Where's the Stock Market?
Reynolds, Alan
"Where's the Stock Market?" BY ALAN REYNOLDS tax day, Dow stocks had gone nowhere all year and the 100 biggest NASDAQ stocks were down 14 percent.A surge in industrial production confirms the...
...But the initial reaction to frightening news is almost always overdone...
...Some stocks fell sharply for a while simply because they were in a business similar to Enron (Williams) or because somebody claimed they might have similar accounting problems (Tyco...
...Regulatory agencies also have institutional incentives to fail...
...The bigger the failure, the more the agency will be rewarded with more authority and a bigger budget...
...And whimsical antitrust suits, public and private, are becoming a handy excuse to embezzle intellectual property rights...
...In any case, oil is a poor explanation of what has happened to stocks: Stocks of energy-gobbling industrial companies fared relatively well, while the weakest stocks have been in sectors that use little energy, such as telecom, biotech and Internet service...
...Still, the SEC's cluelessness about Enron has been sufficiently embarrassing that the agency has been trying to look hyperactive, launching highly publicized investigations of Xerox, Qwest, PNC Financial Services, Hewlett-Packard and Waste Management, to name a few...
...That was certainly true of the overall market drop after September 11...
...Fortunately, uncertainty about the near future is always temporary, because the future eventually becomes the present...
...The risk of blowing the whistle too early is a lost job if you're wrong...
...And investors who bet against fear in general will do just fine by year-end...
...Enron itself is broke, after all, and lawyers know where the money is...
...That growing overhang should depress the oil price, not raise it...
...Such investigations rarely turn up anything, but the fear generated by such a needlessly public announcement hangs over the market like a big black cloud...
...In February, long after everyone was sick of reading about Enron and Global Crossing, it was announced that the SEC was now investigating Global Crossing's books along with Enron's...
...BBY ALAN REYNOLDS y tax day, Dow stocks had gone nowhere all year and the 100 biggest NASDAQ stocks were down 14 percent.A surge in industrial production confirms the economy is moving ahead nicely, but that news only cheered the market for a day.Why has the stock market been so disappointing...
...Smart bureaucrats "blow the whistle" last, never first...
...Oil is a commonly mentioned explanation...
...This is happening now with the SEC...
...But it has also been true of news about particular companies...
...Other new worries arise from Enron-inspired "investigations" (public flogging) by the Securities and Exchange Commission...
...Can you imagine Moody or S&P pre-announcing that they might be looking into Alan Reynolds is a setiorfellottl at the Cato histitute in W shington and author of The Microsoft Antitrust Appeal: Judge Jackson's Finding of Fact Revisisted...
...Precautionary stockpiling drove prices up in March, in anticipation of the temporary disruption we now see from Venezuela and Iraq...
...But if Iraq stops exporting 1.5 million barrels a day, then it will have to add that much to the global stockpile...
...And, as my mother has often reminded me, "Most of our troubles never happen...
...A better explanation can be found in this year's nasty new bundle of political, regulatory and legal uncertainties...
...Although the SEC is charged with protecting stockholders, the market responds to the SEC's public displays of affection as rape rather than seduction...
...A class-action suit aimed at Enron was promptly expanded to include several big banks, securities firms and law firms...
...So the SEC normally waits until the patient is long dead before conducting an expensive autopsy...
...The SEC is focused on keeping politicians happy and getting rave reviews in the headlines...
...The reward for taking that risk will be identical to the salary for never rocking boats...
...Other stocks fell on threats of asbestos lawsuits (Halliburton...
...That includes anti-business poison being peddled as a prescription for the dead patient, Enron-such as taxing the stuffing out of stock options (see "Options Options, p. 30) or regulating private pensions into oblivion...
...Too much money that belongs to stockholders is going to legal battles, in an escalating game of offense and defense with few winners (aside from the legal fees...
...Big companies continue to have their stock prices flattened by lawsuits for ancient asbestos claims...
...14 THE AMERICAN SPECTATOR • MAY/JUNE 2002...
...A mid-April news report noted, "Speculation that IBM might be under federal investigation gave Wall Street its worst day in six weeks...
...These incentives normally lead to maximizing paperwork and minimizing controversy...
...Investors who bet against such scary stories have done quite well...
...Later is easier-and safer...
...After the damage was done, the SEC denied the report-usually it "neither confirms nor denies...
...downgrading a company's debt rating, then waiting months before saying they didn't find anything wrong...
...Legal threats are also as unpredictable as rain...
...In short, potential stockholders have recently been faced with unusually formidable and foolhardy political, regulatory and legal uncertainties...
Vol. 35 • May 2002 • No. 3
