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.
We're paying the price for tolerating "the decade of frauds" that preceeded this era. It will eventually shake out.
I'd give it about two years.
The reality is that the stock market became one big game of musical chairs, and now that the music has stopped and the scramble for chairs is over, everybody left standing has a big frown on their face (and probably wants Uncle Same to somehow start the music back up).
Worrying about future terrorist activity is not off the wall anymore, it has already happened, and we are faciliting more such incidents. It is a very real, and very likely threat.
Why buy now, when you could buy stocks at half the current prices when the next building gets blown up?
If stock prices did recover, it would only be a matter of time before the next terrorst activity sends them crashing again.
No rational reason to buy stocks until we close our borders.
Look at some of these:
AHR, AXM, EDF, HCM, HGT, CARS
But do you hear folks talking about companies actually making money? No. Why not? I suspect it takes too much work to actually look into companies, and much less work to "squawk" about the Dow or the Nasdaq. But hey, what do I know?
By the way, I don't own any of those stocks. I am still too much of a moron to buy stocks. But I am trying to get my act together.
WHen are the jobs going to come back!!
That's what it seems like to me. How many people can take out their money before the whole thing collapses because all that money isn't really there?
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