There Is No Cat

Groovy '60s Sounds from the Land of Smile!

Sunday, July 21, 2002

Sell!

Dan Gillmor says that the biggest problem facing the financial markets today is panic. I don't know, I think that maybe the massive sell-off hitting the markets the past couple of weeks is a rational reaction.

Arthur Anderson was a big company; they audited a lot of books. And before the Enron debacle, it wasn't exactly a secret that their corporate specialty was acting as corporate lapdogs. The reason the government went after them for Enron is because what happened there made it crystal clear that the company hadn't learned a damned thing from its previous close encounters with justice in the cases of Waste Management and Sunbeam. There were a lot of companies that felt pressure during the go-go days of the Internet boom to compete with the sexy stocks in Sillycon Valley for capital. And as a result, there were a lot of companies that cooked the books. As Dick Cheney would be happy to tell you, Anderson provided lots of services for their clients. They were like the easy girl who would open her legs for anyone. You want an auditor who will let you get away with anything? Go talk to Arthur Anderson. My dad had complained for years that Anderson were nothing but a bunch of yes men. "You want to count simultaneous bandwidth trades as bookable revenue? Go ahead! Sounds great to us!" With all the dot.coms sucking the oxygen out of the market in the late 90s and the added incentive of their own stock options to pump up, I honestly can't imagine that there aren't dozens more Enrons and WorldComs out there just waiting to be exposed.

The Economist this week, in an article entitled "Stop This Dream" (on page 63 of the print edition, only available to subscribers on their web site), examines the stock market, and among other things points out that by historical standards, price-to-earning ratios are well more than double the norm. Historically, the ratio is 15; even after the past couple of weeks in America, today the number is 40. The Economist thinks that the S&P 500 may need to drop by another 50% to bring the market back into equilibrium.

I don't consider moving a substantial portion of my retirement savings into bonds to be panic. I consider it a prudent move right now. I still have a not insubstantial portion of my money in stocks, but given that I believe that the market is still far overvalued, I think getting the hell out can be a rational reaction. When I moved my money, I said that I would look at the market in six months and decide whether stocks were more reasonably priced or whether bonds still looked like a better investment, and I intend to stick with that. Right now, stocks look like a bad bet. Rationally speaking, that is.

Posted at 9:33 PM

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What do you mean there is no cat?

"You see, wire telegraph is a kind of a very, very long cat. You pull his tail in New York and his head is meowing in Los Angeles. Do you understand this? And radio operates exactly the same way: you send signals here, they receive them there. The only difference is that there is no cat."

- Albert Einstein, explaining radio


There used to be a cat

[ photo of Mischief, a black and white cat ]

Mischief, 1988 - December 20, 2003

[ photo of Sylvester, a black and white cat ]

Sylvester (the Dorito Fiend), who died at Thanksgiving, 2000.


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