We are in a difficult situation. For lack of a superior term let’s call it a crisis of confidence. Everyone should remember the story of the little boy who cried wolf; well, let’s just state that our markets have gone the way of a childhood fable. These past few weeks more companies have added insult to injury. Falsifying records, misappropriation of funds, exorbitant pay packages – just to name a few. Remember the good old days when the concerns of investors were whether or not earnings were going to grow and how quickly? The concern for investors has morphed into whether earnings are based on reality or fable.
The Securities and Exchange Commission is now working in overdrive and has doubled the number of accounting and financial reporting cases it opened from a year ago. We told everyone that Enron was nothing more than the tip of an iceberg. Currently, we have Adelphia, Knight Trading, Dynegy, El Paso, Tyco, Etc…It is becoming an easier task to track honest companies due to the fact that the list is shrinking.
The slope the markets are perched on is very slippery and very steep. We are coming very close to a time when the markets will do its best Mike Tyson impersonation and end up flat on its back. If you are a CNBC junkie or are still listening to the usual blowhard analysts, you are being told to buy heavy on the dips. Unlike our so-called peers, we at Markowski Investments try to reside in a world based on reality. If you are buying the markets haphazardly and averaging down losing positions, you are officially engaged in complete exercises in stupidity. An improperly positioned investor should perform exactly the opposite. Always liquidate the losers into the rallies!
The Dow has declined precipitately over the past few weeks and has wiped out more of the few, the proud, the stubborn, the unscrupulous investors. For the people still hanging onto losers, here is a tip: Get out! Bear markets act like bull markets in reverse, they have their own unique momentum to the downside. Here is a quote from a favorite analyst of ours; it articulates the current state of affairs quite eloquently:
“When the house of cards is built on a pack of lies, you don’t need an economic or political shock to bring it down. All you need is the truth — the facts come out and down comes the house of cards.”
We have a real problem when corporate America has gone the way of the little boy in our fable. The moral of the story is you can only be untruthful for so long. Investors have grown weary of lies, greed and manipulation. Until corporate America gets its act together, the “bull” will be an endangered species.