Broken Hearts
Sat Feb 9, 2:47 PM ET
story.news.yahoo.com
THE SQUEEZE IS ON, and it feels nothing like a Valentine's Day lovers' embrace. Instead, liquidity, investor confidence and valuations are getting crushed in Enron's bear hug.
Sweet as Friday's bounce may have tasted after five straight costly declines, most analysts judged it about as nourishing as a handful of cheap candy. The sugar high may not survive Ken Lay's first date with Congress Tuesday morning, much less the return engagement Thursday.
Will he show up? Will he talk? And which grandstanding tormentor will nail Lay with the best sound bite? It's sweeps month, and this is better drama than any currently seen on Disney's (NYSE:DIS - news) ABC.
Everyone will watch, as if the blood sport could somehow banish doubts roiling the market. But will anyone find the time to buy stocks? Just about every time CNBC cut away to congressional hearings last week, the indexes dipped in a duck-and-cover drill. On the plus side, the testimony displaced all the talking heads bearing witness to early stages of the next great bull market.
The best that can be said for the Enron scandal is that it might take the investors' minds off some of its wider-ranging consequences. Such as the fact that reasonably priced credit is now available only to companies that probably don't need it.
In a related development, the most powerful men where markets are concerned are no longer George W. Bush and Alan Greenspan, but Clifford Griep and Christopher Mahoney. They are in charge of credit-rating policies at Standard & Poor's and Moody's, respectively, and their analysts can now make or break the stock of any company requiring access to the huge market for corporate bonds.
The agencies waited a long time to downgrade Enron, because doing so meant sealing its fate. After getting slammed for this by furious investors, they are now trying the opposite tack, aggressively cutting ratings of firms seen as heading for trouble. But because such downgrades are these days liable to become self-fulfilling prophesies, they've infuriated some target firms. From Computer Associates (NYSE:CA - news) to Rite Aid (NYSE:RAD - news), embattled managers insist they deserve better.
Securities and Exchange Commission Chairman Harvey Pitt called for greater regulation of the credit agencies in testimony on Capitol Hill, though he has so far offered no specifics. But just in case Pitt needs some other ideas, five of his predecessors at the SEC will share their thoughts with a Senate panel Tuesday.
Meanwhile, two top short-sellers aren't exactly ready to declare victory and go home. Manuel Asensio of Asensio & Co. and David Tice of the Prudent Bear fund refuse to gloat over the market's misfortunes. In fact, they sound downright pained about what they see ahead. Asensio, who has sniffed out and helped snuff out such duds as Winstar (NASDAQ:WCIEQ - news) and Chromatics Color Sciences (OTC:CCSI - news), rues the ``hundreds of billions'' misallocated in the market bubble and the accompanying capital spending boom. Where's the bottom? ``Until we know how much damage Wall Street has done to our economic system, there is no way to know that,'' he says.
Tice, who sparked an SEC probe of Tyco (NYSE:TYC - news) two years ago, fears the bottom might lie years ahead at around Dow 3000. ``We're in a secular bear market,'' he says. ``We think we're going to head down again and that it's not going to even be worth trading for individual investors for three, four, maybe five years.'' Other than that, he's an optimist.
Good thing neither Asensio nor Tice do market forecasts for the week ahead. Investors will take their cues in part from earnings reports by Applied Materials (NASDAQ:AMAT - news) Tuesday evening, Hewlett-Packard (NYSE:HWP - news) after Wednesday's close and Dell Computer (NASDAQ:DELL - news) after the bell Thursday.
The impressive thing about chip equipment leader Applied Materials is that its stock is up 7% in 2002, and off just 4% in the last year. The other impressive thing is that after earning $1.10 pro-forma last year, it's expected to deliver just 21 cents a share in 2002, all of it in the year's s second half. You'd think this was a low bar, but the boss was spreading gloom at the World Economic Forum, complaining to any journalist who'd listen about slow investment by top chip makers. The Street's divided on the omens, with Salomon Smith Barney optimistic about the coming guidance, Lehman Brothers skeptical and Merrill Lynch somewhere in the middle. But there's nothing halfway about that forward p/e ratio of 200.
The next day, H-P's numbers get the fine-toothed-comb treatment, as analysts wonder how the company and its prospective merger partner Compaq (NYSE:CPQ - news) are magically producing profit upsides ahead of votes by their respective shareholders, when no one else in the PC industry is seeing this veritable stealth boom. ``It looks like a head fake to us,'' is the verdict from Charles Wolf at Needham.
H-P's guidance should offer an interesting contrast with the forecast due a day later from Dell. Merrill and Lehman think the industry leader may end up having to rein in high expectations. Dell President Kevin Rollins also sounded a cautious note at a recent investment conference.
As for upcoming economic releases, the main problem is that there won't be enough of them to take the spotlight off accounting and earnings. The other worry is that they are not the sort that will prove the economy has turned the corner.
The highlight's probably monthly retail sales Wednesday, but these are expected to show little lift after the late Christmas splurge. Friday brings tallies of industrial production, capacity utilization and the Michigan consumer sentiment. Ugh.
Ugh is also the byword when it comes to two big companies holding analyst meetings next week to explain away disappointing sales. Electronic Data Systems (NYSE:EDS - news) tries to reassure skeptics Monday; Nortel Networks (NYSE:NT - news) sings its sad tune the next day.
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