When trust is thrown out the window, stocks are worthless.
this cuts to the heart of the matter. the whole pro forma approach to accounting is "trust me". after all, pro forma numbers are usually not audited ("trust me, they're OK"), and the cos get to exclude whatever costs they like ("trust me, these are all nonrecurring charges").
scandals like WCOM are painful in the short run, but there may be a benefit down the road. like chinese water torture, one scandal after the next keeps pounding on the investors' heads and one of these days they're going to realize that they have been getting royally reamed. they will realize that pro forma accounting is complete bullshih, and recognize how insanely overpriced most stocks, especially tech stocks, are.
from there it is only a conceptual hop skip and a jump back to dividends and lower PEs. people will realize that the people running America's large corporations cannot be trusted farther than you can throw their fat rich ashes. the only solution is to keep these bastids on an extremely tight leash. that means extracting as much money as possible from the cos via dividends, which cos cannot lie about like some lie about profits via pro forma.
so really, the WCOM news will hopefully serve like a leech in old-time medicine, accelerating the much needed process of purging our system of all the dreck. perhaps with sufficient purging (taking the DOW down to 3000, the Naz down to 350 and the SPX to 400 for starters), we can get this bear market over in less than a decade.
in the meantime, i still want my trash rally! but maybe that's asking for a bit much. international investors are recognizing what a slime pit US markets are, and if they vote with their feet, i don't see how the trash can rally. |
