‘These Boots are Made for Walking . . . ‘
Like many of you, I’ve been watching the rapid decline of the stock market, followed by the rapid decline of our own stocks, followed by an even more rapid loss of confidence in the belief that our government, or for that matter, anyone, can do anything about it.
You, of course, can call your broker, as many of us have, and ask what to do. But if he or she is under the age of 45, they have never seen anything but an up market in their entire work experience. You can expect to get the usual bromides that shareholding is a long-term strategy, but, the truth is, I sense the brokers don’t have a clue either. A year from now you can bet many of those brokers and analysts you’re talking to today are going to be in the shoe business or selling real estate.
You can put your account in a large brokerage house or in a mutual fund because supposedly these have the benefit of all that research and professional management, which knows how to cushion your risk. Except when the market turns sour, they handle the downturn pretty much the same way you did when you were steering your own ship. And the scary part is you didn’t know what you were doing. Then the stories start coming out about brokerage analysts who make millions if the stock goes up and stock journalists who have pieces of the game. And you realize those pundits on “Wall Street Week” may be out there flogging stocks in which they or their brokerage firms have an interest, and that we may be the suckers who are buying when they and their larger clients are selling.
Well, at least you can rely on the government, right? After all, there is the Securities Exchange Commission (SEC) watching it all, with big sophisticated computers, so sensitive they can pick up and prosecute a 15-year-old kid doing some insider trading. Apparently, the SEC is good at ferreting out 15-year-olds, but when it comes to things like WorldCom deciding to call its annual expenses long-term capital expenses, that, apparently, is too sophisticated and subtle for the commission to figure out.
The Internal Revenue Service has computer programs that compare everything in your tax return against the norms. If your expenses are higher, or your deductions greater than the norm, the computer kicks out your return and hands it over to an investigation desk. Somehow the IRS manages to do that with crappy computers and millions of taxpayers. You would think the same kinds of norms would apply in corporate financial statements. If the corporations started lying, the SEC would at least have a clue and double-check some of the info if it appeared suspect. Not so. Apparently gentlemen still don’t read other gentlemen’s mail.
Apparently, cluelessness is a common state of affairs in the financial world. Arthur Anderson didn’t have a clue there were even clues. Citicorp and J.P. Morgan apparently didn’t have a clue they were just a bunch of nave, trusting bankers who were eager to help companies turn loans into income. And we, the public, didn’t have a clue, either. As near as I can figure it, we all thought if Sexy.COM, trading at 40 times its earnings, buys Old Boring Widget Corporation, trading at six times its earnings, that automatically makes the new Sexy Widget Corporation also worth 40 times its earning. And, after all, who gets hurt? Our stock goes up, Sexy.COM acquires a bunch of debt and everyone’s the richer for it-until they aren’t.
So what do you do? You can continue to play in the game even though you know it’s fixed because it’s the only game in town. Or you can vote with your feet. I suspect that’s what’s happening. Lots of people are just saying, “I’ve had enough” and they’re walking and going to cash, T Bills or under the mattress.
This weekend I asked a number of people what happens if 25 percent of the players in the game just decide it’s too nerve-wracking and get out. Some said to me that long-term, there is no change. For everyone that’s selling, there is someone else buying those shares, so it’s a wash. But somehow that just doesn’t feel right. If we have 25 percent fewer players in the game, would the market, after the dust settles, go from being a 12,000 market to a 9,000 market? Or, to put it another way, do fewer players mean lower stock prices?
The market is not my game, but for many of you out there it is yours, so I’d like to hear from you.
I also suspect the market will do a lot better if people don’t feel the game is fixed. And if those who run the market expect to get investors back, they’re going to have to get tough and clean house, or people are just going to opt to sit the game out.