Markets Remain Wary of Another Enron. (Political Notebook)

By Dettmer, Jamie | Insight on the News, February 25, 2002 | Go to article overview

Markets Remain Wary of Another Enron. (Political Notebook)


Dettmer, Jamie, Insight on the News


The stars appear to be aligning, but appearances can be deceiving and the stars misinterpreted. In the week President George W. Bush delivered his first State of the Union address and declared as one of his three main goals the restoration of the economy, the economic news suddenly brightened. On the morning after the president's speech the Commerce Department reported that the gross domestic product (GDP) for the fourth quarter of last year was up by 0.2 percent, far better than anyone expected.

Twenty-four hours earlier, the Conference Board had announced that consumer confidence was rebounding and expectations rising. Also, orders for durable goods were up and manufacturers' inventories down, indicating a likely jump in capital spending by businesses in the months just ahead.

With a light seeming to glimmer at the end of the economic tunnel, Federal Reserve policymakers chose on Jan. 30 to leave key interest-rate targets unchanged for the first time in a year, ending the central bank's aggressive series of 11 rate cuts, which were designed to spur the economy.

But not all was good news. In a dark post-Enron counterpoint, the markets remained cheerless.

On the day of the president's speech the markets fell, with stocks tumbling amid fears that another Enron-like accounting scandal lurks in still other corporate balance sheets. On the morning after the speech the markets remained flat, unmoved by the unexpectedly good GDP figures.

"I think what happens is that at the tail end of every bear market you have a little bit of panic; this is what's happening now," a sanguine Stanley Nabi of Credit Suisse Asset Management told TheStreet.com. "But this too shall pass. I don't think we're on the cusp of major collapse in the market."

Some pessimists aren't so sure, arguing that it wouldn't take much for the jittery markets to turn tail and run, prolonging the economic doldrums and delaying a recovery the Republicans are hoping to ride to the congressional elections.

Analysts are of one mind about the masons for the bearish markets -- namely, post-Enron nervousness among investors and mutual-fund managers suddenly cautious toward stocks generally and especially toward companies that have even a whiff of potential accounting problems or where there is any hint of a possible restatement of earnings. Unfortunately, there are plenty in the latter group to stoke concerns about the accuracy and honesty of corporate bookkeeping.

Even before Enron collapsed amid allegations of fictional auditing, crony capitalism, stupendous derivatives losses, massive hidden debt and outrageous overstatement of earnings, 357 major U. …

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