Michael Pento: John Chambers will never learn

Thursday, November 11, 2010
By: Michael Pento

Cisco’s stock is down $4.16 or 17% in the pre-market this morning after the company said that fiscal second-quarter profits excluding some items will range between 32 cents and 35 cents a share, less than the average analyst estimate of 42 cents.

I point this out because Mr. Chambers is emblematic for why the average investor has lost faith in the market. On February of this year, the Chairman of Cisco said, "...we are entering the second phase of the economic recovery." He also said in the same interview that the company is ..."hitting on all cylinders...and hiring big time."

Then in June he had this to say about the prospects for his company, “"What you see us doing is planting the seeds again and again that will allow growth to comfortably be ... 12 to 17 percent," he told a Sanford C. Bernstein conference in New York.

However, today he warned in a CNBC interview that the company “hit an air pocket that was unforeseen.” But that’s the point Mr. Chambers. You have the responsibility to your shareholders of restraining your enthusiasm and tempering your comments. The hard truth is that your stock price is the same today as it was in 2006 and as it was in 2001. With no dividends given during that period, investors would have enjoyed the same benefit as putting their money under the bed as investing in CSCO shares.

Flash crashes, Bernie Madoff, and the Internet and Housing Bubbles have served to crush consumer appetites for investing during this past decade. John Chambers shouldn’t seek to add to that incredulity on the part of investors. But rather to bolster and placate those fears by increasing his own trustworthiness and accuracy, even if he can’t increase his stock price.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.