Last Thursday, in a financial story that you may have missed, Nasdaq OMX Group announced that it had created a new index. It’s called the Nasdaq OMX Government Relief Index and it is now trading under the symbol QGRI. The components of the index will be the companies that receive $1 billion or more under the Troubled Asset Relief Program (TARP) or any other government handout program.
There’s a kind of twisted logic to this new index, whose initial roster of companies includes Bank of America, Citigroup, General Motors, Goldman Sachs, J.P. Morgan and Morgan Stanley. After all, if a company hasn’t actually gone bankrupt and the government has topped up its financial tank with a hundred thousand large, you’d think things might be looking up …
Or maybe not. QGRI went live on January 5, and as of one week later, was down to about 850 from its opening price of 1,000.
Creating and updating indexes like The Bailout Index (my term) is one way financial services companies make a living. Firms like Nasdaq, Russell, MSCI/Barra, Standard & Poors and Dow Jones find ways to de-stratify and un-weave the markets that they hope will prove useful to investors and analysts.
When I was working in the mutual fund industry, we used to use a 3 x 3 box to describe equity-investing styles. On one side the box the categories were small, medium and large caps. The other axis had growth, blend and value style. The theory was that by throwing an equal number of bucks into each box, you could, over time, diversify enough to weather market fluctuations.
But the proliferation of indexes is a whole different galaxy from that kind of rough-and-ready asset allocation scheme. By allowing sophisticated investors to target smaller and smaller segments of markets, these indexes are the midwives of the derivatives industry. If you’re going to make a bet on something to do with the market, you need an objective measure of what that something is doing.
I don’t know if QGRI looks like a useful tool or not. By aggregating the fortunes of all companies receiving bailout money, it will certainly appeal to an investor who has a strong opinion of the program and its chances of success. This is also the perfect vehicle for anyone who has a strong opinion about the macroeconomic future of the U.S. market.
For myself, as a long, growth investor, I prefer to look at the history, products, management, stock charts and earnings of individual companies. With the information available online, I believe I can gather enough information to make buying a stock a reasonable bet–not a sure thing, mind you, but reasonable enough that I can come out on top.
Given my skepticism about the probability of successfully predicting the future–whether it’s the economy, unemployment, housing, consumer spending or football–I think I’ll give The Bailout Index a pass.
I don’t know if the “bailout index” will be useful but I will monitor it. However this topic seels like a good place to leave a TARP blog.
This week Bankamerica announced that they would been billions more in TARP money because of “unanticipated greater losses” at its newly acquired Merill Lynch division. “Unanticipated” by whom? The only people who did not know that Merrill has gazillions of toxic assets on its books were Chairman Lewis and the nitwit board of BofA.
First of all, the purchase of Mother Merrill was idiotic. If Lewis and company waited just a few days more they could have bought the failing broker for 1/2 the price at least.
Secondly, BofA is spending millions of taxpayer dollars to give “retention bonuses” to their account executives. As one of my friends at Merrill said upon hearing he was to get a seven figure bonus to stay, ” where was I going to go?” Dont these idiot bankers know that the RRs have very few options? Why are they paying these ridiculous bonuses?
Wall Street caused the economic crises that befalls this country today and they should not recieve a dime of taxpayer money. This whole bailout is patently ridiculous. LET THEM FAIL. Something better will rise from the ashes.