The summer of 2012 has been a bull market for both stupidity and stocks.
NEW YORK (TheStreet) -- So long summer! It's been such a tremendous season of unadulterated dumbness that we here at the 5 Dumbest Lab really, really hate to see you go.
Labor Day is upon us and that means our friends on Wall Street will soon be trading their casual polo shirts for pinstripes and power ties. Yes, it's time for America's captains of industry to get back to business. Monkey and otherwise.
But before officially saying goodbye to what has been a three-month bull market for both stupidity and stocks, we wanted to reminisce just one more time about some of the highlights -- or lowlights -- of summer 2012. So please enjoy the 10 Dumbest Things on Wall Street This Summer. See you in the fall.
10. Dimon's Self-Inflicted Disaster -- (Originally published June 15, 2012)
What a difference a year and a $2 billion (and counting) loss makes. Right, Jamie Dimon?
JPMorgan Chase's(:JPM) CEO found himself before a Senate panel this Wednesday with the uncomfortable task of explaining why and how his London-based Chief Investment Office lost billions when it was supposed to be hedging run-of-the-mill risk for the bank's excess deposits.
Of course, the reason why this appearance was less pleasurable for Jamie than his previous jaunts to Washington -- the ones where he played Congress' prize pupil sitting in a pew full of naughty, bailed-out bank CEOs -- was because in this case Dimon set the witness table for himself.
In other words, Jamie's own hubris came back to bite the government's former golden boy in the ass. And sadly, that's the real dumb part of this whole affair, not so much the loss, which, although sizable by Main Street standards, is barely a blip for a company with $1.1 trillion in deposits, $700 billion in loans and $18 billion in profits last year.
It was a year ago this week, if you recall, when the follicly-blessed bank chieftain traveled to Atlanta, the home of baseball's Braves mind you, for the sole purpose of waving a hatchet at the already-scalped Fed Chairman Ben Bernanke. Why Dimon literally and figuratively went off the reservation to heckle the fairly even-minded Bernanke is beyond us. But there he was in the crowd during the Q&A session, braying about the government's stepped-up efforts to clamp down on the banking industry.
"I have this great fear that someone's going to write a book in 10 or 20 years, and the book is going to talk about all the things that we did in the middle of a crisis that actually slowed down recovery," said Dimon, who then asked Bernanke, "Is this holding us back at this point?"
Ouch. Wish you could that one back, don't you Jamie? Just like you wish you could time travel and strike April's "tempest in a teapot" line about this particular loss from the record as well. Sadly, not even your so-called "fortress balance sheet" is enough to buy you that luxury.
All that said -- and we've said a lot -- we will cut Dimon a slight bit of slack, but not for owning up to his bank's mistakes. Certainly we would not have heard a peep from Dimon if the so-called hedge had gone JPMorgan's way, so why on earth should we celebrate Dimon publicly admitting the "self-inflicted" nature of the loss? Seriously, what else is the guy to do after spending the last year taunting poor government officials over their plans like the Volcker Rule to protect bankers like Dimon from themselves?
No, the break we will grant Dimon is that his ego-inflation was not entirely his own fault. The truth is, the very folks now pillorying him deserve a lot of the blame for puffing him up.
As Dimon rightly reminded the panel during the hearing, it was the government that gifted him $25 billion in TARP funds even though his bank didn't require the cash. And speaking of gifts, it was Uncle Sam who guaranteed $29 billion in losses so he could buy a busted Bear Stearns, or what Andrew Ross Sorkin called "Jamie's deal" in his book Too Big To Fail. It was also that same Uncle Sam who blessed his deal to buy WaMu for a paltry $1.9 billion.
Put it all together and it's clear to see that JP Morgan had a great deal of assistance from Washington as it snowballed into the colossus it is today. And it was those same silly folks who gave Dimon the false confidence to think that a single man could hold it together.
9. PFG's Less Than Best -- (Originally published July 13, 2012)
Somebody find Jon Corzine and tell him he has company.
Futures broker PFGBest imploded Tuesday after the Commodity Futures Trading Commission accused it of misappropriating customer funds for over two years. The regulator alleges that the firm's Peregrine unit and its owner Russell Wasendorf Sr. tapped into thousands of customer accounts to hide a shortfall that may exceed $200 million. Peregrine filed for Chapter 7 bankruptcy Tuesday night.
"The whereabouts of the funds is currently unknown," the CFTC said in a complaint against PFG and Wasendorf, whose suicide attempt Monday night kicked off the crisis.
Yep, even after MF Global went bust under Corzine's watch last autumn, leaving $1.6 billion in unaccounted client cash, it took an embezzler trying to off himself for the authorities to uncover the fraud at the Cedar Falls, Iowa-based broker.
Seriously guys, just because PFGBest is stuck in corn country doesn't mean it's not crooked. One would think that after the MF debacle you folks would have kicked a few tires to make sure other futures firms were on the up and up, but maybe Iowa is fly-over territory for you folks.
To be fair, however, regulators missed Bernie Madoff's scam and he was operating right under their noses on the tony Upper East side of Manhattan, so inept officials and the swindlers they chase clearly know no bounds.
And like Madoff's scam, Wasendorf's swindle should have been easy to spot considering how simple it was in nature. According to Reuters, Wasendorf used a phony post office box to intercept confidential regulatory documents that were mailed by the National Futures Association, his regulator, to what they believed was PFGBest's bank.
Once he had the papers in hand, Wasendorf (1) forged the necessary signatures, (2) manipulated the bank balances, (3) mailed the altered information back to the Chicago-based NFA and (4) went on his merry way.
Simple as pie. Can of corn if you will. That is, until the NFA switched to electronic confirmations and Wasendorf -- who was breathing but incapacitated at last check -- lost his ability to continue his con game. Ah, thank heaven for technology for shining a light on the criminals among us.
That said, the fact that Wasendorf was able to keep his crime going as long as he did using nothing but a P.O. box and a pen will certainly frighten off traders now on the fence about jumping into the futures markets.
The ones not already scared away by Corzine's malfeasance at MF Global that is.
8. Johnson's Bad Dream Team -- (Originally published June 22, 2012)
For a guy who is supposed to be the Michael Jordan of retail, J.C. Penney(:JCP) CEO Ron Johnson sure is having a tough time keeping his "dream team" together.
Johnson bid goodbye to Michael Francis, the retailer's president, on Tuesday, sending shares of the stumbling chain down 9%. Johnson lured Francis and chief operating officer Michael Kramer to Penney's last year from Target(:TGT) and Apple(:AAPL) respectively in order to create what Johnson once called his retail "dream team."
"We've all been lucky and have only had winning experiences," said Johnson in January about the all-star squad he assembled in what ironically is the 20th anniversary of the formation of the original "Dream Team" which won basketball gold in the 1992 Olympic games.
One curious thing about this new dream team though. We don't remember the losses piling up for the American hoopsters in Barcelona like they currently are for this Penney's crew.
Michael Jordan and company won by an average of 44 points per game en route to world domination. The Penney's players, however, suffered a worse-than-expected 18.9% drop in same-store sales last quarter. That's in addition to the loss of customers, stores, market capitalization and confidence at the 110-year old company.
Oh yeah, we also don't remember Michael Jordan throwing fellow Dream Teamer Charles Barkley under the bus for his own mistakes. And that's what Johnson appears to be doing to Francis as J.C. Penney's Olympic-sized flame-out continues.
7. Chesapeake's Collusion -- (Originally published June 29, 2012)
Thank you Chesapeake(:CHK)! We were worried that the summer doldrums had set in early this year and we would be unable to find enough Dumbest-worthy material to fill our weekly rundown. And then, like the team-player you are, you came to our rescue with this latest headline about colluding with Encana(:ECA) to hold down land prices.
Oh Aubrey McClendon, how could we ever repay you?
Wait! Don't answer that Aubrey. It's a rhetorical question. We're just joshing you.
That said, we certainly aren't kidding about the allegations made in Monday's Reuters report that you and your Canadian rival schemed in 2010 to avoid bidding against each other in a state auction and in at least nine prospective deals with private land owners.
And apparently your investors don't think it's a joke either since news of the potential price-fixing sent Chesapeake shares down 8.5% Monday, making the scandal-ridden company the market's worst performer. As for Chesapeake's partner in the discussions (We told you Chesapeake is a team player), Encana's stock closed down 4% on an otherwise green day for stocks.
To cut to the chase -- and good old Aubrey sure is getting chased a lot these days -- the most damning email came on June 16, 2010, when McClendon told a Chesapeake deputy that it was time "to smoke a peace pipe" with Encana "if we are bidding each other up."
Forget the peace pipe Aubrey you moron. That's a smoking gun if the government decides to initiate a collusion investigation!
Almost equally idiotic was the Chesapeake vice president who answered Aubrey by saying he had contacted Encana "to discuss how they want to handle the entities we are both working to avoid us bidding each other up in the interim."
To which his boss responded: "Thanks."
No, thank you Aubrey. Like your bosom buddies at Encana, we know we can count on you when we are in desperate need of a very dumb idea.
6. Morgan's Groupon Mistake (Originally published August 17, 2012)
Poor Morgan Stanley(:MS). They simply have no clue when to jump off the Groupon(:GRPN) bandwagon.
Shares of Groupon got smacked Tuesday, sinking more than 27% after its quarterly revenue missed Wall Street estimates because of a weakening European economy and, let's face it, the novelty wearing off of its high-margin daily deal business. The company's stock fell to $5.50 on the report and is now down more than 80% since it touched a high of $31.14 on the day it went public last November.
Of course, a lot has happened since then. None of which, however, was predicted by the future-tellers at Morgan Stanley, much to their chagrin and their clients consternation.
Let's quickly review the mess Morgan's research team has made of this stock, shall we?
Back on Nov. 4, 2011, Groupon sold 35 million shares at $20 each, above the initial range of $16 to $18 mind you, raising $700 million and valuing the company at nearly $13 billion. Groupon CEO Andrew Mason spent the day gloating at his good fortune. And lead underwriter Morgan Stanley was beaming, confident that its Groupon success would show the folks at the still private Facebook(:FB) that it had the chops to do their highly anticipated deal.
Oh, hindsight. How it makes one want to kick oneself in the behind sometimes!
Anyway, forty days later with the stock trading near $23, Morgan initiated the stock with an equal-weight rating and a $27 "fair value" target. Fair enough. At the time Morgan was trying to prove the integrity of its research, as opposed to second lead Goldman Sachs(:GS) which gave Groupon a buy rating and a Street-high $29 target. (Good grief Goldman! Is there anything you won't do for a banking client? Did you learn nothing from last bubble's eToys episode?)
In retrospect, both banks should have slapped a sell rating on Groupon because the stock sank to single digits over the next six months. In mid-June, however, Morgan took a stand and upgraded its view to a buy with an $18 target. Wrote Morgan's analyst at the time, "We believe the recent sell-off of Groupon shares represents a strong buying opportunity."
Yep, cue the behind-kicking if you took Morgan's advice and bought the stock back then.
Or you know what. Don't self-flagellate just yet. Despite Tuesday's massive selloff, Morgan posted an overweight rating and a $9 price target on the stock on the belief that "Groupon is still the best positioned company to crack the local eCommerce enigma."
Seriously, feel free to put your boot down. Thanks to Morgan, there's still money left to lose and plenty of time to kick yourself.
5. Weill Goes Wild (Originally published July 27, 2012)
Former Citigroup(:C) Chairman Sanford "Sandy" Weill was talking on television Wednesday and he casually said that it's time for the United States to "go and split up investment banking from banking."
To which we respond: WTF Weill? Are you out of your mind?
Weill, for those too young to remember, led the 1998 merger of Travelers Group and Citicorp to form Citigroup, the so-called "financial supermarket" that was rescued from bankruptcy during the 2008 financial crisis with a $45 billion investment by the federal government.
And for those that may have forgotten, Weill was also a major force in overturning the Glass-Steagall Act that originally separated investment and commercial banks. Weill fiercely lobbied then-President Bill Clinton throughout the 1990s to dump the Depression-era law. Clinton finally caved in 1999 and signed the Gramm-Leach-Bliley Act, which ushered in the era of too big to fail banks.
Put simply, Weill is the Dr. Frankenstein of the financial industry and the monsters he helped create -- making him filthy rich in the process -- ultimately turned on their masters and nearly destroyed the global economy. That's what makes his two-faced comments so darn sickening and even harder to take at face value.
Sincerely Sandy, if you are going to be this hypocritical then save it for a deathbed recantation, don't be an ass and do it on CNBC's Squawk Box.
"I am suggesting that they be broken up so that the taxpayer will never be at risk, the depositors won't be at risk, the leverage of the banks will be something reasonable, and the investment banks can do trading ... not subject to a Volcker rule," continued Weill, now a philanthropist after retiring as Citigroup's Chairman in 2006.
Wait! Don't barf yet. Hold it just one more second until you've read Weill's reason for changing his opinion on the benefits of behemoth banks.
"The world that we live in now is different from the world we lived in 10 years ago," said Weill.
Like they say in politics, he was for it before he was against it. And if he had half a brain he would have kept his mouth shut about it.
But he didn't.
Feel free to puke now.
4. Standard Skates By -- (Originally published August 17, 2012)
Wow Standard Chartered. What a difference a week and $340 million makes.
Barely a week after the behemoth British bank got busted by New York Financial Services Superintendent Benjamin Lawsky for allegedly doing $250 billion worth of illegal business with Iran, Standard Chartered settled the affair Tuesday by paying a fine and agreeing to install a monitor to prevent future money-laundering. The announcement came just in time for the London-based bank, as it was scheduled to defend itself against the allegations at a hearing the following day.
Um, excuse us for asking, but if Standard Chartered was indeed a "rogue institution" and broke U.S. sanctions laws, then why not hold the hearings first and then decide the penalty? Those are some pretty nasty charges, so let's hear Chief Executive Peter Sands give some specifics under oath instead of flat-out denials to the press.
From the smell of it, the Brits got their knickers in a twist and New York's Lawsky, probably feeling the heat from the U.S. Department of Justice, twisted Sands' arm for a settlement before the facts could come to light and seriously embarrass somebody -- including himself.
In other words, he pulled a Spitzer, except in this case Lawsky did it to save America's "special relationship" with Great Britain instead of Wall Street campaign contributions for a future political run. (By the way Ben, disgraced former New York Governor Eliot Spitzer is not the act you want to follow if you want to get ahead in the politics business. Don't just take it from us. Ask around.)
Anyway, the $340 million penalty may seem hefty, but Standard Chartered earned $17.6 billion in 2011, so it's the equivalent of a speeding ticket to these guys. And as we all know, the best way to stop somebody from speeding is to take away their license.
And on that note, all that talk about revoking Standard Charter's license to do business in New York was merely that. Once the Limeys started whining that U.S. regulators were treating their banks differently than American ones, Lawsky claimed victory and left the game he started.
To which we say, congratulations to our friends across the pond. With that wrist slap of a punishment, Standard Chartered is being treated exactly like its counterparts in America. So quit your complaining, mates.
3. Knight Capital Goes Dark (Originally published August 3, 2012)
Speaking of a market apocalypse, Knight Capital(:KCG) better find its white knight in a hurry, otherwise it could go dark for good.
Knight, one of the largest U.S. market makers, said losses from Wednesday's trading breakdown total $440 million, and as a result the company is "actively pursuing its strategic and financing alternatives to strengthen its capital base." Knight's massive loss chews right through its net income of $3.3 million in the second quarter on revenue of $289.3 million. Shares of the computerized trading company lost almost two thirds of its value this week, falling from more than $10 a share on Tuesday to less than $4.
As we wait to see who responds to Knight's SOS signal, we just have one small question: What the heck happened here? Did they hire UBS traders to run the show or Suntech's euro bond analysis team?
Prices in 140 NYSE(:NYX)-listed stocks were flying all over the place for more than 45 minutes. Clueless traders were running around screaming at each other. CNBC's Bob Pisani was scrambling for coverage.
That was no mere "technology issue" as Knight is calling it. That was the freaking Tet Offensive at Broad and Wall.
Seriously, after last year's flash crash and the Facebook IPO fiasco, we thought the brainiacs running Wall Street's back offices would have a better handle on things. Or at least they would know how to shut down the machines should they run amok.
But that wasn't the case at all Wednesday morning. Knight couldn't pull the plug on its new software in time and is now in danger of having its plug pulled.
And for those still wondering why worn-out investors are waving goodbye to Wall Street, well, the knuckleheads at Knight provided yet another answer.
2. HP Charges Ahead (Originally published August 10, 2012)
Hewlett-Packard(:HPQ) is once again leading the charge in Silicon Valley.
Charge-offs, that is.
The once-proud printer company announced Wednesday its plan to take a colossal $8 billion charge against its earnings when it reports third-quarter results Aug. 22, leading to a record loss of nearly $9 billion. The charge is due to a writedown of the value of its service business, definitively proving that the company overpaid when it picked up Electronic Data Systems in 2008 for $14 billion. HP has only posted one quarterly loss in the past 15 years for those keeping score.
And for those more comfortable speaking in acronyms: EDS is no IBM(:IBM) so Q3 at HP is DOA.
Sorry about that. Sometimes all this dumbness just gets us giddy.
Anyway, Hewlett-Packard picked up EDS in order to transform itself from a printer maker into an information-technology company, just like IBM did so successfully. Too bad it couldn't make the change, as the division has seen flat revenue and declining profits for the past two years.
Nor could it make the change to a PC or mobile-device company. Last quarter HP announced it was writing off $1.2 billion from the value of the Compaq brand name. HP purchased Compaq in 2002 for $25 billion. And, as for that $1.2 billion Palm purchase in 2010, well, we haven't gone through all the footnotes yet, but it's safe to say HP's accountants probably palmed that one off somewhere along the line. And if they haven't, then stay tuned.
Yep, it sure is sad when goodwill goes bad. And it's even sadder when an American corporate icon like HP undergoes a massively expensive -- and very public -- identity crisis. Shares of the company have lost a quarter of their value this year and almost 15% since Meg Whitman took the CEO reins from Leo Apotheker last September.
Which brings us to the British company Autonomy, which Apotheker acquired for $10.6 billion in cash with the goal of turning HP into a software giant. In May, Whitman told analysts on HP's quarterly earnings call that she was still optimistic about Autonomy's future despite its "significant decline" in annual revenue.
Hopefully we will hear better things about Autonomy from Whitman when HP reports later this month. But even if they can't turn things around, it's no biggie. If they can't make a change, they can always take a charge.
Until, of course, they can't.
1. Barclays Gets Busted -- (Originally published June 29, 2012)
A bunch of thieving traders were manipulating the most important benchmark lending rate in the world during the height of the financial crisis. Now they are paying up for their sins -- and their egregious stupidity.
Well, at least their employers are paying up. Those guys cashed out years ago.
Barclays(:BCS) agreed Wednesday to pay $453 million in a joint agreement with regulators in the United States and Europe to settle a probe that it profited or curbed losses on trades related to Libor - aka the London Interbank Offered Rate -- which impacts borrowing costs for everyone from homeowners to central bankers from 2005 to 2009.
According to the U.S. Commodity Futures Trading Commission, Barclays traders, under the approving eye of the bank's senior management, made artificially low Libor submissions while simultaneously colluding with their equally devious counterparts at other banks.
For example, here is a March 2007 instant message exchange between a pair of traders from separate banks: "this is the way you pull off deals like this chicken, don't talk about it too much, 2 months of preparation ... the trick is you must not do this alone ... this is between you and me but really don't tell ANYBODY."
No, you turkey, the trick is not to get caught and leave a trail of evidence that you are rigging bids.
And here is another choice nugget from March 2006 illustrating the conspiracy theses dunces engaged in: "Dude. I owe you big time! Come over one day after work and I'm opening a bottle of Bollinger."
Hey, there may be no honor among crooks, but at least there is champagne.
As for the guy at the top of Barclays pyramid, well, CEO Bob Diamond said what he was expected to say, apologizing that "some people acted in a manner not consistent with our culture and values." As penance, Diamond, Finance Director Chris Lucas, Chief Operating Officer Jerry del Missier and investment banking boss Rich Ricci agreed to forgo bonuses this year.
Sorry Bob, but it was more than "some" bad apples spoiling the bunch. This was a wide-ranging scheme that will surely grow even wider as more big-name banks settle with the Department of Justice in order to put the whole sordid affair behind them. Heads should definitely roll over this, not just bow in regret over getting busted.
And as for your bonus sacrifice, give us a break. We are quite sure you can skate by on your current $6 million base salary and the $23.5 million in compensation you pocketed last year.
Of course, the same probably can't be said for all the struggling homeowners now shelling out higher than necessary mortgage payments each month because of your bank's bad behavior. Nope, those folks aren't skating by at all. Thanks to you and your friends, they are stuck.
--Written by Gregg Greenberg in New York.