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Part One: Leading The Lambs To The Slaughter

By David Podvin

Using a televised propaganda campaign, America’s financial establishment has deceived average investors into buying vulnerable high priced stocks of companies with little or no earnings. This manipulation has occurred on behalf of Wall Street insiders, who have benefited as the public has suffered from declining stock prices over the last two years.

On January 7, 2000, the stock market analyst who is most often quoted by the corporate media appeared on the PBS program Wall Street Week. Abby Joseph Cohen of Goldman Sachs proclaimed that the market was headed much higher, and that investors should be enthusiastic buyers.

One week later, the Dow Jones Industrial Average made its all time high. It has since declined over fifteen percent. Cohen has urged the public to buy stocks all the way down.

On March 22, 2000, she sent out an advisory stating that the NASDAQ Composite was “undervalued” and recommended that investors aggressively purchase high technology stocks.

As of February 22, 2002, the NASDAQ Composite is sixty six percent lower. The XLK index of high tech stocks is down sixty eight percent. Cohen is still bullish.

The individual stocks that Cohen recommended have done even worse than the market as a whole. Her favorite energy stock in 2001 was Enron. She encouraged the public to add to their losing positions as the stock and the market went lower.

Her record is actually better than that of other high profile Wall Street brokerage analysts like Gruntal’s Joe Battipaglia, and Jeffrey Applegate of Lehman Brothers.

Investors who have followed Wall Street’s advice have been crushed.

Rather than being fired for their apparent incompetence, these analysts have been rewarded with raises and bonuses. Instead of being shunned by the financial media as discredited, they continue to be quoted as authorities on the future direction of stocks.

It is not the job of Wall Street hucksters to be right about the market. Their job is to help the companies that employ them prosper at the expense of the investing public.

Brokerage firms earned record commissions in 2000 as their customers followed the analysts’ advice to pile into stocks at the top of a bull market. The brokers ingratiated themselves to the corporations with which they do lucrative investment banking business by advising public investors to prop up the stocks of faltering companies. The major trading firms further betrayed their average customers’ trust by positioning themselves to financially exploit the suffering of the small investors who followed their advice.

In 2000, the price earnings ratio of the market as a whole was higher than it was at the top in 1929, immediately prior to the crash. Numerous initial public offerings were rising several hundred percent in one day. Companies that had never earned a penny, and never would, were valued at hundreds of dollars per share. The “greater fool” theory was at work: fortunes were being made buying the stocks of marginal and worthless companies on the theory that a greater fool would be willing to buy them even higher.

All of the earmarks of a mania were present. The pros on Wall Street knew that this rampant speculation had occurred at the major market tops in 1929 and 1966. They should have known to expect a major decline.

They did.

While the Wall Street propaganda machine was encouraging the public to buy the most overvalued stock market in American history, the financial establishment was selling:

Member Trading Indicator - Historical


The chart shows the level of short selling by members of the New York Stock Exchange. The spikes above the top horizontal line indicate high levels of short sales by insiders, and coincide with tops in the market. In January of 2000, members of the New York Stock Exchange, which includes all of the brokerage firms, were aggressively selling while their analysts were on TV imploring the public to buy.

Short selling is a speculation that prices will fall. It is a procedure in which someone sells a stock that he or she does not own, hoping to buy it back later at a lower price. In order to sell short, the speculator must borrow the shares from the account of the stock’s owner. It is a standard part of the brokerage customer agreement that the firm is allowed to borrow the client’s stock in order to sell it short. By enticing the public into purchasing the worst, most overvalued equities, the brokerage firms can then borrow the stock and sell it short in order to profit when it falls.

Encouraging the public to buy the worst stocks is exactly what Wall Street did.  Cohen released a list of “best equities” to purchase. Included in that list were Veritas Software and I2 Technologies, two companies without earnings. Since she touted them, Veritas has declined from 106 to 34.32, and I2 has fallen from 56.59 to 5.44. The advice has been a disaster, except for those who went short to take advantage of the naïve public that bought based on her recommendations. Since Cohen advocated that investors buy the stocks of these two unprofitable companies, those who used the opportunity to sell Veritas short have made 68% on their money, and short sellers of I2 have made 90%.

On March 28, 2000, six days after recommending that the public buy high tech, Cohen said she continued to advise investors to purchase the group, but added, "For the first time in a decade, our model portfolio is no longer recommending an overweighted position in technology." The financial media reported Cohen’s pronouncement as a bombshell. The NASDAQ Composite plunged more than thirty four percent in the next fifteen trading days.

On April 17, 2000, the bloodletting stopped when Cohen stated that the decline had nothing to do with changing fundamentals, such as earnings, inflation and Federal Reserve policy. The NYSE Member Trading Indicator chart shows that her statement coincided with insiders taking profits on their short positions. CNN reported that Cohen blamed the rout on "market factors”, a reference to psychology and momentum. She urged investors back into the market to hold for the long term, and over the next month she made frequent televised appearances to provide the public with reassurances that everything was fine. The market rallied into September, which provided another wonderful short selling opportunity for Wall Street professionals. The NYSE Member Trading Indicator chart documents that they took full advantage of the chance.

From the time Cohen reiterated her long term bullishness on April 17, 2000, to the time the market put in a low on September 21, 2001, the NASDAQ Composite fell by sixty percent. Cohen never stopped recommending that investors continue to buy, and the financial media trumpeted each of her statements as an important bullish signal. When the public sold in panic after the terrorist attack on September 11, Wall Street insiders covered their short sales for huge profits right at the low:

NYSE Member Trading Indicator


Since the bull market ended in 2000, the New York Stock Exchange insiders have sold the highs and bought the lows, which has been made possible by the cynical manipulation of the public lambs who have followed their advice and have gotten slaughtered.

Goldman Sachs Chairman Henry Paulson lavishes praise on Cohen, saying that she is doing a wonderful job for the company. Since 2000, many Goldman customers have seen the value of their portfolios plummet as Enron, the high techs, and other Cohen recommendations have been annihilated. Meanwhile, the firm’s own trading revenues are higher than they were before the bear market started.

This is quite an accomplishment. Brokerage firms carry large inventories of equities, and the index against which they judge themselves, the S&P 500, is down about thirty percent during that time. Additionally, the stocks that have been recommended by Goldman’s own chief market analyst are down more than fifty percent.

New York Stock Exchange members who have been shorting stocks and making a lot of money doing it are obviously not taking Abby Joseph Cohen’s advice for their own accounts. Her forecasts are not directed at them. The intended audience for Cohen’s predictions are Wall Street’s targeted victims, the investing public.

Joe Battipaglia is a frequent guest on all of the financial shows. For the last two years, his advice to investors has been: “BUY! If it goes down, BUY MORE!” The devastation that he has wrought to portfolios is breathtaking:

On October 8, 2000: Buy Yahoo! At 81.25.
On February 22, 2002, Yahoo! Closed at 14.46.     minus 82.2%

On July 17, 2000: Buy Worldcom at 46.5.
On February 22, 2002, Worldcom closed at 7.09.   minus 84.7%

On August 28, 2000: Buy Sun Microsystems at 63.91.
On February 22, 2002, Sun Micro closed at 8.07.   minus 87.3%

On July 18, 2000: Buy PMC Sierra at 225.13.
As of February 22, 2002, PMCS closed at 16.        minus 92.9%

On August 16, 2000: Buy Juniper Systems at 171.
On February 22, 2002, Juniper closed at 9.46.        minus 94.5%

On July 17, 2000: Buy JDS Uniphase at 115.93.
On February 22, 2002, JDSU closed at 4.98.           minus 95.7%

Battipaglia is the Chairman of Investment Policy at Gruntal, which presumably means that he is the most skillful stock picker at the entire firm. His record is actually better than some others, including highly paid Internet maven Mary Meeker of Morgan Stanley Dean Witter, whose specialty is riding stocks down to zero.

While it might seem that Battipaglia’s performance is just mindless idiocy, there is a logical pattern to his wreckage. All of the stocks had experienced spectacular rises. Five of the six equities listed above represent companies without earnings. The combination of high prices and no profits made them extremely vulnerable to a major decline. The stocks are high tech. This was the sexy group of the moment and made it easy to sell the shares to the public.

Importantly, these recommended stocks all traded on huge volume, which is a crucial component in short selling. Big volume makes it easy for short sellers to buy back their positions when they want to close them out.

Battipaglia never called himself wrong or advised investors to limit their losses. To the contrary, he implored the public to buy more as they lost more. This violates the two primary rules of investing. Rule number one is to never take a big loss. Rule number two is never to forget rule number one.

Battipaglia is an experienced Wall Street professional. He knew that his irresponsible advice put investors who followed it in great financial danger. By enticing naïve people to recklessly buy the stock market equivalent of snake oil, he made it possible for privately held Gruntal and other insiders to sell short more overvalued stock. There is no way to know how many people have been financially destroyed by acting on Battipaglia’s advice, but investors who followed his recommendations are much poorer than they used to be.

If Joseph Battipaglia were paid based on his investment acumen, he would now be unemployed. Yet after demonstrating what on the surface is abject incompetence, he has received an increase in pay. Gruntal Chairman Robert Rittereiser calls him “one of our firm’s most valuable assets”.

Battipaglia’s value to Gruntal has nothing to do with providing accurate investment advice. His job has been to sucker the public into buying bad merchandise.

This swindle includes customers of the firm that employs him. While many investors trust brokers with their life savings, Wall Street brokerages view their relationships with most customers as being adversarial. There has been a vast transfer of wealth as the market has declined, with the general investing public losing while short sellers have prospered. The vast majority of short selling is done by Wall Street professionals. They have profited by borrowing and then selling the grossly inflated stocks of brokerage firm clients who have taken horrible advice.

Joseph Battipaglia is still an honored guest on financial programs.

Tom Brown is not. Brown was a widely respected banking analyst for Donaldson Lufkin and Jenrette. When he refused to issue buy recommendations on the stocks of banks that did business with DLJ because he could not in good conscience deceive the public into purchasing overvalued securities, the brokerage fired him for not being a team player.

The same fate befell Marvin Roffman of Janney Montgomery Scott. When he alerted investors to the financial instability of Donald Trump’s Taj Mahal Casino, he provided a great service by warning the public to steer clear of an enterprise that ultimately filed for bankruptcy. Like Brown, Roffman’s concern for the average investor resulted in his dismissal.

It is crucial to the financial health of investors that they understand the harsh Darwinian reality of Wall Street. The species of analysts who were unwilling to help their brokerage firms cheat the public has become extinct, as people who have shown integrity have either been banished or intimidated into obedience. Investors who take advice from the experts on television do so at their own peril.

Caveat Emptor.

Next - Part Two: Alan Greenspan’s Irrational Exuberance



Goldman Sachs

Goldman Sachs Recommends Technology Stocks At The Top

Earnings Releases



Abby Cohen

Abby Joseph Cohen Trading Record

Cohen Reduces Market Weighting

Cohen Urges The Public To Continue To Buy

Cohen Recommends Enron

Joseph Battipaglia

Joseph Battipaglia Trading Record

Battipaglia Bullish At The Top, National Investor

Battipaglia Bullish At The Top,

Battipaglia Still Bullish

Wall Street’s Self-Serving Advice

How Brokerage Firms View Their Clients

The NYSE: A Street Scandal That May Not Die

Home Sweet House Brands

You Think Enron’s Big? It Still May Not Top Oakford

Timothy Harper : License to Steal

Pump and Dump: The Inside Story of D.H. Blair

CSFB to pay $100 million over IPOs

The Information Highway  (Bottom of page)

Short Selling

Tom Brown

Marvin Roffman


NYSE Member Trading Indicator

Dow Jones Industrial Average

NASDAQ Composite

S&P 500




Sun Microsystems

PMC Sierra

Juniper Systems

JDS Uniphase

Wall Street Treachery Series

Podvin, the Series


Last changed: December 13, 2009