Merrill Lynch Calls Banking Bottom and The Market Rewards Its Stock With A New Five Year Low
Over the weekend I wrote that Merrill's call on a banking bottom didn't jive with any data I model. Ironically, today Merrill makes a new five year low. How much is Merrill's stock worth? Given the lack of transparency, to me its worth nothing. The company has already lost nearly $30 billion so I must assume the worst. That is it could easily report similar or larger losses going forward for a multitude of reasons. And, that is exactly what the market is pricing into the stock. Which, quite honestly, is why I helped my family move money out of Merrill in the fall of 2006. You remember the fall of 2006? It was the height of our economic glory as told by Wall Street.
John Thain has a lot of work to do to earn that $84 million he was rumored to receive as the new Merrill CEO. Given Merrill's enormous losses how does Thain fix Merrill? Most likely by doing what isn't intuitively obvious. That is, to do exactly the opposite of what Merrill has done for the last decade. Why? Because Merrill's current business model isn't sustainable. Any business model that reports those type of losses is not a business model at all. It's an instruction book for going out of business. So far, Thain appears to be attempting to salvage the status quo. The market will take care of Wall Street's business model regardless of whether anyone wants to oblige or not.
Wall Street CEOs are still fighting the last war as all good generals do. That is they are trying to fix their Frankenstein finance machine rather than going back to their very important role of supporting the real economy. They'll wake up at some point. Most likely when desperation sets in. Or when the market inflicts unwanted change.
5 year chart of Merrill Lynch
John Thain has a lot of work to do to earn that $84 million he was rumored to receive as the new Merrill CEO. Given Merrill's enormous losses how does Thain fix Merrill? Most likely by doing what isn't intuitively obvious. That is, to do exactly the opposite of what Merrill has done for the last decade. Why? Because Merrill's current business model isn't sustainable. Any business model that reports those type of losses is not a business model at all. It's an instruction book for going out of business. So far, Thain appears to be attempting to salvage the status quo. The market will take care of Wall Street's business model regardless of whether anyone wants to oblige or not.
Wall Street CEOs are still fighting the last war as all good generals do. That is they are trying to fix their Frankenstein finance machine rather than going back to their very important role of supporting the real economy. They'll wake up at some point. Most likely when desperation sets in. Or when the market inflicts unwanted change.
5 year chart of Merrill Lynch
<< Home