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To: Bill Harmond who wrote (11783)	5/28/2002 9:31:29 PM
From: stockman_scott	Respond to of 57684

The second-biggest fictional number Commentary: Hitchhiker's Guide to Wall Street by Spitzer By Bambi Francisco, CBS.MarketWatch.com May 28, 2002 SAN FRANCISCO (CBS.MW) - We've all come to know the deep, dark secret on Wall Street: The numbers don't really add up. Let it be said that the $100 million - the amount of the settlement between Merrill Lynch (MER: news, chart, profile) and New York's State Attorney General -- ranks right up there with the best of them. For my money, the biggest fictional number of them all is the $1,000 price target set for Qualcomm (QCOM: news, chart, profile) by a PaineWebber analyst back in December 1999. The $400 price target on Amazon in December 1998 might just take third place. They are numbers that represent the crazed price-target grandstanding of the time. It was when price targets were accepted; no questions asked. MarketWatch's David Callaway wrote in a recent commentary that the $100 million is the new price target for escaping financial justice in this country. Should we take the number for what it is without questioning the basis of it and what it really represents? No. Yet ask anyone the basis of that number, and the response is: Umm, it feels right? Don't bother looking to Eliot Spitzer's team for any substantive clues either. That's why the $100 million number is so fictional and arbitrary, the fine may as well have been "42" - the ultimate answer to life, the universe and everything. Of course, if we are to follow this line of logic and accept this answer as provided by the Hitchhiker's Guide to the Galaxy, then we need to know the question. (Fellow galaxy travelers know, however, that no one really knows the question). So, first let's remind ourselves of the question, or questions, to understand what they (those collectively seeking to improve the standards of Wall Street conduct) are trying to achieve. Ultimately, they're trying to create an environment that encourages and rewards independent, objective, accurate, honest, and thorough research and regain investor trust. In the Merrill settlement Does it make investors whole? Does it restore investor confidence? Does it deter future misconduct? Or, does it send a strong message? Since the amount doesn't include a restitution fund for investors, clearly the answer is: No, investors were not made whole. Does it restore investor confidence? No, because ultimately no amount can do that. Deterring future conduct? No, because only time will tell. Guts to steal more cookies This leads me to wonder whether the $100 million sends a big enough message. It doesn't. And here are the numbers that explain why it doesn't. Others have noted that the amount is a fraction of the total $3.78 billion Merrill earned in 2000. But comparing the $100 million to that amount is misguided. Given that this scandal is about separating investment banking and research, then we should look at the pot that really matters: the investment banking business. According to Sanford Bernstein's estimates, Merrill Lynch earned $254 million in 1999 and $303 million in 2000. Therefore, Merrill still walked away with money. The $100 million is less than 20 percent of the profits during those two years. In this matter, a just penalty should have been a loss. Yet the penalty isn't even a wash. In other words: If I stole five cookies from the cookie jar, and was told to return just one, I still get away with having stolen four cookies. Even worse, I might just have enough guts to steal more cookies in the future. What's more, the Bernstein estimate for investment-banking earnings is conservative. That's because the estimate doesn't include possible income derived from other businesses as a result of those bullish calls. No Merrill apologist Now, to be fair, the number of incriminating deals is a small sliver of the number of deals Merrill banked during that period. According to Dealogic, Merrill led the IPO of Pepsi Bottling Group (PBG: news, chart, profile), which is up better than 230 percent since going public in March 1999. Merrill also brought Gabelli Asset Management (GBL: news, chart, profile) public in February 1999. The share price has gone from $13 back in 1999 to $40 currently. What's more, even though there is a multitude of class-action suits charging that Merrill issued rosy reports on InfoSpace (INSP: news, chart, profile) and Overture (OVER: news, chart, profile) to get banking business, Merrill never did any banking business for InfoSpace. As for Overture (OVER: news, chart, profile), Merrill was not the lead banker on the company's IPO in June 1999. In fact, Merrill was part of a syndicate group comprising 27 brokerage houses, according to Dealogic. By the time Overture sought bankers to raise more funds in 2001, Merrill wasn't even part of the deal. But all was not lost for Merrill. The buzz effect from bullish reports gave the brokerage house the cachet to become the lead peddler for the IPOs of Aether Systems (AETH: news, chart, profile), Pets.com, Quokka Sports, Rhythms Netconnections and Internet Capital Group (ICGE: news, chart, profile). So, lest I become a Merrill apologist, a sample is really all that's needed to expose a systemic problem that's been largely concealed and ignored for too long. The real penalty Again, this is why I believe the $100 million doesn't send a strong enough message. If it doesn't, then unfortunately, it will have to be up to the private litigants to do so. Even Spitzer's team seems to agree since they provided the documentation of the improprieties at Merrill Lynch that plaintiffs will use for the civil lawsuits. The evidence will be paramount for private litigations. Spitzer even said the potential cost to Merrill from the lawsuits could be in the billions of dollars. See full story. Fair enough. The e-mails are helping the attorneys. "This evidence (the e-mails) is more detailed and because of them we've now filed four additional cases against Merrill and we're about to file our sixth one," said Steven Toll of Cohen, Milstein, Hausfeld & Toll. But just how much will the damages be? How will these attorneys determine compensation for individuals? One way to determine the recovery for shareholders is to look at the price of a stock when Merrill made positive announcements and determine what the stock might have been if Merrill didn't make those positive calls. The differential would be the compensation to investors. This is the classic approach, according to Stanley Grossman of Pomerantz Haudek Block Grossman & Gross. For instance, Grossman said that Merrill made positive announcements regarding ICG in late August 1999, about one month after Merrill took the company public. Internally, however, Merrill analysts allegedly felt differently, he said. Sanford Bernstein analyst Brad Hintz estimates that based on the seven companies mentioned in the recent AG New York Supreme Court filing, the damages could be between $3.7 billion and $5.2 billion. Those companies include Aether Systems, ExciteAtHome, InfoSpace, Internet Capital Group, 24/7 Media, Lifeminders and GoTo.com (now Overture). But attorneys will still have to prove that Merrill knowingly or recklessly put out false reports. They'll have to go through a process of discovery and poke holes in the defense. And at the end of the day, it's difficult to determine what the overall damages will be because when it comes to Internet stocks, there were a multitude of factors driving them higher, not the least of which was plain old greed. Just like those price targets of yesteryear or the arbitrary settlement amounts, I hope it's not just a nice round number or one that just rolls easily off the tongue. marketwatch.com

To: Bill Harmond who wrote (11783)	5/29/2002 12:34:37 PM
From: Lizzie Tudor	Read Replies (1) \| Respond to of 57684

when someone says the put/call index went through the roof, what does that mean exactly? 1. High volume of puts and calls being bought 2. A lot of puts being bought (bullish) 3. A lot of calls being bought (bearish) 4. Large ratio between puts vs. calls either way L

To: Bill Harmond who wrote (11783)	5/29/2002 1:05:39 PM
From: stockman_scott	Respond to of 57684

A MUST READ... {By the man who built International Management Group (IMG) -- a legendary global firm that represents worldclass athletes and runs events like Wimbledon} __________________________________________ Post-Enron dilemma: share value vs. honor By MARK McCORMACK The Japan Times: May 28, 2002 "Nobody goes down with the ship anymore," complained a pundit recently. "Whatever happened to the idea of personal integrity?" he opined. His complaint was in response to Enron in particular, and more generally about our contemporary CEO culture, which has responded to the realities of short-term Wall Street thinking by creating a most curious disdain for the consequences of their actions. In the mind of too many CEOs these days, the best justification for any disaster, any scandal, is: "I'm fine -- what's your problem?" Attitudes like these do make for a certain nostalgia of those times of intrepid polar explorers and fearless naval heroes, when leadership conferred not just perks and power but obligation. I'm all in favor of the latter, but I'm also not so sure how yesterday's strictures would translate into today's world. In fact, it's quite a job to pinpoint what a CEO's sense of honor should entail these days. First consider the phrase "going down with the ship" -- to our ears, a shopworn cliche. But 50 years ago it was still to be taken literally. It was not rare for leaders to feel that life would not be worth living in the aftermath to a failure to safeguard their vessel and passengers, even if the disaster was a thing of chance or fluke of war. In the early, bad days of World War II, a number of American and British naval officers chose death over the possibility of having their decisions questioned. In the strongly patriotic mood of he time, these sacrifices were not to be dissected or even discussed for their strategic lessons -- at least, not in public. But behind the scenes in both the U.S. and British naval headquarters, the horror over the human loss did not blind the leaders in charge of winning a war. They could put together from after-action reports a worrisome picture: Far too many of the ranking officers had shown an appalling incompetence in battle, based on their refusal to learn about emerging technologies such as radar. In short order, on the advice of their War Departments, President Roosevelt and Prime Minister Churchill OK'd a tremendous mass promotion of younger officers, those whose minds weren't still focused on waging the last war. Nor were these leaders limited to the branches of military service, either; as witness the choice of the Titanic's Captain Smith to refuse a place on a lifeboat -- not when over 1,500 others were going to their assured death in an icy ocean. Captain Smith knew he was more than just symbolically responsible for those inevitable deaths. He'd allowed his ship's schedule to be set in order to meet the requirements of an extensive publicity campaign. He orders the ship to run at top cruising speed in he dark of night into an area well known for pack ice. He let himself be distracted by social duties, dining instead of reading the telegraph messages piling up -- he never even delegated anyone to read them, so the warning about icebergs ahead never reached him. No, there was more than mere nobility that motivated Captain Smith to stay at his post. Nobody goes down with the ship anymore Time change, and fashions of personal accountability change with them. In the aftermath of World War II, opportunities to literally go down with one's ship have vanished. The metaphor has gone out of style, too. The way Kenneth Lay of Enron opted for the lifeboat -- or, rather, the Gulfstream -- is just the latest example of the CEO Teflon-itis. For this he has been excoriated in the media. For those looking in from the outside, all this may have seemed like a very satisfying spectacle, a sort of business "Crime and Punishment." But it does raise an inconvenient and, to some, uncomfortable question: Once Enron lay in ruins, what else was CEO lay to do except exit? What is the modern equivalent of going down with the ship? Even if it existed, would there be any point to it? Scapegoating a CEO won't fix the system I ask this not to absolve Lay for Enron, but to see what lessons for other leaders can be extracted from a messy affair. What Lay stands accused of, after all, differs only in degree from what most CEOs have practiced for decades: The maximizing of paper profits and short-term gains over any viable long-term strategy. Would it be better to have a culture where CEOs commit hara-kiri in atonement for failing to meet quarterly expectations? That was Japan's story, and it doesn't seem to have helped them out of their economic quagmire. Perhaps hara-kiri will ultimately prove worthy of consideration, but first let's ask ourselves why Lay has come in for such opprobrium. Could it be because many of Lay's congressional critics have since been revealed to be benefactors of Enron's largess? The sheer volume and intensity of the scorn heaped on Lay would seem to indicate a desire by the business and political communities to deflect attention from their own complicity in a system that seemingly favors the plunging gambler over the careful steward. For a start, let's work on finding a way to reward long-term management strategy. That way, a CEO need never choose between business success and personal honor. ___________________________________________________ Mark McCormack is chairman of the Cleveland-based International Management Group. The column is taken from his monthly newsletter. © Mark McCormack Enterprise Inc. All rights reserved. More on IMG... Led by founder and owner Mark McCormack, International Management Group (IMG) is the world's largest sports talent and marketing agency. In addition to representing sports idols (Tiger Woods), IMG also counts artists (Placido Domingo), models (Tyra Banks), and broadcasters (Bob Costas) among its clients. Its Trans World International division produces more than 5,000 hours of sports TV programming each year. IMG also promotes sports events, which are often expressly designed to feature some of its clients. In addition, IMG represents corporate clients and organizations, acts as a literary agent, and is active in sports academies, golf course design, and financial consulting. imgworld.com imgworld.com