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Strategies & Market Trends : Rande Is . . . HOME -- Ignore unavailable to you. Want to Upgrade?

To: shadowman who wrote (52511)	6/17/2001 1:09:03 AM
From: shadowman	Respond to of 57584

note...I'm not a perma-bear..just a cautious investor. I think Gretchen Morgenson may be one of the few investment journalists who appears not to have an axe to grind, and tells it like it is. Rande...I guess you can rank some of these corporate execs right up there with brokerage house analysts when it comes to honesty and candor? ============================================================ nytimes.com May 27, 2001 Market Watch: Why the Happy Talk From Chief Executive Cheerleaders? By GRETCHEN MORGENSON Having been well tutored by market strategists that stocks always and accurately anticipate economic recoveries well before they appear, investors seem almost certain that economic recovery is around the corner. Happy to ignore current bad earnings news, investors are keeping their eyes — and wallets — fixed on the future. And they are propelling stock prices higher. But some of their unfounded optimism, especially about shares of battered technology concerns, may be a result of the growing tendency among corporate cheerleaders — ahem, chief executives — to claim that business is about to turn up. Never mind that most of these prognostications are based not on facts, but on feelings. On May 17, for example, Jerald G. Fishman, president of Analog Devices, an integrated circuits maker, said that second- quarter revenues fell 22 percent from the preceeding quarter and that analog product sales had experienced "the most precipitous decline in recent memory." What did the stock do? It rallied, closing 2.6 percent higher the day the news was announced. The shares rose further in following days. Clearly, investors were convinced that the company's past would not be its prologue. It was a view shaped by Mr. Fishman, who said he expected to see modest revenue growth in the fourth quarter. On what did he base his belief? Anecdotal evidence, he said in a conference call. There can be no doubt; "We have seen the bottom" is the chief executive chant of the moment. And a big reason for that boosterism is the Private Securities Litigation Reform Act of 1995, instituted to protect corporate America from class-action suits. The act provides protection from lawsuits for corporate managers who make public projections regarding the future of their businesses that are based only on beliefs and expectations. The result? A lot more talk of rosy tomorrows are appearing in company earnings reports today.. But how reliable are the forecasts? These, after all, are the same executives who never saw the cliff approaching and watched, stupefied, as their businesses fell off it earlier this year. Why investors are willing to believe that these same people can see an improvement coming is a puzzle. Shareholders of Sawtek, a maker of cellular-telephone parts, learned the hard way last Thursday about relying on management projections. Back on April 9, Sawtek announced dismal results for the March 2001 quarter. Not surprisingly, given the glut in cell phones, its sales had fallen 24 percent from the same period a year earlier. Nevertheless, management reassured investors on a conference call that day, saying its business seemed to be stabilizing. Kimon Anemogiannis, Sawtek's president, said that sales in the quarter ending June 2001 would be down just 10 percent, to around $25.5 million. Investors liked what they heard. The company's shares jumped 13 percent the next day and by last week they had more than doubled. Then came reality. Late on Wednesday, Mr. Anemogiannis warned that Sawtek's business in that quarter was not quite what he had thought it would be just six weeks earlier. The new forecast for sales in the period fell to around $18 million, or 30 percent below his earlier forecast. Sawtek shares lost 17.2 percent of their value the next day. Some $200 million in investor money disappeared. "The law meant there was no penalty for an executive who created the illusion that he could accomplish something that he didn't," said Bill Fleckenstein, at Fleckenstein Capital in Seattle. "Management could be wrong about their projections but there is no penalty for potentially blowing smoke." Obviously no one can predict the future. But since more executives are trying to these days, investor caution is advised.