Trust Fund Baby Eliot Spitzer Loses Again

This was not unexpected but followed the pattern of previous Spitzer prosecutions. Typically, Spitzer could threaten indictments and force settlements even in dubious cases since his victims had everything to lose. But Spitzer simply could never win in a trial. Accordingly, his tactics didn’t work if there was no settlement since the cases were extremely weak to begin with. Thankfully honorable men like Dick Grasso have the courage to standup to the demagogues and prevail:

Yet another of former New York Attorney General Eliot Spitzer's legal cases flamed out yesterday, as a state appellate court dismissed the heart of his suit against former New York Stock Exchange chief Dick Grasso. We sympathize with current AG Andrew Cuomo, who now gets to pick up the pieces.

That's about all that's left after the appellate judges tossed out four of the six counts that Mr. Spitzer brought against Mr. Grasso in 2004 over a $187.5 million pay package. Mr. Spitzer, who is now Governor, had claimed authority to sue Mr. Grasso under New York's "not-for-profit law," arguing that the pay was "unreasonable." But as the court ruled yesterday, Mr. Spitzer had also done an end-run around the law, claiming authority not found in any statute. As a result, the court ruled, "the Attorney General does not have the authority" to proceed with most of the case.

When Charlatans Believe Their Own Hype

Just like sports reporters, stock analysts primary job isn’t prediction, its narration. Much of the finance industry exists as entertainment for the elite who wouldn’t do anything lowbrow like pay attention to sports. The endless analysis of trades, players, speculations and “new” tactics serves the same purpose in sports and finance – it’s solely entertainment.

There is a large amount of data supporting the fact that analysts are literally no better than the man on the street than predicting stock prices or earnings.

This quote is from the Mr. Random Walk himself, Burton Malkiel:

Security analysts have enormous difficulty in performing their basic function of forecasting earnings prospects for the companies they follow. . . . Bluntly stated, the careful estimates of security analysts (based on industry studies, plant visits, etc.) do very little better than those that would be obtained by simple extrapolation of past trends. . .

The same argument with more mathematical rigor was made by studying 80,000 analysts forecasts over a period of 20 years,

The odds are staggering against the investor who relies on fine-tuned earnings estimates. They estimate there is only a 1 in 170 chance that the analysts' consensus forecast will be within 5% for any 4 consecutive quarters.

Analysts estimates are better a predicting other analysts’ estimates than anything else. Indeed, an analyst of any skill would move to the bigger paychecks of the hedge fund world as soon as possible.

In order to keep up the illusion of skill the analysts go through an elaborate show which typically includes; talking with management, visiting plants, and constructing exceedingly elaborate models. When their forecasts are close they can take the credit since their hard work apparently paid off. When they inevitably fumble – well…no one else got it right either.

When one of the analysts threatens to lift the curtain on the whole scheme the charlatans panic and start their denouncements. What makes this story so entertaining is that the criticism is not based on analysis – only the method, knowing full well its makes no difference.

A Wall Street analyst has raised eyebrows among competitors and customers because he did not speak to the senior management he wrote about prior to launching coverage of seven well-known pharmaceutical companies.

For decades, when compiling their initial reports, analysts have traditionally met with corporate management, such as the chief executive, or at least the chief financial officer.

Titbottom's Spectacles on Wall St

How things really are:

But I had pulled out my spectacles, and put them on for my own purpose, and against his direction and desire. I looked at him, and saw a huge bald-headed wild boar, with gross chops and a leering eye--only the more ridiculous for the high-arched, gold-bowed spectacles, that straddled his nose. One of his fore hoofs was thrust into the safe, where his bills payable were hived, and the other into his pocket, among the loose change and bills there. His ears were pricked forward with a brisk, sensitive smartness. In a world where prize pork was the best excellence, he would have carried off all the premiums.