Thursday, July 18, 2002
Has the stock market plunge reached bottom?
LOOKING AHEAD by Wally Dobelis
If you want to predict when to start buying stocks again, here are some criteria for you. You will have to apply them yourself. The whole thing hinges on buyer confidence, particularly that of the small investor, notoriously always wrong. But not in this case.
When will the bad news stop? After Enron, Global Crossing, Tyco, Adelphi, Kmart and WorldCom we thought we had it, then the names of the blue chip Xerox, solid Merck and sleazy Vivendi started surfacing. Louis Navellier, a good sniffer out of phoney income declarations, predicts that a couple of dozen more companies will show up as having overstated their incomes or hidden their losses. More of the big five accounting firms are suspect of creative accounting. It isn't just Andersen. The slipping of the dollar below parity to the Euro and some Asian currencies is indicative of the departure of some fearful foreign investments, normally a strong boost to the US market.
The President's July 7 Stock Exchange speech did not inspire buyer confidence. He wants to challenge corporate lending to inside people, have the executives' pay packets explained in annual statements, and to enable the SEC to banish corporate leaders who abuse their powers. A SWAT team is to oversee the investigations and prosecutions of corporate officials. Harder measures will be needed. The unanimity of both political parties in developing legislature to stop accounting irregularities and calling for more actions, such as the elimination of stock options (seemingly the preferable course) is the proof..
Speaking of stock options, they were largely the result of the market's ingenuity, in circumventing President Clinton's disingenuous 1993 law, limiting executives' pay that can reported as tax-deductible expense to $1 million. Corporate brains, fast at work, instantly invented other compensation schemes. Stock options, and bonuses, are particularly invidious, since they put a premium on driving up stock share prices. The higher the market the better the comp. That is a good incentive for creative accounting.
The US Executive is also suspect. Secretary of the Army, retired Gen. Richard E. White, was an Enron division head and created $500 million of growth in the manipulations that destroyed the company, and took out $12 million in profits before the company went down Vice President Dick Cheney's Halliburton firm hid $400 million losses and deceived stockholders, and has been sued by a conservative watch group. SEC chairman Harvey Pitts has yet to interrogate the VP. He himself is known to have been the attorney for the accounting firms, notably Andersen, Deloitte, KPMG and the association, AICPA, during the effort to discredit former SEC chairman Arthur Levitts 1998 attempts at controlling the beast by divorcing the consulting from accounting. The newest appointee, Deputy AG Larry Thompson, who will head the SWAT effort to keep business firms straight, was, until May 2001, a member of the board of Providian Financial, a firm that paid some $400 million in fines and stockholder fraud damages. To his credit, he led the effort at recovery.
What of the concerns about the President himself?. Some years ago SEC chairman Richard Breeden, a Bush Senior appointee and now the courts' watchdog over WorldCom, cleared GWB's Harken transactions. What were they?
In 1986 GWB's oil exploration firm, Spectrum 7, was in bad shape, until Harken Energy, an oil firm deeply involved in the Mideast, absorbed it for 212,152 shares of the parent. GWB. sold the shares for $848,560 at $4, in June 22, 1990, six weeks before the Kuwait troubles and two months before a financial report of losses that eventually depressed the Harken price to $2.37. The sale was not reported until several months later. The proceeds were used to pay off a $600,000 loan that had bought him a major interest in the Texas Rangers, an investment that made GWB a multi-millionaire.
Additionally, on April 7, 1987 GWB bought 80,000 shares of Harken (dated back to 12/10/86) and on June 6, 1989 another 25,00 shares. The money, $180,000, was borrowed from Harken. The company played the insider lending game to the hilt, concealing losses by selling its Aloha subsidiary to International Marketing and Resolutions, financed by Harken, and resold to Advance Petroleum Marketing, a company owned by David Halbert. This is an entrepreneur who made a lot of money for GWB when he let him in to provide seed money for Home Pharmacy in 1986, now Advance Paradigm, a major marketer of medicines.
Is insider buying illegal? Is selling to insiders at bargain prices illegal? Is late reporting of sales illegal? Is lending money to insiders for stock purchasers illegal? The answer is no, yes and it depends. Timing is everything. Even the Bush critics at the DNC operatives' level, such as Paul Begala, speak mostly of the hypocrisy of the President's offered reforms, since he has been the beneficiary of the methods he now wants controlled, and the words used are unethical rather than illegal. After all, the Democrats are in the same predicament. Think of Mrs Clinton's fortunate investment of a few bucks that turned into $100,000 when that was real money. DNC chair and chief fundraiser Terry McAuliffe's bank turned a $100,000 financing of Global Crossing into $16 million, with a timely sale. Sen. Gephardt had one of these insider loans too, and so it goes..
One always knew that the Greens' "pox on both of your houses" attitude has credible cause and considerable merit, regardless of how repugnant Ralph Nader's actions and how unrealistic the party's program. Now the threat of the electorate's revenge under the leadership of the Greens may work as the fulcrum for some real party finance reforms and legislation that would put teeth in strong rules and ethics of corporate behavior.
The good news is that the economy is recovering, despite the high rate of corporate and personal bankruptcies. Nevertheless, it may be a long time before the shareholders of the US and international corporations will return to an optimistic view. Do not expect the exuberance we experienced in the 1990s and are paying for in the 2000s. Some successes in the war on terror and the tension in Israel might help, though our threats to Iraq are worrisome. Holding on to value stocks is the consensus opinion. Those who have converted speculative stocks to cash and it is burning holes in their pockets, look at rent-producing real estate.
If you want to predict when to start buying stocks again, here are some criteria for you. You will have to apply them yourself. The whole thing hinges on buyer confidence, particularly that of the small investor, notoriously always wrong. But not in this case.
When will the bad news stop? After Enron, Global Crossing, Tyco, Adelphi, Kmart and WorldCom we thought we had it, then the names of the blue chip Xerox, solid Merck and sleazy Vivendi started surfacing. Louis Navellier, a good sniffer out of phoney income declarations, predicts that a couple of dozen more companies will show up as having overstated their incomes or hidden their losses. More of the big five accounting firms are suspect of creative accounting. It isn't just Andersen. The slipping of the dollar below parity to the Euro and some Asian currencies is indicative of the departure of some fearful foreign investments, normally a strong boost to the US market.
The President's July 7 Stock Exchange speech did not inspire buyer confidence. He wants to challenge corporate lending to inside people, have the executives' pay packets explained in annual statements, and to enable the SEC to banish corporate leaders who abuse their powers. A SWAT team is to oversee the investigations and prosecutions of corporate officials. Harder measures will be needed. The unanimity of both political parties in developing legislature to stop accounting irregularities and calling for more actions, such as the elimination of stock options (seemingly the preferable course) is the proof..
Speaking of stock options, they were largely the result of the market's ingenuity, in circumventing President Clinton's disingenuous 1993 law, limiting executives' pay that can reported as tax-deductible expense to $1 million. Corporate brains, fast at work, instantly invented other compensation schemes. Stock options, and bonuses, are particularly invidious, since they put a premium on driving up stock share prices. The higher the market the better the comp. That is a good incentive for creative accounting.
The US Executive is also suspect. Secretary of the Army, retired Gen. Richard E. White, was an Enron division head and created $500 million of growth in the manipulations that destroyed the company, and took out $12 million in profits before the company went down Vice President Dick Cheney's Halliburton firm hid $400 million losses and deceived stockholders, and has been sued by a conservative watch group. SEC chairman Harvey Pitts has yet to interrogate the VP. He himself is known to have been the attorney for the accounting firms, notably Andersen, Deloitte, KPMG and the association, AICPA, during the effort to discredit former SEC chairman Arthur Levitts 1998 attempts at controlling the beast by divorcing the consulting from accounting. The newest appointee, Deputy AG Larry Thompson, who will head the SWAT effort to keep business firms straight, was, until May 2001, a member of the board of Providian Financial, a firm that paid some $400 million in fines and stockholder fraud damages. To his credit, he led the effort at recovery.
What of the concerns about the President himself?. Some years ago SEC chairman Richard Breeden, a Bush Senior appointee and now the courts' watchdog over WorldCom, cleared GWB's Harken transactions. What were they?
In 1986 GWB's oil exploration firm, Spectrum 7, was in bad shape, until Harken Energy, an oil firm deeply involved in the Mideast, absorbed it for 212,152 shares of the parent. GWB. sold the shares for $848,560 at $4, in June 22, 1990, six weeks before the Kuwait troubles and two months before a financial report of losses that eventually depressed the Harken price to $2.37. The sale was not reported until several months later. The proceeds were used to pay off a $600,000 loan that had bought him a major interest in the Texas Rangers, an investment that made GWB a multi-millionaire.
Additionally, on April 7, 1987 GWB bought 80,000 shares of Harken (dated back to 12/10/86) and on June 6, 1989 another 25,00 shares. The money, $180,000, was borrowed from Harken. The company played the insider lending game to the hilt, concealing losses by selling its Aloha subsidiary to International Marketing and Resolutions, financed by Harken, and resold to Advance Petroleum Marketing, a company owned by David Halbert. This is an entrepreneur who made a lot of money for GWB when he let him in to provide seed money for Home Pharmacy in 1986, now Advance Paradigm, a major marketer of medicines.
Is insider buying illegal? Is selling to insiders at bargain prices illegal? Is late reporting of sales illegal? Is lending money to insiders for stock purchasers illegal? The answer is no, yes and it depends. Timing is everything. Even the Bush critics at the DNC operatives' level, such as Paul Begala, speak mostly of the hypocrisy of the President's offered reforms, since he has been the beneficiary of the methods he now wants controlled, and the words used are unethical rather than illegal. After all, the Democrats are in the same predicament. Think of Mrs Clinton's fortunate investment of a few bucks that turned into $100,000 when that was real money. DNC chair and chief fundraiser Terry McAuliffe's bank turned a $100,000 financing of Global Crossing into $16 million, with a timely sale. Sen. Gephardt had one of these insider loans too, and so it goes..
One always knew that the Greens' "pox on both of your houses" attitude has credible cause and considerable merit, regardless of how repugnant Ralph Nader's actions and how unrealistic the party's program. Now the threat of the electorate's revenge under the leadership of the Greens may work as the fulcrum for some real party finance reforms and legislation that would put teeth in strong rules and ethics of corporate behavior.
The good news is that the economy is recovering, despite the high rate of corporate and personal bankruptcies. Nevertheless, it may be a long time before the shareholders of the US and international corporations will return to an optimistic view. Do not expect the exuberance we experienced in the 1990s and are paying for in the 2000s. Some successes in the war on terror and the tension in Israel might help, though our threats to Iraq are worrisome. Holding on to value stocks is the consensus opinion. Those who have converted speculative stocks to cash and it is burning holes in their pockets, look at rent-producing real estate.
# posted by Wally Dobelis @ 4:08 PM 
