I have Enronitis.
Not the same Enronitis that democratic pundits like Terry McAullife are trying to sensationalize. My Enronitis takes the form of a repetition and “I told you so” syndrome. All anyone wants to talk about is Enron and they all want to know how I knew of its demise. Well, over 200 radio interviews later they are still asking.
Back in 1999, I wrote an article in this very newsletter calling into question the practices at Enron and its questionable future. Well everyone as of late wished to know how and why it was possible that I knew what everyone else on Wall Street missed.
Wall Street did not miss Enron.
It most certainly did not slip by them.
Wall Street did not miss the Dot Com’s either.
Wall Street simply did not want to let you in on their game.
Enron is nothing more than an indictment of the anything goes approach to business that characterized the late 1990’s. The bull market euphoria convinced analysts, investors, accountants and even regulators that as long as stock prices stayed high, there was no need to question company practices. However, if you think for a single second that the executives at these financial supermarkets were naïve to what was going on…
Well, I have a bridge to sell you; it connects the borough of Brooklyn to the island of Manhattan.
Enron as well as the Dot COM’ were built brick by brick in broad daylight in the 1990’s by companies doing whatever they had to do to make their numbers, being willing to sacrifice the long-term well-being of the companies so that everyone except the average investor could get rich.
Mostly on the strength of the highflying shares, Enron, the infamous Dot Com’s and the investment banks such as Merrill Lynch, UBS Paine Webber, Citigroup as well as many others were able to convince the world that their promise was real, its financial results genuine and its growth never-ending. Never mind the way they accounted for revenues, future growth, risk or the overall economic reality of their business.
The question I have been asked more than any other during the past couple months is…
“Who is responsible?”
The push right now is to place the blame on Ken Lay and the executives at Enron. Also many are looking to add Arthur Anderson to the list of “America’s Most Wanted”. I would like to let the public know that they are missing the point. I learned when I was very young that if you wish to eliminate weeds from your garden you have to pull them out by their roots. So, let us all get to the root of the problem.
First, all of Wall Street is in bed with one another. We have a terrible incestuous business model that has emerged from the anything goes ideas of the 1990’s. Enron could not have existed without the financial supermarkets that you see advertising so prevalently on television. Naturally, given the millions and millions of dollars Wall Street firms generated selling Enron’s shares partnerships and bonds to investors, analysts were among the most vociferous defenders of the company. Investment bankers pressured their analysts to publish nothing more than puff pieces on companies they were underwriting. Don’t feel bad for the analysts who were always wrong. They were getting paid big bucks to shut up. Millions!!
Here are some mind-boggling examples, Lehman Brothers as of January 15th; analyst Richard Gross was continuing to rate Enron a strong buy. Raymond C. Niles at Salomon Smith Barney did change his rating on Enron from buy to neutral, but not until Oct. 26, when the stock closed at $15.40. During the previous 12 months, Enron had traded as high as $84.63. Both of these firms made a small fortune doing business with Enron.
Enron promised to give bond underwriting business to Merrill Lynch & Co. and First Union Corp., now Wachovia Corp., in return for investments in some of the off-balance sheet partnerships set up by former Chief Financial Officer Andrew Fastow that led to Enron’s bankruptcy.
Energy and Commerce Committee Chairman Billy Tauzin, a Louisiana Republican, said Enron offered the business to the banks in exchange for investments because an outside investor was required by accounting rules to keep the partnerships from being consolidated on Enron’s balance sheets. These actions are nothing more than a form of stock promotion and manipulation.
These practices were made famous during the early 90’s with mostly small cap companies and mafia run brokerage firms. The big firms have taken the ball where the mafia has left off and just pulled it off on a grander scale.
The big investment banks were the Dr. Frankenstein that created the monsters. These monsters were nothing more than disposable companies. Designed and built to fill the bank accounts of executives who were in on the fix everywhere and anywhere.
The second source of blame lies with the American people. We have been working diligently over the past three years trying to help investors who have been run over by the “Tech Wreck” or “Enroned.” What these investors have done to themselves is amazing to me.
Why do people believe that the stock market is some get rich quick scheme? Americans have managed to take the stock market and turn it into some half-ass casino. Wake up!
The market is a tool for building wealth over time with proper portfolio management, downside protection and manageable risk. If you want to gamble go to Atlantic City or Las Vegas. I hear they give you free drinks and food.
Americans have been suckered in to believing that the stock market will make you rich overnight. That is just stupid. I don’t care how many commercials the big firms run on television with truck drivers owning their own country or kids flying around in their own helicopter. I still receive countless portfolios every week filled with disasters such as, Enron, Global Crossing and the Dot Com’s.
How is this possible?
These once luxurious over-hyped Cinderella companies did not turn into pumpkins at midnight. If investors used simple common sense we wouldn’t be having the problems we are experiencing today. Retirement accounts are a tool for letting people put away tax-free income over time. They are designed to empower the investor and allow time to make the individual wealthy. When speculation becomes a part of the retirement account, disaster looms.
Most retirement accounts do not allow stop losses, or stock options to hedge positions. Therefore one must be extra cautious in these accounts. As far as stocking up on your own companies stock; that is like playing Russian roulette. Stocks go up and down, companies fail, you never know. Who would have thought that Polaroid would be out of business…Kmart…Lucent? Don’t be suckered by dumping all your retirement into one stock.
The bottom line is that American’s have to stop becoming “victims”. If it looks to good to be true it probably is! Educate yourself before making any decision not just in stocks…everything. The more that Americans are unwilling to accept responsibility for their actions. The more freedom we lose.
Last, but not least is the media. They are partners in crime with the big investment firms. They fail to allow their trusty advertising clients to be taken to task on their airwaves, magazines or newspapers. They will not bite the hand that feeds them. The big firms know this and use the media as a dog and pony show to illustrate their latest “hot-company”. Well, I am here to tell you that the emperor has no clothes. Shut off the business programs, cancel the magazine subscriptions; the information you are getting is garbage. The conflict of interest that exists on Wall Street exists in the media as well.
“So, now what?”…
“Whom do I listen to?”…
“If the market is that dangerous why bother investing at all?”
These questions have been flooding my e-mail box and voice mail for the past couple of years. After watching the NASDAQ tumble, Enron just adds insult to injury. I am here to tell you that there are quite a few excellent money managers available to the public today. However, you’re not going to find them advertising on television or on the radio. We at Markowski Investments spend our time searching out the best and the brightest portfolio managers in the entire world. Individuals with at least 20 year track records of superior performance and excellence. For some reason I am big believer in track records and my teams is simply better than anything available anywhere. If you are working with any of these large financial supermarkets you have great reason to worry. The information that is being supplied to you is tainted. There is no question about that. Don’t shoot your broker, he or she is the last man on the food chain. It is not their fault their bosses are crooks.
The markets if treated and handled with respect and intelligence will offer your family and yourself tremendous opportunities. Always protect your downside. Understand that a consistent 10-15-20 percent return will get you to the places you want to go.
Time is your greatest asset! Use it!