Van Meerten's picks

If this journal sounds rambling it's because my first draft was 6 pages long and after I deleted all the expletives and name calling that I knew wasn't fit for the public to read there was only one paragraph left.

Investing research as we know it has been destroyed or maybe just been suspended.

In the past investing in US stocks was fairly safe due to regulation, transparency and the "Alphabet Soup"

The Alphabet Soup was our real protection. The SEC, NASD were supposed to properly regulate financial services activity and the Certified Public Accountants (CPA), Certified Internal Auditors (CIA) and all the Certified Financial Analysts (CFA) working not only for the research firms but also the rating services such as S&P, AM Best, Fitch and Moody's and business press and newsletters gave us independent opinions. Then there were the DBAs and PHDs; those business and economics professors that have to publish or perish and will write an article for a journal or be a guest commentator for anyone who asks. You and I if we wanted to make the effort could review the 10K, 10Q and S-8 of any publicly traded company - they were Gospels of the risks.


I really thought that there were no secrets in the US investment scene and that in this Internet information world of web-sites and blogs all that could be known about a company was known. The efficient market theory at work but a realization that sometimes there is a misinterpretation of the data, a slight lag in the analyses of the data and the fact that all of it is tempered by collective optimism and/or pessimism.

I thought that if you did your research and spent the time you couldn't get hurt. Boy was I naive!

I really thought that all the 10ks, 10Qs, S-8s, offering statements and prospectuses that were prepared by the issuers, reviewed by independent counsel and auditors and finally reviewed by the SEC and NASD gave a true and honest picture of the risks and rewards of any offering and company.

The regulators were supposed to regulate and make sure all risks were known and communicated. But they didn't do their job and neither did the rest of the Alphabet Soup - SEC, NASD, CPA, CIA,CFA, DBA, PHD and S&P et al.

Firms like Lehman were allowed to leverage 30 times their equity and keep a superior rating with some hedge funds leveraging even more. Freddie and Fannie leveraged themselves 60 times their equity.

Sub-prime debt, and all sorts of derivatives were packaged and repackaged, sold and resold with offering statements and credit ratings that were sheer fantasy.

None of the Alphabet Soup was protecting the everyday investor like you and me.

Our only protection was the true protector of the market - the short seller. When these brave investors saw a company that was over-rated and/or over valued by the Alphabet Soup they shorted it and that information was public. Short interest was a figure that was known and published. They were the true whistle blowers of the public investment world.

This week the FED published a list of 799 financial institutions that could no longer be sold short. These are the very institutions that intentionally caused the publication of over inflated income statements, balance sheets, offering statements, prospectuses, 10Ks, 10Qs and S-8s. These were the institutions that hide the Ponzi scheme that they were playing on the little guys like you and me.

The whistle blowers - the short sellers saw this so what happened? The Fed came in and rather than admit that they had not properly regulated the financial services industry, they punished the whistle blowers and rewarded the Ponzi Scheme creators.

Overnight the Fed's actions made a lot of the financial service stocks rise by double and triple digit percentages. The officers and Boards of Directors of these financial institution are the ones who caused the leveraged economy to fail and they hold trillions of dollars of company stock and stock options in these companies. The gift the Fed gave then made them whole, punished the whistle blowers and will cost the rest of us dearly.

This time the Fed rewarded the Ponzi perpetrators and punished the short selling whistle blowers.

Do you remember the child in the story "The Emperor has no clothes"? He was a whistle blower and I bet his parents gave him the switch when they got him home. The Fed gave the switch to the true protector of our public markets the whistle blowing shorts seller.

Go green. Burn all the 10Ks, 10Qs, S-8s and Annual Reports you may have have lying around the house in the fireplace to heat your home this winter because they are not worth the paper they are printed on.


I would enjoy hearing your comments at VanmeertenFund@aol.com

DISCLAIMER: The stocks selected should not be taken as buy/sell recommendations. They are the stocks that were selected by my stock screening process and then each was analyzed before adding or subtracting from the portfolio. Do not concentrate on the stocks but learn the selection process.

Jim Van Meerten
Strategy Lab Open Winner July 2008
VanMeerten The Amateur Strategy Lab 2008

Comments: View Comments |  Sunday September 21, 2008