Friday, April 24, 2009

Meredith Whitney: Part 3

Earlier in the week, we noted the meteoric rise to stardom for Meredith Whitney. She has rode that wave of predictions to her own firm. Yet despite her prowess as an analyst and despite her being a darling of the media, one has to wonder, as David Weidner has done in this Wall Street Journal piece from April 9th, if she is all we think she is. We won't go so far as to say she's a fraud or even a fluke, but the inherent nature of entrusting one individual with the title of "Wall Street Oracle," as Whitney has been dubbed, is nothing short of dangerous.

Weidner says, "But to put it bluntly, Ms. Whitney's call on Citi wasn't that great. It wasn't the first, nor was it the best. Citigroup was already in deep trouble. Citi held a conference call three days after Dick Bove, then at Punk Ziegel & Co., Mike Mayo, then at Deutsche Bank and Charles Peabody at Portales Partners all issued sell ratings on the stock. Ms. Whitney participated in this call and asked three questions of Gary Crittenden, then Citi's chief financial officer, none of which were regarding Citi's dividend or capital position."

Two weeks later, "The Call" was made.

And while Ms. Whitney did go on to make some correct prediction in 2008, and she has clearly demonstrated her intellect, she is no Oracle. The Call did not say Citigroup was stuffed with hundreds of billions of dollars in toxic assets. It did not say that multiple banks will fail unless the government intercedes. It didn't mention Bear Stearns (which she once expected to earn more than $11 a share in 2009), Lehman Brothers or American International Group Inc.

As Weidner correctly points out, "That Ms. Whitney has emerged as a prophet of the financial crisis, mainly on the basis of one call, is a reminder that we tread dangerous territory by crowning messiahs on Wall Street. The Whitney myth is especially relevant considering our current dire straits were in large part created by faith in the financial "masters of the universe" who were deemed too sophisticated – and too highly paid – to misjudge risk."

"How is this guy getting 15+% returns when the market has been tanking? Ahh, who cares, he's making me money!!" These were the same sentiments expressed by those who will be crying on the witness stand for Bernie Madoff's trial in June.

Nobody has all the answers. Not Meredith Whitney. Not even Nouriel Roubini. Nobody should have a messianic complex in this environment. So next time the media falls in love with someone else, remember the words of Chuck D. and Flavor Flav from Public Enemy..."Don't, don't, don't believe the hype."

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