Thursday, October 23, 2008

Notable News 10 23 2008: We Drank the Kool Aid

"We drank the Kool-Aid", said the Chief of Moody's. Ratings agencies 'put system at risk,' CEO says - MarketWatch He testified yesterday that the rating agencies became lapdogs rather than watchdogs.  Without their malfeasance, aiding and abetting Wall Street's schemes, the credit crisis would not have happened.  The only way for the toxic crap to be sold was for Moody's and Standard & Poor's to place their imprimatur AAA rating on the securities pools sold by the Street. Although this was done for their own financial gain, with everyone involved taking a big cut in the action before dumping the crap on investors worldwide, the rating agencies will claim First Amendment protection as "journalists" when sued by investors snookered into buying these "AAA" rated securities, now rated junk or worse. This is a notable article written by Gretchen Morgenson at the NYT about the agencies in 2005. The New York Times > Business > Your Money > Wanted: Credit Ratings. Objective Ones, Please.  This is a link to an article in the Scotsman, a paper from Scotland. Ratings giants in the line of fire - The Scotsman

Dow Chemical (DOW), one of the stocks that I sold at almost twice the current price a few months ago,  posted a decline in earnings and sales, with the CEO saying that Dow's customers started to cut back orders in September. The fall in oil and natural gas prices will help chemical companies like Dow, while the global slowdown will certainly hurt. The CEO claimed the dividend was safe. I have stayed away for now, partly due the global slowdown issue but I  also have concerns about the pending acquisition of Rohm and Haas near the top of the market for 18.8 billion. Fitch downgrades, may further cut Dow Chemical ratings - MarketWatch  Without the issue of taking on a lot more debt to buy a company, I might have considered taking a position in Dow early next year, but I have no interest now due to the Rohm and Haas acquisition. Instead I will just keep an eye on DuPont (DD) as a possible position in this sector. 

All of the job cuts that companies are announcing now will probably accelerate until the jobless rate hits 7.5 to 8% in my view. The first response of these large companies to a slowdown is to slash their payrolls.  

I could cite more but the forgoing makes my point. Job losses are a lagging indicator for a recession. The recession starts and then the losses accelerate as companies try to cope with a slump in demand. ( 

I have changed my mind on keeping cash at 20%. I am going to stop dipping into it to buy common stocks at or below current prices.  It is just too tempting for an old gamer.

Dover (DOV) had an impressive earnings report, and all things are relative now. MarketWatch I know that I sold that one at much higher prices and I will need to do some research later this morning, since I am rusty on it. 

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