Tuesday, June 16, 2009

More on Pennant and PHH

In its last proxy statement prior to the stockholder's meeting, Pennant had to warn investors not to "read too much into today's stock price."

PHH stock had been rallying, and of course Pennat was concerned that the rally could work to the advantage of the incumbent board in the eyes of shareholders. So Pennant wrote, "The stock still trades below its price one year ago. We seriously question whether the run-up is attributable to the leadership, performance, and credibility of the incumbent Board. Rather, we think there are much better expanations, such as the industry-wide refinancing boom that has emerged from massive government intrervention in the financial markets."

Hmmmm. This kind of reasoning could confirm a cynic. "I try to be cynical, but I can't keep up," as Lily Tomlin said.

When the stock price goes down, it proves that there is rot at the top, and new board members are necessary.

When the stock price goes up, it is irrelevant to the question of the leadership of the board, because there are always broader economic factors involved.

Of course, if you're writing a proxy contest letter for the incumbents, both of those arguments are reversible.

A heck of a lot of what looks like reasoning in the public world -- political, financial, etc. -- is simply an effort to put something together that LOOKS like reasoning.

And about that "refinancing boom," I suppose this is a good time to add my own voice to that of some other observers that the so-called "boom" is a trap for the unwary. We as a nation are in the position of a drunk who solves his hangover by drinking "a hair of the dog." What we need is something more akin to some aspirin and a 12 step program.

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