Every once and a while, I read something really interesting. I usually clip it and re-read it a few days or weeks later to take it in from a different reference point. A couple of weeks ago, I clipped a great commentary by Steven Sears and recently re-read it again.
I got to tell you, the second time around I found myself just as aggravated. Just to be clear, I agree with what he wrote. It is the situation he discussed that perturbs me.
It is beyond comprehension how publicly traded companies are allowed to say what they want, no matter how thick the *&%$# it is.
Remember the “Lehman Letter?” Then there were the recent Merrill misrepresentations. Of course, let’s not forget about the Herbalife omissions. Then there are the “Friends of Angelo” and of course the tobacco companies.
It would be too easy to conclude that the primary source of volatility in the stock market is the group of traders spreading rumors and then betting the stocks will decline. Surely, they play a role, but the big problem is that the SEC lets corporations get away with mostly saying whatever it is they want to say and lots of people with ordinary incomes get hurt.
Could the reason for the SEC’s laxity be because so many SEC staff eventually leave to work on Wall Street, or at its law firms? Could it be because money is to politicians what air is to breathing, and Wall Street has lots of money that can be used to support politicians who can pressure regulators? All we really know is that politics is the art of compromise, and unfortunately the same is often true when it comes to securities regulations.
One options veteran says the differences between Wachovia’s earnings report and the CEO’s video should remind investors of the virtues of using options to reduce the risk inherent in owning stocks. “To be a naked long is a very insecure, uncomfortable, or foolhardy position,” he says.
In these days of corporate doublespeak, think of hedging stock as the options equivalent of President Reagan’s admonition to “trust, but verify.”
Until we have any type of real ramifications, nothing will change. It is totally amazing that this behavior is allowed. It is almost as if there is a protective cloak surrounding Corporate America. Even after convicted/charged, it seems that all is forgotten in a short while. (Richard Grasso, Martha Stewart)
Companies to ponder: Merrill Lynch (MER) Lehman (LEH) Goldman (GS) Morgan Stanley (MS) AIG (AIG)
Disclosure: Horowitz & Company clients may own shoares of companies memtioned as of the oublish date.