Citigroup (NYSE: C) and Merrill Lynch (NYSE: MER) said goodbye to their CEO's last week, while reports of rising suicide risk among homeowners with subrime mortgages have hit the news cycle. This indicates that the panic button has been hit and that something very dramatic is straight ahead, a major acceleration in the decline of asset prices, or a significant buying opportunity.
Yet, CEOs of Fortune 100 firms usually leave with a nice golden parachute. Merrill's former CEO, Stan O'Neal reportedly left Merrill with a $160 million severance package, despite steering the company into a heap of trouble, firing top executives and allowing the company to make huge bad bets on subprime mortgages.
But mostly, Wall Street suffers from a major dog eat dog culture, which leaves the ranks at the top of the heap often too thin for anyone to figure out what's happening until it's too late.
According to the Journal: "The dearth of CEO material owes much to the Wall Street culture in which executives are pushed to maximize profits and quickly get axed if they fail to deliver. That sullies the résumés of many would-be chiefs. What's more, most Wall Street firms are now global publicly held companies, not the private partnerships of yore, meaning a CEO must be skilled both in presenting the public face of a company and understanding the nitty-gritty of finance."
Also important is who gets axed. Multiple reports on Merrill's O' Neal pointed out his continued "ousting" of key long term executives at the firm who then "prompting some of those executives to agitate behind the scenes for his departure." Citigroup also had a similar culture "During Mr. Prince's tenure at Citigroup, more than a dozen top bankers have departed, been forced out, or been given different responsibilities. They include Marjorie Magner, who ran global consumer banking, and Michael Dunn, a 30-year Citi veteran who served as finance and operating chief for Citigroup's global consumer unit."
In contrast, though, in the world outside Wall Street, there are no golden parachutes, and the reality is that most people live paycheck to paycheck, juggle their credit cards, and depend on keeping their jobs in order to muddle along. It is this large group of people who make it on a month to month basis that run into life changing experiences, and often contemplate suicide when they lose their jobs or their mortgage resets to a higher monthly price.
To be sure, we're not making excuses for people who make bad choices and live beyond their means. Nevertheless, it is important to set the record straight as to what the parameters of the discussion are going to be, because things seem to be taking on a different color.
But, no matter where you are, there are consequences to bad choices. According to AP: "Homeowners of all ages and income levels have fallen into trouble over the one-two punch of a softening housing market and problems with subprime mortgages, which are made to homeowners with weak credit. Sometimes it's financial mismanagement. Other times it's a lost job, medical issues or another life-changing event," and things may get worse, as "Foreclosure filings nearly doubled nationwide in September, and new-home sales are projected to fall 23 percent this year."
The wire service article quotes one housing counselor as sometimes having to give his distraugth clients "suicide hot line numbers" before they leave his office.
Indeed, a growing trend is that of counselors seeking trend for dealing with foreclosures.
To The Charts
So we have a rise in suicide risk on main street, and the heads are rolling on Wall Street, with the news coming fast and furious about who's next to lose their job or which hedge fund might implode.
That means that it's important to see what the market thinks of all these events, and what kind of risk/opportunity ratio they might provide for investors.
Chart Courtesy of StockCharts.com
A look at the banking index (BKX, above) where Citigroup gets a heavy weighing, shows a pattern of lower lows and a new low to end last week. But the index is reaching very oversold levels, and the Federal Reserve has been lowering interest rates. That means that we should be watching for a bounce in the sector, although it's not a good idea to be rushing out to buy bank stocks. At least not yet. Not even Warren Buffet is doing that as far as we can tell.
Chart Courtesy of StockCharts.com
Next, we look at housing, where the Philadelphia Housing Index (HGX, above) has been forming a bottom of late. The decline in this index started in July of 2006, and is now testing levels not seen since April of that year, with the overall loss during the time adding up to over 40% of the value at the index's top.
Conclusion
The situation on Wall Street and Main Street is not very positive. And from an investment standpoint, the key is to figure out when the selling has been exhausted.
Frankly, it's difficult to predict at this point, since banking stocks continue to weaken, and housing stocks have yet to prove that they can rise, despite their recent reluctance to fall further.
Much of the worry on the mind of investors, though, is about the upcoming election, and the potential for some kind of tax increase, given the large number of proposals that are being put forth by Congressman Charles Rangel (D., NY).
So, even though there seems to be blood on the streets, both Wall and Main, the charts are not telling us that this is over yet.
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