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Scream First, Ask Questions Later
By Charles Payne
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NEW YORK, NY - Back in March, I asked whether investors were
prepared to get to the bottom of Wall Street's Pandora's box.
The response that I received from most readers in the US was
that of outrage. They were appalled that I would suggest that
the problems were so bad that in the end we'd wished that the
lid had been kept on. I think their response was part patriotism
(or in this case maybe nationalism) and part confidence that our
system was just about beyond reproach. The European readers on
the other hand, all agreed that I was on to something. Maybe
they were being cynical in suggesting that the US market wasn't
perfect and that Americans, used to winning and being on top,
wouldn't be able to handle the truth. Well folks, the truth has
been harder to handle than anyone thought it would be, and that
patriotic fervor has become rebellious anger.
Last week felt as if every investor climbed on their window
ledges and screamed (all facing east to project their collective
voices to Wall Street) I'm mad as hell, and I'm not going to
take it any more!!!! (By the way, that wasn't confetti flowing
in the air, those were worthless stock certificates.)
The big question over the weekend is: when does it stop? This
question can be applied to several areas of our lives, including
the stock market. In fact, I think it must be answered from the
point of view of corporate scandals and wrong doings. At this
point of the stock market meltdown, there is no doubt that the
driving force is the continuing stream of scandals. However, one
has to wonder what constitutes a scandal. These days it just
looks like any misstep by corporate America is/was a deliberate
attempt to cover something up.
Here is the definition according to dictionary.com: scan·dal (sk
n dl) n. 1. A publicized incident that brings about disgrace or
offends the moral sensibilities of society: a drug scandal that
forced the mayor's resignation. 2. A person, thing, or
circumstance that causes or ought to cause disgrace or outrage:
a politician whose dishonesty is a scandal; considered the
housing shortage a scandal. 3. Damage to reputation or character
caused by public disclosure of immoralor grossly improper
behavior; disgrace. 4. Talk that is damaging to one's character;
malicious gossip.
As we can see, technically all of the headline news seen is
indeed a scandal. However, I think investors are going to have
to learn to separate malicious intent from stupidity and error.
Of course that may not happen until all of corporate America
comes clean. Therein lies the problem with the executive branch
of our government. While Bush's Harken situation was old news,
his handling of the events has been terrible. (In fact, the more
he tries to sweep it under the rug, the greater the curiosity
and doubt. It doesn't help that his father appointed the SEC
head that oversaw the investigation.) Worse has been his
handling of the Cheney situation. It smacks of unnecessary
protest for him to come out and proclaim his vice president's
innocence. Loyalty is commendable, but not when it challenges
the sensibilities of the entire nation. One day he's tough on
white-collar crime (I think?) and the next he's sounding like
the Bruce Cutler of the beltway. (By the way, this is an
interesting aside, but I'll give you one guess as to who the
person is in the first meaning of the word "scandal". One hint:
he was in the business of government.)
SAY IT AIN’T SO, JO JO The biggest disappointment of the week
was reserved for the company that arguably is the most trusted
in the country. Johnson and Johnson (JNJ) came under scrutiny
Friday, for accounting fraud at the company's Puerto Rico plant.
This plant makes Eprex, and though the product only represents a
fraction of the overall revenue at the company, it is reasonable
for investors to wonder if the allegations are factual this is
only the tip of the iceberg.
So now shareholders in JNJ and other pharmaceutical companies
have to ask themselves 'when does it stop'? Save for Kraft, I
can't think of a company that has products in every single US
household.
Folks, you said bring it on, well now you have it. Guess what?
It may get deeper.
I've preached that everyone should have puts and/or shorts at
all times during this collapse. It is too early to say that now
everyone should have calls or longs on weakness now, but there
will be substantial upside opportunities. There are so many
things that are going to have to happen before we can stop
asking "when does it stop"? But it will.
About the author:
MORE ABOUT WALL STREET STRATEGIES
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.
For more information, please email research@wstreet.com
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