Wall St. analysts goofed up, again - Views on News from Equitymaster

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Wall St. analysts goofed up, again

Aug 19, 2009

We recently witnessed the biggest stock market rally in not one, not two but as many as seven decades. But if Bloomberg is to be believed, one wouldn't have been able to make the most of this rally had one relied upon the guys who are supposed to be walking encyclopedias on the companies that they track. We are referring to the supposedly over rated tribe of research analysts. As per rankings compiled by Bloomberg, an investor who used US$ 10,000 to buy companies in the industries rated as strong buys by the analysts and betted against the ones rated very poorly would have lost everything. Infact, he would have owed as much as US$ 6,000 in order to cover his bearish trades. And please bear in mind this may not be an isolated incident. Street analysts have constantly come under attack from some very big names in the investing world mainly on account of their inability to correctly forecast big movement in stock markets and the tendency to display a herd mentality. Perhaps they need to move beyond their current approach to research i.e. focusing on the near term fundamentals of the company and not having a grasp of the bigger picture and the longer term outlook. But in an industry that generates a bulk of its revenues from stock trading, it could be too much to ask.

Drought will not increase government borrowing
The finance ministry has dispelled rumors that in order to tackle the drought, the government will have to borrow more in a year where the borrowing is already likely to scale new highs. With rains coming in way below normal and with farmers' income being hit, there was a fear that the government will once again do something similar to last year where it waived off farm loans to the tune of Rs 700 bn thus putting a lot of pressure on its already stretched finances. However, with the recent government clarification on the same, a crisis seems to have been averted.

The government has raised the target for direct taxes and this, it believes, will help in giving out relief to the farming community. And if required, the government will try to account for any spending over and above that has already been laid out, from the existing budget itself. The statement soothed some anxious nerves as was evident from the yield on 10 year bonds - the instruments that form the basis of determining interest rates on a variety of fixed income securities that cooled off a bit. This may also put to rest any doubt with respect to the increase in interest rates in the foreseeable future.

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1 Responses to "Wall St. analysts goofed up, again"

Avinash

Aug 20, 2009

Is this a warning for what I read on your site and the recommendations that you make? :)

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