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 In fact, the bling-bling era has temporarily been replaced by the but-but era.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 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
