Bailed Out Financial Firms Offer Financial Outlook for 2010

Last Updated Feb 19, 2010 3:37 PM EST

I was surfing the net recently and ran across a video entitled Outlook 2010: What's Next for the Market and the Economy? The five expert panelists included two from Bank of America, and one each from Merrill Lynch, Blackrock, and PIMCO. Bank of America and Merrill Lynch were bailed out by us tax payers and Blackrock was largely owned by Merrill Lynch.

Sallie L. Krawcheck - Bank of America President of Global Wealth & Investment Management

Ethan Harris - Bank of America Head of North America Economics

Michael Hartnett - Merrill Lynch Chief Global Equity Strategist

Laurence D. Fink, Blackrock Chairman and Chief Executive Officer

Mohamed A. El-Erian - PIMCO CEO and Co-CIO

What's really going on here?
I don't know if it's just me, but I'm looking at more than a tad of hypocrisy. If Merrill Lynch had even a clue of what was ahead in markets, perhaps the U.S. Government wouldn't have had to broker a deal for Bank of America to buy them out. And if Bank of America could forecast the future, we may not have had to fork over tens of billions of dollars to keep them going.

Bank of America and Merrill Lynch didn't even see the folly in buying up mortgage derivatives that were backed by mortgages made to people who qualified for 100 percent financing based on the fact that they had a pulse. Thus, they contributed far more than their fair share to our financial crises.

After bringing our economy to a halt, now they want to give us more sophisticated financial advice to outsmart Mr. Market. I think I'm going to pass on their advice.

Why this Bank of America video will be successful
The hypocrisy I see here isn't all that different than Tiger Woods teaching a class on marital fidelity. Yet, this video will still be effective because of the irrationality of investors. Our addiction to prediction allows us to:

  • Have very short memories and forget that we are taking financial advice from firms that made the largest financial blunders in history.
  • Rationalize by thinking these advisers had nothing to do with the collapse.
  • Listen to anything that sounds well thought out, irrespective of the track record of those giving us this financial porn.
My advice
I'm not so much questioning what is said in this video, though they do start with the same Associated Press misleading style noting the S&P 500 index is down 24 percent for the year. Noting part of the return of part of the market makes their point better so who cares if it's misleading? I'm questioning our human ability to believe anything we want to believe.

If anyone tells you they know the outlook for the market next year, they are either lying or don't know that they don't know the outlook for the year ahead. Even those that actually called 2008 correctly, got 2009 dead wrong, such as economist Gary Schilling.

I can't stress this point strongly enough, but I'll try - no one knows the outlook for markets in 2010. If they did, they wouldn't be producing a marketing video to bring in business. Always take a step back and apply some not-so-common common sense.

Author's note: The actual AP column noted the S&P 500 index was down 23% percent rather than the 24 percent noted in the video referred to in this column. The AP published date was 12/29/09 and the S&P 500 index fell approximately one percent in the last two trading days of the decade.
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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.