Wall Street CEOs Too Optimistic?
Chief executives of the world's largest financial institutions may have been a bit too optimistic in predicting that the end of the global credit crisis was near, according to a recent story by the Associated Press on MSNBC.com. In April, Morgan Stanley's John Mack, Goldman Sachs' Lloyd Blankfein, Lehman Brothers’ Richard Fuld, and Merrill Lynch's John Thain were upbeat about the financial market. Sports metaphors abounded. Mack said that the credit crisis had reached “maybe the top of the ninth” of a baseball game while Blankfein compared the situation to the “third or fourth quarter" of a football game.
Such predictions of a market turnaround were premature. A wave of consumer anxiety about the financial industry, inflation, and a lull in the economy caused stocks to fall recently.
"There's a fine line between being early and being wrong," said Chris Johnson, president of Johnson Research Group. "Its always the darkest before the dawn when it comes to value investing."
Like many investors, Johnson thought the financial sector hit bottom in March when JPMorgan Chase rescued Bear Stearns from failing. Now the concerns are that Lehman Brothers is facing a serious cash shortage. Although Lehman denies that it is short of money, Standard & Poor’s says that the bank’s balance sheet is the closest of Wall Street firms to Bear Stearns. A Lehman official said that the bank continues to examine options to increase capital by either issuing stock or finding an outside investor.
"I think we're a little early to call a bottom yet, and at this point nobody is in a big rush to add massively to their exposure to financials," said Brian Gendreau, investment strategist for ING Investment Management. "But, that said, they've been battered down so badly that at this point there's little to be lost in investing in them, and that's about as optimistic as I can get."
