A little (more) perspective from last Wednesday's FT -
"Recessions play a helpful role in turning investors' attention to the basics. It is not surprising that Enron's collapse, and the pain for those left holding its securities, should lead to the question of who's next? The market has already priced in the earnings recovery, and now faces the long wait for this to arrive. In these circumstances, selling first and asking questions later is understandable. But it would be a mistake to assume that the problem in Houston extends coast to coast.
In PNC's case, the Pennsylvania bank has been told by the Federal Reserve to restate last year's accounts with a different accounting treatment for an off-balance sheet vehicle for disposing bad loans. The main conclusion, given its prompt action, is surely that the Fed is on the case. As for Tyco, investors should certainly be wary of companies with excessively complicated accounts; conglomerates make obvious case studies. Tyco is being subjected to a bear raid. But its break-up plan is nonetheless an exercise in increasing transparency.
Greater attention to accounts is welcome. Surely that is what professional investors are paid for. Salomon Smith Barney strategists point out that, isolated incidents aside, it is hard to find evidence for widespread accounting abuse. Last year's drop in S&P 500 operating earnings of about 20 per cent was the largest in more than 60 years. The proportion of one-time charges, as a percentage of net income, is high at 85 per cent, but broadly in line with 1992. Where stocks sell off chiefly on the basis of innuendo, that creates opportunity..." |
