Chris Marshall

America's On Sale - and the World's Buying

I think that the performance of the US stock market has more to do with the inherent bias of investment firms to being long, then FDI flows.

As an example of poor analysis ( or too bullish views), ask the following:

Out of 16 Analysts, for GE, 10 were BUY, 3 were Overweight and 3 were Neutral, no wonder the market reacted so badly. Why did no Wall St analyst take their financial exposure into consideration?

All of the institutions that have analysts appear to refrain from rating their peers at anything below neutral, even during a financial crisis. Is this Wall Streets final defense, or just the ineptness of its analysts?

For the worst case of being long look at Thornburg Mortgage (TMA).

Under the rescue package $1.3 Billion is being injected, and the Equity guys will receive $2.75 Billion of Warrants (that cost 1c each, $27.5 Million).

The price of TMA is currently $1.25 each, so these shrewd Equity guts will do the following:

Upon the dilution, they will short the stock, and be happy with $1 per share. Total return $ 2.75 Billion, Total profit on share sale $1.45 Billion. On top of this they will have the loan of $1.3 Billion ( totally secure against ALL of the TMA mortgage book) with a yearly interest of 12%.

Now TMA does have a good name, but effectively that is all that it has, so the common shareholders have been diluted to practically nothing, the execs keep their highly paid jobs, and nobody (except for the common shareholders) will lose, whatever the outcome.

As long as the stock price is held at ridiculous levels, shorting the stock on dilution, will become a brutal spectator sport, and the poor common stock holders, will be hammered. So please, any of the little guys out there, sell NOW, before dilution, as after dilution, and the short selling, I expect the price to drop to well below 50c.

(Chris Marshall)