Remember a year ago when your investment advisor, broker, retirement confidant, friend, cable TV market insider, or trust salesman let you in on a proven pearl of wisdom? Yes, you remember, that’s where your investment advisor shared in hushed tones the half dozen market truths that guided all the smart money on Mount Olympus? Only now, with your restored vision corrected by 20-20 hindsight, you find the well paid experts that were willing to help you for a modest fee, were wrong. Dead wrong. And the money they have extracted from your savings accounts or 401k accounts, which were your payments for their superior management skills – which has proven to be an unmitigated disaster – has left town. Along with Slim and None, who were guarding the door labeled ‘Equity Savings Vault,’ that held your precious belongings. Your equity, along with your savings, hopes, and dreams for the future have joined with the missing married wife from the opening scenes from the movie ‘O Brother, Where Art Thou.’ “She’s gone,” said the hushed husband, “She’s done r-u-n-n-o-f-t.” Your money will never be found in the unfolding sequel or the next.

Oh well, the good ship, Misery, has a boat load of paying passengers that can commiserate their and your shared (mis)fortune.

‘The Experts will save us.’ The mighty Titans of Wall Street with their superior knowledge know what they are doing. At least that is what we were led to believe. The CEOs of the failed Wall Street firms and banks, whom were paid in the tens of millions of dollars per year, with some being paid nearly $100 million per year, were unable (or unwilling) to foretell disaster within their own companies only weeks prior to their company’s Armageddon. For example, CEO Richard Fuld, at Lehman Brothers said four months prior to the October 2008 stock market crash: “the worst of the impact of the financial markets is behind us.” Two months before the crash, Fuld said Lehman was “well positioned” by their efforts to maintain a strong balance sheet. This Master of the Universe was paid approximately $186 million dollars in compensation for the preceding three years. By the time the sun had passed the fall equinox in 2008, Lehman was gone. Lehman, the first of many Wall Street firms and banks had disappeared into the ever expanding abyss of a black hole, which was followed in by an unprecedented amount of recently printed money from the United States Treasury.

This story would be repeated ad nauseam, in a familiar pattern that included the malfunctioning Detroit car industry, the collapsing housing bubble, and mismanaged national and state governments across the fruited plain.

The domino effect of the every expanding world recession was orchestrated by complacent range of characters that included the obscenely paid management teams from Wall Street, the willing boards of directors of these firms, the lackadaisical efforts of the United States Congress, and the regulatory bodies that failed to protect the US taxpayer.

Where was the relationship, or delta if you will, between performance and pay? Rahm Emanuel, President Obama’s chief of staff made some $400,000 sitting on the mortgage giant Freddie Mac’s board of directors. While Emanuel, according to the Chicago Tribune, collected his pay for little work—he did not sit on any active committees for his 14 month tenure—he helped usher in a “plan to use accounting tricks to mislead shareholders about the outsize profits the government-chartered firm was then reaping from risky investments.”

The Tribune continues: “The Freddie Mac money was a small piece of the $16 million he (Emanuel) made in a three-year interlude as an investment banker a decade ago.” Emanuel gets to keep his money. “Freddie Mac reported recently that it lost $50 billion in 2008. It so far has tapped $14 billion of the government’s guarantee and said it soon will need an additional $30 billion to keep operating,” but the taxpayers do not get to keep their money. The tax payers are forced to fix his mess as Emanuel leads another group of experts to oversee the recovery.

Emanuel at least was able to pass the sophomoric smell test that President Obama had set up to screen his Cabinet level appointees. Many other appointees could not meet this elementary filter. A laughingstock parade of current and former government officials Obama selected to fill his Cabinet of misfits failed to pass the simple morality test of paying taxes that were due and reporting income. Without belaboring the point here, performance has little to do with pay or social status and replacing one set of ‘experts’ with another set of ‘experts’ does not constitute “Change we can believe in.”

Buy and Hold is the Best Investment Advice. Historical evidence tends to confirm that over the long haul, stocks should advance by percentage increase that beats the bank rates and inflation. Tell that comforting fact to anyone that has put money in Wall Street for the last decade or so. In the long haul, we all are dead.

After the Enron scandal and collapse of 2000 and 2001, I have written on these pages the fallacy of the ‘buy and hold’ strategy. For those folks that have recently bought high and have lost much, perhaps now my previous words may appeal towards taking another look at my published thoughts found at farmandlivestockdirectory.com/columns. Buy and hold has a couple of weaknesses. If the stock market unfolds in a series of wave forms, i.e. up and down price movements over time, then if one needs to remove money during the cyclic down times, much of the perceived asset value has been lost to reality. If the real money on the front end, bought pieces of stock that is now devalued paper on the back end, there is no way to turn back the clock to recover the very real loss of that asset.

So, why did the ‘experts’ allow this to happen? Many experts were (are) nothing more than salesmen peddling a product for a commission regardless of the final outcome. No surprises here. Some highly compensated experts figured out how to game the system, in order to collect Midas sized payments, regardless of the risk that crushed the last guy holding the bag. Do I hear Gomer Pyle recounting in his sonorous nasal, “Surprise, Surprise?” And a few of the experts simply did not understand the great degree of risk that was entered because the mathematical rubric they built to protect the investments did not contain some now obvious variables.

These experts were paid well, but how many of the Wall Street Titans were able to circle their personal wagons and successfully repel the deflationing onslaught? Less than a very few is the correct answer. So how did those masters of the universe earn their golden salaries? Humm…Bernie Madoff anyone?

Move fast before the opportunity is lost. Ken Lewis, the CEO of Bank of America, saw a great opportunity to purchase Merrill Lynch. With Bank of America’s stock trading for about $34/share at the time of the purchase, the stock is now trading a bit higher than the recent low at under $3/share. The collapse of one of the United State’s largest bank’s share price is not matched by Mr. Lewis’ take home compensation of $98.6 million from 2005 and 2007. This hurried up deal at the time of purchase was (maybe yet) nearly catastrophic for the bank.

Our congress cobbled together, in a hurried up session, another set of brilliant managerial moves by our elected experts. In the back smoke filled (not any more, make that quiche and brie filled) rooms of congress, a set of savior packages, I, II, III, and etcetera, representing the largest expenditure of dollars ever spent by Washington, have come before the vote on the congressional floor with little or no debate allowed. In one case, only 10 hours were allowed for the members allowed to even read the context of what they were to vote on and ultimately passed, spending over 700 billion dollars.

AIG bonuses and other shenanigans have later come to light because of the lack of congressional oversight of their own members. It was Senator Chris Dodd that expressed surprise that the AIG bonuses were written into the quickly passed legislation that he helped write. He was surprised when the press reminded him that it was He that was the author of the largess. Hear Gomer’s laughing? Speed kills, reminds us from Mothers Against Drunk Drivers. Apparently, our elected elites are still drunk with power.

Some of the experts have now fallen out from behind the veiled curtain that protected the little man, the charlatan, in pages of the Wizard of Oz. The experts have taken, stolen, robbed, and obfusticated the American public and shareholders for too long. The shell game played by the elites upon the American public is still largely intact. Empty phrases of eloquence uttered by leading politicians does not constitute leadership, it is just the beginning, perhaps, of educating the group that Lincoln referred to, as fooling “Some of the people, all of time.”

Copyright by Alan Jewell 2009
Alan Jewell is a grain farmer in Southwest Wisconsin. He has been honored four times as having one of the best managed farms in the United States. Alan works with producers and processors, specializing in marketing and hedging their production. He is a featured speaker at many events involving the Agriculture community. He can be reached at 608.935.2596 and aljewell@mhtc.net. Past articles can be found at http://www.farmandlivestockdirectory.com/columns.html

These series of articles teach and discuss the interlocking tools of the marketplace. This is not a solicitation of any order to buy or sell but merely a current market bulletin provided by Alan Jewell. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor do they purport to be complete. No responsibility is assumed by Alan Jewell or The Midwest Farm and Livestock Directory with respect to any statement, nor with respect any expression of opinion herein contained.