Wall Street Won't Tell You it's a Bear Market

Wall Street will never admit it's a bear market.  I emphasize this point in my book, Full of Bull, with respect to the eternally favorable bias and systemic optimism inherent at brokerage firms.  Automobile dealers will never tell you to hold off on buying a new car and Wall Street, by the same token, can never be negative, because it's trying to sell you something.  Moreover, the two most important clients of brokerage firms are institutions such as mutual funds that own huge stock positions and corporate executives who dole out investment banking business.  You can imagine their reaction to Sell recommendations.  Never look to the Street for advice on the stock market outlook; it's not credible.

I mentioned last month the scenario "The Ballroom's on Fire, but They're Still Dancing in There," and expressed my fear that after Labor Day the insiders would return from holiday and likely decide to stop dancing.  The Dow-Jones has fallen 2 percent during the last two weeks, but this may only be the beginning of a downward leg.  In the same few days there were cataclysms such as Lehman Brothers (NYSE: LEH) diving 77 percent and Fannie Mae (NYSE: FNM) and Washington Mutual (NYSE: WM) both crashing 89 percent.  These are akin to the sobering Bear Sterns experience earlier this year.

Despite the caving market and above detonations, Wall Street continues to be in denial, blindly ignoring the dismal outlook.  For example, according to the Wall Street Journal, the majority of Street analysts still carried Buy ratings on both FNM and Freddie Mac (FRE) in mid-August.  I noticed a columnist in Forbes, who is a money manager, reemphasized her FNM and FRE recommendations in the latest issue, only days before their effective demise.

American International Group (NYSE: AIG) has collapsed by some 75 percent this year and there are still several Buy recommendations around the Street.  The shares are trading below $15, yet the mean Street price target is $35.  I'll wager that when the stock was near $60 back in January, you didn't see any price objectives of $20!  Nor did you likely see any Sell ratings.  The Street and the media are forever attempting to catch falling safes.  It's a ridiculously high-risk, absurd investment strategy that is counter to preservation of capital.

Brokerage firms are not helpful when it comes to stock recommendations.  This week, after it was glaringly evident Lehman Brothers was about to capitulate, and the stock cratered to around $7, the three biggest firms on the Street finally got around to downgrading their opinions.  The stock had been collapsing ever since it was in the $80's last year.  As I stress in my book, Wall Street analysts are bad at stock picking.

You are on your own during this perilous, risky bear market.  Brokers will not help you protect your capital.  Don't try to beat the bear market by buying stocks - you will just get eaten.  Avoid the bear.  Cash does not crash, and it pays dividends in the form of interest.  Street analysts and the media will not offer such counsel.  You must figure it out yourself.

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