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Stock Investment  » Words Alone Can’t Explain This Stock Market

Words Alone Can’t Explain This Stock Market

Last week, I read that the folks at Oxford English Dictionary had

a slate of American English words for consideration in future

editions. Apparently, because of its international influence via

the entertainment industry, America is the prime source of new

entries into the language (I guess it’s good to see the country

still has some influence, because there are very few areas that

our global neighbors still look up to us). The word erm that I

found to be the most interesting for consideration is bling-bling.

The word refers to large jewelry, such as platinum chains and

diamond rings that rappers and athletes sport. However, the word

could also perfectly describe the nature of the stock market in

the late 1990s. Moreover, it is the perfect way to describe the

pay packages of CEOs, and lest not forget that house that the

former CFO of WorldCom is building in Boca Raton. Although it

is obvious that the editors at OED are becoming hipper, they’re

still a little slow on the latest in urban vernacular. In this

case, it is probably a blessing. According to the Financial

Times, a writer from Houston recently stated, "The Bling-bling era

is over". It better be, as far as individual investors are

concerned. In fact, the bling-bling era has temporarily been

replaced by the but-but era. Or in some cases the butt-butt era.

The latter refers to how many investors feel after being taken

advantage of by the entire system, or to the expression on the

faces of those that continue to take the 5th during congressional

hearings.

In the meantime, the Bush administration spends a lot of time

saying "but-but". The drubbing of stocks was the clearest

message the people have sent since the Boston Tea party.

Moreover, it wasn’t just Americans that were voicing their

dissatisfaction with the President’s address concerning the

confidence crisis. When those safe haven stocks began to tumble

during the week, one had to know that it represented a lot of

foreign investment. As Ross Perot would have said, that was a

big sucking sound. (By the way, didn’t he get in trouble this

week?) Yes, the foreigners are taking their money out of the

market just as fast as US investors, who withdrew about $20

billion from funds last week. It is interesting that much

hasn’t been made of the simple fact that the market can’t

go higher if there is more money going out as there is coming

in. Anyway, I think Bush will come back with a more definitive

plan that goes beyond punishment and maybe focuses on prevention.

I know that the GOP thinks that those dynamics are one and the

same, but in certain situations they’re not.

The spectrum is such that those that have nothing to lose, and

see no other way, aren’t going to be swayed by prison terms or

other forms of punishment. Sharing this space are those that are

either so inherently criminal, that it is part of their being to

break the law and those that are so blinded by greed that any

risk is worth the reward. In their zeal to achieve bling-bling

status, there is nothing that can stop them. They break every rule

in the game. So, it stands to reason that these same people would

first manipulate the rules, bending, twisting and corrupting them.

There, ladies and gentlemen, is where the President has to focus

his next address on the topic. After all, when it comes to those

in this country that see no other way, the rules are extremely

precise. If a 19 year-old kid from the ghetto can get 10-years

in prison for selling $20.00 worth of crack then that person

knows the risk when he/she hits the street corner. (A discussion

on the fairness of this type of sentencing could go on forever.

I do find it shocking that the type of fraud that results in

people losing their entire life savings only has a maximum term

of five years. The but-but crowd has never seen anything unfair

about such inequitable punishment, but may begin to backfire on

them.)

The rules of the game have to change to the point where anyone

investing in the stock market understands them. Let’s face it,

many of the companies and individuals facing public scorn did

nothing illegal. On Wall Street it was akin to some sort of magic

show. The sleight of hand was rewarded and applauded. You bought

stocks because a company could manipulate the numbers. You loved

management that found ways not to pay taxes. The CEO that could

only pull a rabbit out of the hat was seen as behind the times.

Heck, we loved to see the company sawed in half, only to emerge

whole by the time the earnings were announced. The President has

to understand that the audience doesn’t want that anymore. They

want reality television. No more tricks, no more hocus-pocus.

No more voodoo accounting. No more but-but.

In the end, the president has to cast a net so wide and ambitious

that he may even be snared by it. This is the law and order party,

so we expected longer prison terms. However that doesn’t change

the fact that there is too much gray area in the rules, and until

that changes many public companies are going to go for bling-bling.

After all, that is the difference between a for-profit and a

not-for-profit-company. At the very least, individual investors

buy stocks in companies because they think the company will grab

the brass ring (if you’re lucky, maybe said company

will reach the platinum ring).

A final thought on the Bush address. It is obvious that he has a

formidable obstacle in front of him trying to fix a problem that

is systemic in nature. Years of status quo have to be torn down,

almost overnight if the US equities market is to ever recover from

its current state. In the meantime, his get-tough approach could

put another nail in the coffin of small publicly traded companies.

I’m talking about the 3000 or so companies that trade like

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orphans in the market, with no Jack Grubman to pump them. These

companies already pay a disproportionate amount of money on

compliance and filings. They simply can’t be expected to adhere to

the new rule changes; it will put many out of business. I’m not sure

if the public is in the mood for special exemptions or if the Bush

administration really cares or understands the problems. Yet it

could be disastrous. These small companies are already afraid of

the SEC, because they don’t have the large legal department that

can fight back. They need a break, or else another victim of the

current crisis in the American financial system will be the

American promise itself. The dream is that a company can get

financing and challenge the giants and in the process add to the

spirit that has kept America ahead of the rest if the world in

terms of innovation andtechnical prowess.

It is a tough and dire situation. Somewhere down the line the

goal of innovation and achievement gave way to greed. We all have

been seduced by bling-bling, but now it’s back to basics,

hopefully the market can hang in there while the transition is

being made.

Other Thoughts and Observations

A few weeks ago, I said that the individual investor wouldn’t

step in to buy stocks on weakness like they did post September 11th.

It is one thing to not let the bastards win, but another to bail out

homegrown bastards that abused the system and our trust. Since

then, the selling has become so pronounced that a hint of

patriotic fervor has returned. It moved long-time bear, Byron

Wein, to pick up the flag and say stocks are a buy. Other well

known Wall Street bears made upbeat comments about the long-term

potential of the stock market. However, none picked the bottom.

Outside of the days and weeks immediately following the terrorist

attacks, I can’t think of a time when Washington should be less

partisan. Forget the blame game for a moment and stop acting like

the Hatfield and McCoy clans. There is nothing to brag about and

the problems are so universal and pervasive that everyone has

played a role.

I’ve asked that everyone remain hopeful but gather as much cash

as possible. It may be time to put that cash to use, really soon.

My best guess is that 8177 is going to be the launching pad. I do

find it interesting that the techs are probably going to

outperform the blue chips this summer. If there is a new paradigm

shift then that means a long-term recovery in the stock market

will have to come from a sector other than the techs.

About the Author

Since 1991, Charles Paynes’ Wall Street Strategies has

successfully provided timely and effective equity advice to institutional

money managers, retail brokers and individual investors

of all types, and has thousands of subscribers from hundreds of

brokerage firms. http://www.wstreet.com