How baffling is it that Analysts didn’t see the huge drop in consumer-spending coming? Are these guys idiots? Possible. There’s another theory floating around: Ratings are directly influenced by the analysts’ mutual-fund-managing colleagues.

Hypothetical situation: Bob manages a $30 billion mutual fund at Example Corp. Example also has hundreds of equity analysts that issue/sell their research/advice to clients. As everyone knows, a big firms’ recommendations can really move the markets.

Let’s say Bob’s funds are not performing well. But Bob has brought in billions in revenue for the company, so he’s got major power and influence. It’s easy to imagine a situation where Bob has enough power to influence analysts.

Jim Cramer was the first to educate me on this old fraud. He ain’t perfect, but I love the guy. I realize this is probably old news to market veterans.

An important question is: Is the interaction/influence between managers and analysts regulated or monitored? I have no idea. I despise excess regulation and bureucracy, but this seems like an area that could really harm market effieciency.

Editor’s note – I originally had a bunch of F-bombs in this post, but decided to remove them. I got excited when Clusterstock published a post with the F-bomb in it, and ran with it. But I think it might cause your site to get filtered by Google. And I’m vain, and want this site to be read. So I removed the F-bombs.