John Pitera's Market Laboratory Message Board

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Strategies & Market Trends : John Pitera's Market Laboratory

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To: John Pitera who wrote (5264)	12/12/2001 3:23:13 PM
From: Henry Volquardsen	Read Replies (1) of 33421

Hi John, interesting article in Business Week (there's a phrase I almost never use) about the Enron mess. They even make a comment about how tight controls were in energy trading and how that was not the case elsewhere. In addition to their telecom business their water business appears to have been a major problem. The article, to me, paints a picture of a company that made significant innovations in the energy trading business but came to believe they were brilliant instead of just clever. So when spreads and profits started to narrow, as happens inevtiably with all trading innovations, they decided to use their 'brilliance' as innovators to 'revolutionaize' other businesses. Unfortunately almost every market they touched went sour on them. Such as that ridiculous valuation of their broadband business. Btw the article specifically mentions that market analysts felt that at one point a third of Enron's valuation was based on anticipated broadband trading revenues. Of course they then compounded the bad diversification with some very questionabale accounting trickery. According to a friend there was a story on Bloomberg about the head of Arthur Anderson, Enron's auditor, saying they hid info and acted fradulently. Of course AA has to say that considering they are at risk for signing off on this stuff. Good article. Btw re delaying designating a hedge in order to play p&l games. It was always my understanding that a hedge had to be specifically designated as a hedge at the time it is entered into.... no waiting around. Most of the companies I dealt with were pretty rigid about that. Then again considering the pile of manure that Enron got passed their accountants I guess there are people who may have plated fast and loose on this. Henry

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