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Proof Media in Hopeless Moral Hazard When Forbes Compares BP With Goldman

Saturday, May 29, 2010 20:26
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<em>By Static Chaos</em><br /><br />When a major mainstream media like <a href=”http://www.forbes.com/2010/05/28/goldman-bp-earnings-markets-energy-fraud.html”>Forbes compare BP with Goldman Sachs</a> and recommend investors to buy Goldman stocks, you know the world is in total moral hazard and deserved to be doomed as Marc Faber has always been saying.&nbsp;&nbsp; <br /><br />Since Forbes is a financial publication,&nbsp;I will refute based on&nbsp;the investment thesis first.&nbsp;&nbsp;Granted both stocks are high risk plays right now,&nbsp;but I’d venture to say compared to Goldman, BP is obviously&nbsp;oversold and a victim of media hype and Whitehouse populist approach. <br /><br />This&nbsp;conclusion is based on BP&nbsp;dividend yield (currently close to&nbsp;7%),&nbsp;a strong average annual compound rate of return of 17.9% since 1977 vs. 10.7% from S&amp;P,&nbsp;the growth prospect of crude oil and low forward P/E ratio of 5.64.&nbsp; <br /><br />The in-depth&nbsp;<a href=”http://www.bloomberg.com/apps/news?pid=newsarchive&amp;sid=aDxI7HCYPZZM”>Chart of Day story of BP on May 6</a> by&nbsp;Bloomberg (Chart below) should&nbsp;more than confirm my conclusion about BP stocks from a fundamental point of view.&nbsp; <br /><br /><div class=”separator” style=”clear: both; text-align: center;”><a imageanchor=”1″ style=”margin-left: 1em; margin-right: 1em;”><img border=”0″ gu=”true” src=”http://2.bp.blogspot.com/_xNugVIZZaLU/TAFshsTk21I/AAAAAAAAACw/TqXkvpRSess/s320/Picture1.gif” /></a></div><div align=”left” class=”separator” style=”clear: both; text-align: center;”><br /></div><div class=”separator” style=”clear: both; text-align: left;”>Throughout its history, Goldman has been shortchanging retail investors by abusing its market position, which by the way, is put in place partly by the taxpayers’ money. Sure, there were a few “official investigations” throughout the years, but basically went nowhere most likely due to the Vampire Squid’s deep pocket, massive legal team, and far reaching influential tentacles into many related government agencies. </div><div style=”text-align: left;”></div><div align=”left” style=”text-align: left;”><br /></div><div style=”text-align: left;”>Now, the SEC finally&nbsp;brought&nbsp;a civil suit holding Goldman responsible for misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter. I will not go into the detail here of how Goldman knowingly contribute to the subprime crisis, which is the closet point of origin of the financial crisis leading to the current “Great Recession” and the current 9.5% jobless rate.</div><div style=”text-align: left;”><br /></div><div style=”text-align: left;”>This is not to excuse BP for the Gulf oil spill mess. The environmental and economic impact has yet to be fully assessed. But one thing people seem to have chosen to ignore is that BP has paid and will be paying for a long time to come for this mistake ($930 million to date). But where is Goldman on this?? </div><div style=”text-align: left;”><br /></div><div style=”text-align: left;”>Almost 1,300 vessels are now involved in the response effort. Other oil companies are also helping BP in the Gulf including the world’s top supermajor–ExxonMobile–by providing personnel and vessels. The entire oil industry will bear the brunt of the public outrage and is already working together to improve safety and engineering process and procedure to prevent any future similar incidents. </div><div style=”text-align: left;”><br /></div><div style=”text-align: left;”>In contrast, posturing aside, Goldman is yet to even formally acknowledge any misdeed.&nbsp;&nbsp;The entire financial industry, instead of looking into&nbsp;self reform, is fighting tooth and nail with Washington on the proposed financial reform.&nbsp; Many&nbsp;are&nbsp;talking about setting up offshore shops to avoid the regulatory “burden”.&nbsp;&nbsp;So excuse me for being outraged when Forbes dares to compare&nbsp;BP with&nbsp;Goldman and conclude Goldman is the lesser of the two evils.&nbsp;&nbsp;&nbsp;&nbsp; </div><div class=”blogger-post-footer”><img width=’1′ height=’1′ src=’https://blogger.googleusercontent.com/tracker/4371577805836882335-2441866571820993212?l=static-chaos.blogspot.com’ alt=” /></div>

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