Cramer Takes On the Analysts

Analyst activity regarding General Growth Properties (GGP) really had Cramer steamed on Thursday evening. Cramer is angered by the fact that a Lehman/Barclays (BCS) analyst has held a positive rating on GGP since it was up in the thirties in July. He has maintained a that stance on the stock, up until yesterday when the firm dropped coverage on GGP with the stock trading well below a dollar, and amid discussions of bankruptcy.

“The analyst who’s covering General Growth Properties, GGP, the real estate investment trust under siege from its bondholders, the analysts from Lehman and Barclays what they did yesterday was, it’s simply unconscionable. I have no opinion on the stock. Analysts get things wrong and I mentioned they do not hold themselves accountable at all.

This guy liked GGP all the way down from $32.39 when he initiated coverage of July 23, 2008, with a Buy it went all the way under $1. He kept pushing it as it sunk lower and lower and lower. That’s par for the course with the analyst community. Yesterday with the stock at 65 cents, and what happened? The analysts at Barclays simply dropped coverage. No downgrade. We don’t talk about this one anymore. Well, that’s just great.

All I ask is analysts hold themselves to the same standard of rigor and accountability that I hold myself to. They can’t do it. Reading the notes from this analyst at Barclays, it’s like another universe. It’s a bizzarro world he lives in… Back when GGP was at $32.29 in July, he tells us, ‘although General Growth is more highly levered than its peers. 72% vs. 52% and as a substantial amount of near-term debt maturity. Going forward, we think GGP will be successful in refinancing its maturing debt.’ After GGP cratered, he kept on December 18th when it was at $1.61, his reiterated his argument for the stock…

He [analyst] needs to spend a lot more time with his family. Get the drift? And he’s not alone… Wachovia upgraded it to buy on October 3rd and for it to bring back its dividend from the dead. GGP will be lucky if it manages to resuscitate itself. The bottom line, clearly these analysts have taken permanent intellectual vacations. Now it’s time for them to take some real vacations.” CNBC’s Mad Money on Thursday, April 02, 2009.

Cramer is bringing up some interesting points, and he echoes some of the concerns that we have had with the Wall Street research. Academic studies have shown that following the Street’s recommendations will under perform the market year after year. For just a few examples of those studies, click on the articles from Barron’s Online and MarketWatch. So performance has been bad, and combine with the fact that at times research shops connected with investment banking operations can be fraught with conflicts of interest.

No one is perfect, and certainly not Cramer, as his fiasco with John Stuart over his calls regarding Bear Stearns demonstrated. However, say what you will about Cramer but he does make himself available to answer for his actions. When an analyst drops coverage after riding the stock all the way down to the point that the largest shareholder is calling for bankruptcy, the analyst can often move on from covering GGP and no one is the wiser. There are some great analysts out there and many serve a good purpose, but the old style sell-side model has been broken for sometime. Institutional research shops all over are shedding staff rapidly and coverage is shrinking, which may not be such a bad thing for the individual investor. We applaud Cramer for calling attention to this sort of behavior which again casts doubt on the decaying Wall Street research industry.

Cramer Takes On the Analysts

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Ockham Research is an independent equity research provider based in Atlanta, Georgia. Security analysis at Ockham Research is based upon the principle known as Ockham's Razor, named for the 14th- century Franciscan friar, William of Ockham. The principle states that a useful theory should utilize as few elements as possible, because efficiency is valuable. In this spirit, our goal is to make the investing environment as simple and understandable as possible, yet no simpler than is necessary.

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