our economy.
Seriously, when they come back, they'll have a hell of a lot of
upside in a recovery. And if they don't, if they sink further, then we'll all
suffer because that means King Henry made a bad call and "New America
Corporation" will have to file for bankruptcy, which some pundits say has
already happened.
But there's a bigger question: Can you trust a man with so many
conflicts of interest? Not only is King Henry the chief salesman for
Reaganomics and the archconservative Bush administration, he's worth $800
million, he's a long-time investment banker who made $38 million in 2006, the
last year he was CEO of Goldman, and he's clearly "feathering his
nest," as my grandmother used to call it, so that when he returns to Wall
Street Jan. 20 he'll be set up to make hundreds of millions, if not billions
for himself personally with his new brand as "Master of the Financial
Universe."
Reaganomics is dead ... long live Reaganomics!
And that gets me around to the last "guest" on my show
today. You've now heard lots of real and imagined advice from Cool Andy, Mad
Jimmy, Genius John and King Henry. So let's consider what they say through the
sharp lens of Naomi Klein, author of "The Shock Doctrine: The Rise of
Disaster Capitalism," an indictment of Reaganomics, free market
ideologies, deregulation, privatized government and trickle-down economics.
In a recent online column, "Free Market Ideology is Far from
Finished," Nervy Naomi warned us that Reaganomics is not really
"dead" just because King Henry and Helicopter Ben are nationalizing
America's major financial institutions. The truth is: Reaganomics ideologues
are merely faking their death. They're feeding that illusion, while dumping all
their toxic debt problems onto clueless taxpayers.
In fact, the meltdown is actually part of Reaganomics "Grand
Strategy." Here's Nervy Naomi's analysis:
"Nobody should believe the overblown claims that the market
crisis signals the death of 'free market' ideology. Free market ideology has
always been a servant to the interests of capital, and its presence ebbs and
flows depending on its usefulness to those interests. During boom times, it's
profitable to preach laissez faire, because an absentee government allows
speculative bubbles to inflate."
Then she delivers a very disturbing warning: "When those
bubbles burst, the ideology becomes a hindrance, and it goes dormant while big
government rides to the rescue. But rest assured: the ideology will come
roaring back when the bailouts are done. The massive debts the public is
accumulating to bail out the speculators will then become part of a global
budget crisis that will be the rationalization for deep cuts to social
programs, and for a renewed push to privatize what is left of the public
sector."
…[They are creating an extreme hyperinflationary ] new bubble
and a bigger meltdown, triggering the "Greatest Ever Global
Depression."