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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: marginmike who wrote (53315)	6/28/2002 12:08:59 PM
From: stockman_scott	Respond to of 65232

LOL

To: marginmike who wrote (53315)	6/29/2002 10:20:28 AM
From: stockman_scott	Respond to of 65232

Investing in an age of deception By Deborah Hargreaves Published: June 28 2002 19:53 Financial Times Bill McClean runs four investment portfolios - for himself, his wife, his son and a family trust - but he has recently sold most of his shares and is holding on to the cash. The events at WorldCom may have occurred thousands of miles from his home in Stirling, Scotland, but they have shocked him nonetheless. "Investing [is] very difficult if you don't know where to turn to get a truthful assessment of a company." Around the world, many private investors with share port- folios have similar concerns. The discovery this week of a large hole in WorldCom's accounts is the final proof for many that it is time to quit a fragile market. "Lots of people are running for the hills, putting their money in the bank and saying there's no way they'll ever touch another share again," says David Hanratty, director of investment planning at Nelson Money Managers in Chester. "Of course, these are the same people who will probably be piling back into the market again in two years when it's gone back up." It is the apparent simplicity of the alleged fraud at WorldCom and the failure of auditors to spot it that has had such an impact on private investors. "They didn't really understand what was going on at Enron - but now this is so clear, it has really hit people," says Mr Hanratty. A few sophisticated investors will view the current market downturn as a good buying opportunity but they are in a minority. Mr McClean, a pensioner who runs the website for the Scottish Shareholders' Association, says many of his fellow investors were already concerned about standards of corporate governance. He is looking for an opportunity to get back into the market but the latest corporate scandals have put him off buying shares in large companies. "It means I look askance at what people say and try to read between the lines . . . with smaller companies you get the chance to meet the management and judge whether they are telling the truth." He is not alone: many investors wonder whether they can trust financial statements from US companies. The feeling is so widespread that an increasing number of fund managers and analysts believe private investors may stay away from the US market for some time. Bill Miller, a US fund manager who runs the $11bn (£7.2bn) Legg Mason Value Trust, believes the next bull market will be postponed until US regulators can improve the financial integrity of corporate accounts. Per Lindberg, telecommunications analyst at Dresdner Kleinwort Wasserstein, expressed surprise at the effect WorldCom had on European investors this week, when telecoms share prices plunged: "If anything it should have been good, because another competitor has gone. But investors are so risk-averse at the moment." Other investors are shunning equities altogether. Having been buffeted by volatile share prices and falling markets over the past two years, many have been playing it safe and putting their money into fixed income investments. But those with corporate bond funds will have seen their returns suffer recently as the fall- out from WorldCom led to a drop in global bond markets. Financial advisers now report renewed interest in almost risk-free assets such as government bonds held to maturity. They say investors are happy to miss out on any potential equity premium as long as they can sleep at night. But private investors often make the mistake of buying assets that are rising rapidly in price rather than those that have fallen. "The lay investor is the classic lemming. I'm afraid he's caught along on the crest of a wave in markets," says John Turton, head of financial planning at Bestinvest, the financial adviser. "When stock markets are high, people throw money at equities at exactly the wrong time - and now there is panic selling." Many advisers recommend buying now when prices are low - but private investors cannot expect to be able to time the bottom of the market exactly. "It still requires a longer-term belief," says Mr Turton. "If you stick money in now and it goes down again next week, you shouldn't throw up your hands and say it's all gone terribly wrong." d4 That is the problem for many individuals who already feel it has all gone terribly wrong. This is because they have been hit by a double whammy - their equity-based investments have tumbled and so has the value of their pensions. An increasing number of people are saving in pensions where pay-outs are dependent on investment returns where they shoulder all of the risk. These pension funds are heavily invested in equities and will be affected by any fall in markets. Employers could also be prompted by the market downturn to close more final-salary pension schemes, which are expensive to run. "It means employees should put more money into their pensions quickly if they are scared by the markets and maybe consider something different, like corporate bonds or commercial property," says Mr Turton. Investors have turned increasingly to property - mainly residential - in recent years. This has been a safe haven for those disaffected with falling stock markets. Borrowing for buy-to-let has surged as investors have built a property portfolio instead of a pension or share investments. But recent warnings suggest these people could be the first hit by any fall in house prices - a factor that has increased nervousness. In fact, Bob Leonard, director at Advisory and Brokerage Services, a London-based financial adviser, says the WorldCom crisis has come at a bad time. "Confidence was just starting to return among private investors . . . Now this creates yet another air of uncertainty that we could well do without."

To: marginmike who wrote (53315)	7/12/2002 2:23:28 AM
From: stockman_scott	Respond to of 65232

The Insider Game By PAUL KRUGMAN Editorial / Op-Ed The New York Times July 12, 2002 The current crisis in American capitalism isn't just about the specific details — about tricky accounting, stock options, loans to executives, and so on. It's about the way the game has been rigged on behalf of insiders. And the Bush administration is full of such insiders. That's why President Bush cannot get away with merely rhetorical opposition to executive wrongdoers. To give the most extreme example (so far), how can we take his moralizing seriously when Thomas White — whose division of Enron generated $500 million in phony profits, and who sold $12 million in stock just before the company collapsed — is still secretary of the Army? Yet everything Mr. Bush has said and done lately shows that he doesn't get it. Asked about the Aloha Petroleum deal at his former company Harken Energy — in which big profits were recorded on a sale that was paid for by the company itself, a transaction that obviously had no meaning except as a way to inflate reported earnings — he responded, "There was an honest difference of opinion. . . . sometimes things aren't exactly black-and-white when it comes to accounting procedures." And he still opposes both reforms that would reduce the incentives for corporate scams, such as requiring companies to count executive stock options against profits, and reforms that would make it harder to carry out such scams, such as not allowing accountants to take consulting fees from the same firms they audit. The closest thing to a substantive proposal in Mr. Bush's tough-talking, nearly content-free speech on Tuesday was his call for extra punishment for executives convicted of fraud. But that's an empty threat. In reality, top executives rarely get charged with crimes; not a single indictment has yet been brought in the Enron affair, and even "Chainsaw Al" Dunlap, a serial book-cooker, faces only a civil suit. And they almost never get convicted. Accounting issues are technical enough to confuse many juries; expensive lawyers make the most of that confusion; and if all else fails, big-name executives have friends in high places who protect them. In this as in so much of the corporate governance issue, the current wave of scandal is prefigured by President Bush's own history. An aside: Some pundits have tried to dismiss questions about Mr. Bush's business career as unfair — it was long ago, and hence irrelevant. Yet many of these same pundits thought it was perfectly appropriate to spend seven years and $70 million investigating a failed land deal that was even further in Bill Clinton's past. And if they want something more recent, how about reporting on the story of Mr. Bush's extraordinarily lucrative investment in the Texas Rangers, which became so profitable because of a highly incestuous web of public policy and private deals? As in the case of Harken, no hard work is necessary; Joe Conason laid it all out in Harper's almost two years ago. But the Harken story still has more to teach us, because the S.E.C. investigation into Mr. Bush's stock sale is a perfect illustration of why his tough talk won't scare well-connected malefactors. Mr. Bush claims that he was "vetted" by the S.E.C. In fact, the agency's investigation was peculiarly perfunctory. It somehow decided that Mr. Bush's perfectly timed stock sale did not reflect inside information without interviewing him, or any other members of Harken's board. Maybe top officials at the S.E.C. felt they already knew enough about Mr. Bush: his father, the president, had appointed a good friend as S.E.C. chairman. And the general counsel, who would normally make decisions about legal action, had previously been George W. Bush's personal lawyer — he negotiated the purchase of the Texas Rangers. I am not making this up. Most corporate wrongdoers won't be quite as well connected as the young Mr. Bush; but like him, they will expect, and probably receive, kid-glove treatment. In an interesting parallel, today's S.E.C., which claims to be investigating the highly questionable accounting at Halliburton that turned a loss into a reported profit, has yet to interview the C.E.O. at the time — Dick Cheney. The bottom line is that in the last week any hopes you might have had that Mr. Bush would make a break from his past and champion desperately needed corporate reform have been dashed. Mr. Bush is not a real reformer; he just plays one on TV. __________________________________ Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed Page and continues as Professor of Economics and International Affairs at Princeton University. Krugman received his B.A. from Yale University in 1974 and his Ph.D. from MIT in 1977. He has taught at Yale, MIT and Stanford. At MIT he became the Ford International Professor of Economics. nytimes.com