Wall Street is weird (big surprise?)

Some years ago, a company called Chrysler Corporation was valued at under $4 per share. The highly paid analysts didn’t think much of its future, and common wisdom was that its lineup of aging cars and unpopular trucks would end up slowly disappearing.

At that time, I had a copy of the press book for the LH series, and thought the stock would skyrocket. I didn’t have any money to spend then, but the stock did soar. First, the New York Times had to print a huge feature on the upcoming cars and how they would revolutionize big cars. Then the stock shot up. Those wealthy analysts who were paid to know the depths of the industry apparently had missed the upcoming Intrepid - though I, a humble writer of the odd truck review for Army-Navy Store and Outdoor Merchandiser magazine, knew about it.

Then of course there were the perennial “Apple will declare bankruptcy” articles, culminating in Michael Dell’s comment that Apple would best serve its shareholders by liquidating. Okay, we had some rough times until the Second Coming of Jobs, but here’s a little clip from today’s edition of the excellent on-line publication Macintouch:

[Apple] posted revenue of $7.46 billion and net quarterly profit of $1.07 billion, or $1.19 per diluted share. … International sales accounted for 42 percent of the quarter’s revenue….
Apple shipped 2,496,000 Macintosh computers during the quarter, representing 41 percent unit growth and 43 percent revenue growth over the year-ago quarter. … “We’re proud to report the best June quarter for both revenue and earnings in Apple’s history,” said Steve Jobs, Apple’s CEO.

Oh, and the analysts? Until the iPod set records, most of them were down on Apple, too. Apple was soon to declare bankruptcy for years. The same story was run about Ford, General Motors, and Chrysler, even now that Chrysler is owned by some of the richest men in the world, men who I suspect would not hesitate to bankrupt tens of thousands of people at once, but who I also suspect would prefer not to publicly admit making a huge mistake. Not that they did — I believe they knew what they were getting, and they know there’s huge profits in there somewhere, someday.

Most recently, General Motors was down in the gutter. One analyst dropped expected share prices from $27 to $7 in one day. Do these guys just make things up? The result was GM’s share prices dropping rather quickly. None seem to care that GM is investing in its future across the world, rationalizing its engineering to avoid duplication and bolstering its international presence. GM is working hard to get into emerging markets in India, China, and Russia, and I suspect they’ll succeed. The company is still turning around, perhaps despite its CEO, and probably thanks mainly to Bob Lutz.

And what of Rick Wagoner? Well, the market showed no response when he took his full 2007 compensation, which as I recall was around $24 million. It did, however, shoot the stock up by an amazing $6 a share - going back over the $10 line - when Wagoner announced that he’d slash lots of other people’s salaries and jobs. Oh, the analysts love it when you slash. Their favorite movie must have been Friday the 13th or the Texas Chainsaw Massacre. Slash and burn, they never learn. Back in the 1990s, GM slashed jobs too; while Chrysler invested heavily. You know what their pick was - but you also know who won the huge profits a few years later.

One of the scary news items today was the Federal bailout of Fannie Mae and Freddie Mac. The same people that objected to - and still object to - the government’s loan guarantees to Chrysler, which saved at least 100,000 American jobs and was in some ways the least the government could do after Chrysler saved billions of dollars in World War II, refusing to profit from patriotism - these same people are bidding up the stock market and approving of the bailouts. They still don’t want GM or Ford to be bailed out; they love to predict bankruptcy for what they see as the rusty relics of years past. But given them some paper-pushers who made a bunch of bad bets, and they’re all for spending a few billion taxpayer dollars. After all, it’s not much more than a little slice of Iraq war, right? Now, Obama’s ideas about putting $5 billion towards Detroit automakers to help them survive their own bad decisions… that’s just plain wrong. But $25 billion or so towards a bunch of bankers (or up to $1 trillion, depending on the source), now, that’s a great idea. It might save, um, actually, nobody has told us why we’re doing it, exactly. Apparently we need a cheap source of junk mortgages.

Congress is going ahead, full steam, with rescuing Fannie Mae and Freddie Mac, and the White House loves the plan. But then, Congress is probably relying on the analysts’ advice. Perhaps we need a new Congress and White House that have more perspective - and don’t assume that financial institutions deserve our hard-earned dollars while ordinary Americans (or big automakers that hire ordinary Americans) should be subject to the free market.

We need changes to our system - now. We’ve been ignoring reality too long, in Washingon, Detroit, and New York - and in all those places where people keep their eyes shut to reality and listen to the siren songs of the “experts” and “populists.”