Posted on 06/09/2002 2:03:56 AM PDT by sarcasm
A continental mistrust of corporate accounting and the continuing deflation of tech stocks combined this week to rob stock markets of much of their recovery of the past eight months.
Veteran market watchers are stunned by how deep investor pessimism is running, even as North America's economic fundamentals improve.
"This is the longest, nastiest, most wicked bear market I have seen in 30 years, and it is likely to continue," said Roger Hornett, head of Theodoor Gilissen Securities in London.
"There's no reason right now to do any buying ... the mood is miserable," said Michael Palazzi, head of trading for SG Cowen in New York. "We're bunkering down."
The relentless retreat -- all the major indices have fallen in four of the past five weeks -- raises the possibility that the market will touch the lows reached on Sept. 21, when the Sept. 11 attacks were still testing investors' confidence.
After Enron Corp.'s demise late last year, the pall cast over the market by corporate scandals came to be known as "Enronitis." Investors have since been forced to grapple with one fraud allegation after another, and this week the widespread mistrust of corporate accounting and accountability seemed to reach a new low, with "Enronitis" giving way to "Tycosis" after conglomerate Tyco International Inc.'s flameout.
Many investors remain concerned the economic rebound in Canada and the United States will provide only small improvements in profitability, meaning that most stocks remain overpriced even after the declines of the past two years.
The Dow Jones industrial average slid 3.4% on the week while the tech-heavy Nasdaq fell 5%.
The Dow Jones index of 50 major European stocks tumbled 5.8%, its worst week since the Sept. 11 attacks, wiping out 200 billion euros ($290-billion) in shareholder value in the process.
The mood is not much better in Canada, even though the benchmark S&P/TSX composite index has fared better than the U.S. market this year. Not even a steady flow of positive economic data has been enough to dispel investor fears that drove the TSX down 2.3% for the week.
"The economy's great and the market stinks," said Lloyd Atkinson, vice-chairman and chief investment officer at Perigee Investment Counsel in Toronto. "I don't know when I've seen so many bears."
The market has been distracted from the prospects of an improving economy by constant reminders of corporate malfeasance and unreliable accounting, Mr. Atkinson said. The suspicions that began with Enron have multiplied into a web of distrust among investors, drawing in dozens of companies.
The latest example came yesterday as reports surfaced that Adelphia Communications Corp., a giant U.S. cable company, might have overstated its subscriber list by as much as 10%. Adelphia stock plunged 80% on the report.
A few hours earlier, news hit that U.S. authorities are investigating whether Tyco International Inc. illegally loaned money to former chief executive Dennis Kozlowski to buy millions of dollars of art for his Manhattan apartment. Mr. Kozlowski resigned from Tyco this week and was later charged with tax evasion on the art purchases.
These are just the latest examples in a year that has seen the U.S. Securities and Exchange Commission launch more than a dozen investigations into alleged market manipulation cases at major U.S. companies, including Global Crossing Ltd., Microsoft Corp., Kmart Corp. and Xerox Corp.
When combined with worsening conditions in the high-tech industries, investors have found few reasons to stop selling.
Late Thursday, Intel Corp., the world's biggest maker of microchips, cut its sales projections for this quarter to between US$6.2-billion and US$6.5-billion, from the earlier forecast of US$6.4-billion to US$7-billion.
In combination with a similar reduction by Hewlett-Packard Co. earlier in the week, Intel's prediction dashed hopes that spending on computers and other equipment will improve in the second half of the year.
Canada's former high-tech Goliath, Nortel Networks Corp. fell another 22% this week as it announced it will sell US$1.3-billion in new shares, watering down future earnings per share for existing investors by one-third.
Still, many strategists believe the recent declines ignore the power of a resurgent economy and some underlying health in the market.
"The U.S. economy is in the midst of a really decent recovery," Michael Manford, chief market strategist at Canaccord Capital Corp. wrote in a note to clients. "The leading indicators all suggest that the economy is not only recovering, but also accelerating. And what have the markets done? You guessed it -- they took a run at the April lows," he noted in irony. "Somebody is not paying attention there!"
One bright note in a week of persistent gloom was that most of the losses are confined to the big-name companies that dominate the indexes, while smaller stocks continue to perform relatively well. In Canada, the overall index has dropped 2.7% this year, but the average stock is up about 9%, suggesting that many smaller stocks are rising, according to a report released yesterday by National Bank Financial.
Still, the climate on the market remains sour. Analysts at Standard & Poor's advised clients to reduce the proportion of stocks in their portfolios to just 55%, because unsettled global politics point to the need for caution.
I am an engineer, but I am working on my MBA. When I took my basic accounting classes, I was impressed with the ethic of accounting and the importance of the independent audit that our instructors stressed.
Enron & AA should be case study #1 in next year's text books.
There will be no confidence in the stock markets until we can trust the financial reports on which we base or decisions.
Accounting ethics????
Enron, Tyco, Adelphia and on and on, did not happen in an accounting vacumn. Swapping engineering for accounting is puzzling to me. Engineering, the rules are hard and fast, accounting use to be 2+2 equals 4, not anymore. Big time accounting has degenerated into nothing more than creative book keeping. Ask Arthur Andersen.
Two overwhelmingly false premises:
1This is a terrible bear market. Bullcrap. In historical terms this is just the start. Want a BEAR market? Wait till P/E ratios hit about 10 instead of 40.
2 : The economy is "recovering" so the market should be Bullish.
Duh, sorry, but there is no compelling reason to link the two.
Example: In the 16 years from October 1965 to June 1982, the economy grew tremendously. The Dow went from 960 to 811. (Buy and hold, you bet!)
Nothing has changed with the stock-hawkers. They are still trying to sell, no matter how crappy their product. (Henry Blodgett and Mary Meeker, where are you now?
The Washington politicians and accountants told us we had a 'surplus'. Bush and Gore debated who was responsible for the great economy with tax cuts and more government spending for as far as the eye could see.
In fact, we were another day older and deeper in debt. Throw in 'our mounting trade deficit helps our economy' and 'lets bomb the world, it's the only way to make peace.
Alice in Wonderland speak fom Washington makes AA and its accountants look like angels. The axis of evil for our economy is trade inbalance, budget deficits and foreign entanglements.
Big time accounting has degenerated into nothing more than creative book keeping.
Apparently so.
There will be uneasiness in the markets until the accountants, managers and investors clean up this mess and we can trust the financial reports again.
I spent my professional life with the government. It was very difficult and I never rose into supervisory ranks as I refused to join the good ole boys club. Government is not the place for a thinking person, one that is not a "team" player.
Good for you.
It seems like the good times are over for much of the equities markets,... unless one is investing in gold/silver mining stocks or certain other isolated areas.
The next boom is in commodities. They have been in a bear market for years. Now it is time for wise investors to move there and stop trying to recreate the .com Boom that ended in March, 2002. They will come back, eventually, but will probably take years to do so. In the meantime, put your money where it will do some good.
Now I've got to disagree here...
Maybe the "good old days" are gone for those who have lately crashed and burned, however for those of us who had no faith during the bubble it seems that there may now be some opportunities opening up - certainly in shortselling if nowhere else...
Think about how much most would be worth if the price was only dupported by dividend payments.
Real low.
And the paper/internet is NULL of JObs in my field! Maybe I will be a Walmart Greeter until things get better..hahaha
No argument here. There are lots of tremendous opportunities, and if you have a very stong stomach, short-selling is at the top of the list.
As for me, I'll go long in unhedged gold stocks and watch the money roll in while everybody else buys WorldCom and Nextel while hoping, just hoping, for that comeback to the Good Old Glory Days of the late 90's! Been there. Done that. Not doing that no more despite what the sages on CNBC say....
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