Sand Spring Advisors LLC

Some Lipstick On This Pig

August 28, 2002

by, Barclay T. Leib

Let's hand it to Charles Schwab. That firm's recent downbeat set of commercials about "pump and run" Wall Street sales practices certainly strikes a certain chord with most of us familiar with big bank trading rooms. In particular, the "Let's Put Some Lipstick On this Pig" commercial reminds me a bit of when I ran an interest rate derivatives book at PaineWebber in the mid-1980's. The entire focus of the sales group at PW was almost wholly on the size of the commissions generated out of derivatives transactions, not on whether a naive client (many of whom were small savings and loans) really should get involved selling interest rate caps and floors in the first place.

Then Wednesday we hear more news of Citigroup/Citicorp/SSB playing favorites on IPO allocations with various Worldcom executives. But of course the culture of that firm has never quite been the same since the oh-so aggressive Sandy Weill came along. All I anecdotally know of Citi internal executive behavior comes from one day almost three years ago when I sat across from Sandy Weill's son, Mark Weill, for a job interview. Mark Weill, in somewhat nepotistic fashion, had been put in charge of a significant portion of the bank's asset management business at quite a young age. He was actually very kind to me, and suggested that I chat with several people who worked for him in the hedge fund and alternative asset management area. Yet within 6-months of that meeting, the first fellow that he had sent me to in charge of hedge funds had left the bank -- apparently despondent about intolerable post-merger Citigroup bureaucracy; the second fellow that I saw succeeded in sinking Citi's Alternative Investment Services (AIS) area with an overly concentrated allocation to macro managers such as Tiger's Julian Robertson; and Mark Weill himself soon took a leave of absence from his senior post, reputedly after some involvement with NYC prostitutes that became quasi-public knowledge.

The firm was a mess then and remains a mess today. It's just that back then the Weill family could do no wrong, while today, Citi management inceasingly appears like a bunch of fee-mongering and slimey chumps. I am happy my interviews led nowhere.

If we had to prognosticate on a potential price path for Citigroup from here, it would look something like the chart below: first a swing move lower toward $29.60, then a possible false rally toward $39.40, but at the end of the day, prices migrating toward a longer-term $20.83 downside target.


Chart constructed using Advanced GET End-of-Day

Elsewhere in the financial media, many people may also have noticed the new addition to the CNBC morning staff: commentator Stuart Varney, ex of CNN/CNNfn. Varney is a well-spoken Englishman with much experience reporting financial news -- a generally smooth and polished fellow. He is, however, wholly devoid of any talent interpreting this news correctly. I say this because I saw Varney speak at a private dinner function in 1999. Varney had entitled his speech "The Great New American Economy" or something to that effect, and clearly bought into the notion of high tech nirvana -- an economy filled with massive innovation and incentivizing stock options. He was certainly effusive and entertaining as a speaker. It's just too bad that he was also completely wrong in his conclusions. By putting Varney up in a high profile seat, is CNBC somehow trying to make us more greatly appreciate Mark Haines' relative honesty and dour sense of humor? Or is the network just grasping for a new and feel in a desperate effort to re-invegorate the show and re-capture lost audience share? I'd guess the latter.

Whatever the case, with Varney in the anchor seat, it is best to simply turn down the sound. He may talk nicely, but in most instances, his words hold little substance.


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