I Guess So Called Financial Experts Are Not

[mystang52]

Re: Current Banking news: When I first read about the Theranos debacle, my main takeaway was how many experts were wrong in not seeing, or rather refusing to see, the house of cards foundation. Now, we have a few banks failing or on the verge because they did not protect themselves from market changes. I am 100% convinced that had these institutions hired one of us, on this site, to assess their financial stability they would not be in trouble now.
[as a related aside, special shout-out to Jim Cramer for his assessment on both Theranos and SVB).
From my, ahem, non-expert perspective I'm amazed at the stupidity of experts not being able to do what they supposedly know so much about.

 

[O2Bfree]

I am 100% convinced that had these institutions hired one of us, on this site, to assess their financial stability they would not be in trouble now.

I would guess that some of their people voiced concerns and were ignored, similar to what happened with the Challenger and Boeing 737 MAX disasters. The primal instinct of greed is difficult to overcome.

 

[Qs Laptop]

[as a related aside, special shout-out to Jim Cramer for his assessment on both Theranos and SVB).

Hmmm...

CNBC’s Jim Cramer urged viewers to buy Silicon Valley Bank stock last month
By Ariel Zilber
March 10, 2023 1:29pm

https://nypost.com/2023/03/10/cnbcs-jim-cramer-touted-silicon-valley-bank-stock/

From my, ahem, non-expert perspective I'm amazed at the stupidity of experts not being able to do what they supposedly know so much about.

 

[audreyh1]

Was Cramer never bullish on Theranos? Just wondering.

 

[Chuckanut]

Remember Bernie Madoff. A guy named Markopolis had the numbers that showed his “earnings” could not be right. Despite the math, he was ignored. The gravy train was picking up speed as it went down steeper and steeper slopes. What fun! What an exciting ride? What could possibly go wrong?

 

[rwdflynavy]

If the experts were as good as they say, they'd be billionaires multiple times over. Invest in index funds and DCA. Boring.

 

[braumeister]

Was Cramer never bullish on Theranos? Just wondering.

IIRC he called her "a visionary", and "another Steve Jobs".

 

[audreyh1]

IIRC he called her "a visionary", and "another Steve Jobs".

Ha ha!

 

[Freedom56]

With so much incompetence in the financial industry, why do so many people hand over their money to a fund?

 

[ls99]

^^^^ Me thinks they masters at pump and dump.

 

[Gumby]

One thing to keep in mind when watching CNBC, for example, is that the fund managers and other people who they have come on to talk usually have their own reasons for saying what they say. And educating you and me is pretty far down on that list of reasons. Mostly, as the saying goes, they are "talking their book."

 

[HenryD]

IIRC he called her "a visionary", and "another Steve Jobs".

I w*rked for a subprime lender until 2008, although not in a finance role. I remember Cramer having Tony Mozilo (Countrywide) on his show for a feel-good bit of puffery right before the SHTF.

There's a healthy contingent over on the subreddit I'm probably not allowed to mention here that tries to do the opposite of whatever Cramer is saying.

 

[disneysteve]

KPMG apparently did audits of SVB and Signature and gave them both clean reports within 2 weeks of them failing.

 

[MichaelB]

IIRC he called her "a visionary", and "another Steve Jobs".

Well, that’s true, she was a visionary and saw things others didn’t - such as proof her devices worked as claimed.

From my, ahem, non-expert perspective I'm amazed at the stupidity of experts not being able to do what they supposedly know so much about.

That’s a pertinent observation, and one we all should keep in mind. Of course, one difference between our views and the supposed experts is they are always talking about what to do with other people’s money, while we all are focused on our own money. That makes such a difference ..

 

[athena53]

IIRC he called her [Holmes] "a visionary", and "another Steve Jobs".

Yeah, I remember that interview. Cramer is always so adoring when he interviews CEOs so I do take him with a grain of salt and do additional research.

As for "pump and dump", I can't accuse Cramer of that. He doesn't own stock- his charitable trust does hold stocks but he's always up-front about what the trust owns and doesn't own any time one is mentioned.

 

[Freedom56]

One thing to keep in mind when watching CNBC, for example, is that the fund managers and other people who they have come on to talk usually have their own reasons for saying what they say. And educating you and me is pretty far down on that list of reasons. Mostly, as the saying goes, they are "talking their book."

CNBC is full of fund promoters and grifters. Fox Business is far too political and their guests are clowns and grifters. All I want is business news that will help me manage my money. This is why I watch Bloomberg.

 

[ShokWaveRider]

Hmmm...

CNBC’s Jim Cramer urged viewers to buy Silicon Valley Bank stock last month

That is because he was selling his! The stock market system is bent.

 

[copyright1997reloaded]

Same as it ever was.

 

[pb4uski]

KPMG apparently did audits of SVB and Signature and gave them both clean reports within 2 weeks of them failing.

Ditto for Signature Bank.

But the bonds on SVB's balance sheet as of the financial statement date of December 31, 2022 were correctly presented and the fair value of the bonds was properly disclosed... that is KPMG's responsibility to ensure that management does that correctly and they did their job.

It is the job of management to do good asset-liability matching and that is not audited, only the financial statements are. It would be management, regulators and analysts that cover off interest rate risk.

We will likely hear a lot on this from journalists and others who just don't understand what an audit does.... it expresses an opinion on whether the financial statements are fairly presented and disclosed under GAAP... and GAAP doesn't cover asset-liabity management. Now if the audit hadn't been completed before the run started, then SVB's ability to continue as a going concern might have become an issue, but the audit was completed on February 24.

 

[MichaelB]

Ditto for Signature Bank.

But the bonds on SVB's balance sheet as of the financial statement date of December 31, 2022 were correctly presented and the fair value of the bonds was properly disclosed... that is KPMG's responsibility to ensure that management does that correctly and they did their job.

It is the job of management to do good asset-liability matching and that is not audited, only the financial statements are. It would be management, regulators and analysts that cover off interest rate risk.

We will likely hear a lot on this from journalists and others who just don't understand what an audit does.... it expresses an opinion on whether the financial statements are fairly presented and disclosed under GAAP... and GAAP doesn't cover asset-liabity management. Now if the audit hadn't been completed before the run started, then SVB's ability to continue as a going concern might have become an issue, but the audit was completed on February 24.

+1

GAAP doesn’t cover asset-liability management, but the Basel Accords do. One of the things they spell out is different flight-risk levels of customer deposits, and they also provide a methodology to stress test a bank based on the distribution of deposits across different customer type. The bulk of SVB deposits were in the highest risk categories that were most likely to suffer flight, which is exactly what happened in real life.

The SVB executive team fulfilled all the audit requirements but failed miserably at managing the business.

 

[jollystomper]

Of course, one difference between our views and the supposed experts is they are always talking about what to do with other people’s money, while we all are focused on our own money. That makes such a difference ..

+1

If we mess up with our money personally, we are accountable. If they mess up with a prediction, they are not, and no one really challenges them.

I am not aware of anywhere that "tracks" the long term track record of any of those pundits. You never see a caption under their image on TV like "predicts correctly 20% of the time" .

There presence is more for marketing purposes... IMHO it seems what more and more "experts" really crave is celebrity status. Maybe I contribute to that, as I sometimes watch the business channels more for entertainment purposes .

 

[mystang52]

Hmmm...

CNBC’s Jim Cramer urged viewers to buy Silicon Valley Bank stock last month
By Ariel Zilber
March 10, 2023 1:29pm

https://nypost.com/2023/03/10/cnbcs-jim-cramer-touted-silicon-valley-bank-stock/

Yes, that was my sarcastic point.

Ditto for Signature Bank.

But the bonds on SVB's balance sheet as of the financial statement date of December 31, 2022 were correctly presented and the fair value of the bonds was properly disclosed... that is KPMG's responsibility to ensure that management does that correctly and they did their job.

It is the job of management to do good asset-liability matching and that is not audited, only the financial statements are. It would be management, regulators and analysts that cover off interest rate risk.

We will likely hear a lot on this from journalists and others who just don't understand what an audit does.... it expresses an opinion on whether the financial statements are fairly presented and disclosed under GAAP... and GAAP doesn't cover asset-liabity management. Now if the audit hadn't been completed before the run started, then SVB's ability to continue as a going concern might have become an issue, but the audit was completed on February 24.

My career was in the Property/Casualty Claims field, but I had a small bit of knowledge about Insurance Company Balance sheets. I don't recall bloody details, but insurers also had to do a 2nd set of reporting, that focused on liquidity and their ability to pay claims. One would think banks should have a similar requirement for liquidity, in event of an unusual uptick in withdrawal demand.

 

[threeonesix]

[as a related aside, special shout-out to Jim Cramer for his assessment on both Theranos and SVB).
From my, ahem, non-expert perspective I'm amazed at the stupidity of experts not being able to do what they supposedly know so much about.

The "experts" of which you speak were not chosen due to their financial acumen, but their ability to attract ad dollars for their respective "entertainment" platforms (CNBC, MSNBC, et al). i.e. Jim Cramer has been way wrong more than he has been correct.

 

[threeonesix]

I am not aware of anywhere that "tracks" the long term track record of any of those pundits. You never see a caption under their image on TV like "predicts correctly 20% of the time" .

That is a salient point, indeed. Which is amazing because it's not hard to do. I am a very, very, very small-time sports gambler on the side (I do pretty well, actually) who pays attention to Vegas pundits. Every one of them have their wager advice tracked incessantly and their stats are right there on the page for all to see.

I think we all likely know why this is not done for financial pundits. The second point of your post captures that perfectly.

 

[pb4uski]

... My career was in the Property/Casualty Claims field, but I had a small bit of knowledge about Insurance Company Balance sheets. I don't recall bloody details, but insurers also had to do a 2nd set of reporting, that focused on liquidity and their ability to pay claims. One would think banks should have a similar requirement for liquidity, in even of an unusual uptick in withdrawal demand.

I was in life insurance, but a lot of the principles were similar.... I think you are referring to the annual asset-liability testing. That was done for the regulators and was not subject to audit, like most regulatory filings. The insurance regulators would look at it when they did an examination, which for us was quinquennial.