The Five Dumbest Things on Wall Street This Week
1. Don't Bush Your Luck
The grateful thanks of the Five Dumbest Things Research Lab go out this week to President Bush for answering some questions that have been troubling the lab's staff for some time now.
What would happen to the markets, we wondered, if the president were to deliver a speech in which he came out against corporate wrongdoing? You know, taking a position just as controversial and unpopular as, say, those politicians who climb out on a limb to praise the flag or denounce child abuse?
Furthermore, we pondered, what might happen if the president were to deliver that speech in front of wallpaper on which the words "Corporate Responsibility" were printed in a prominent and repetitive fashion? How would that affect the markets once his audience had incontrovertible proof that George Bush is indeed in favor of corporate responsibility?Well, now we know: Apparently what happens is the S&P and the Dow each drop 5.1% in three days. Apparently, it takes more than a few stern words and a customized backdrop to restore faith in the financial markets. Surprise, surprise. Which brings us to our next item...
2. Raiders of the Lost HarkenTell you what. We at the research lab will go out on our own little limb and guess that maybe the reason that a pep talk from President Bush isn't putting America's mind at ease is that maybe, just maybe, Americans see Bush as part of the problem. Crazy, huh? Where would they get that idea? Well, maybe it's from this whole Harken Energy (HEC) affair stretching back a few years. So, here are a few factoids we've picked up about Bush from various different press outlets. First there's the part about how Bush, a director at Harken Energy in the late 1980s and early 1990s, received about $180,000 in low interest rate loans to buy Harken stock options. To us, that sounds vaguely reminiscent of the more than $400 million that WorldCom (WCOME) lent then-CEO Bernie Ebbers so he could hold onto his WorldCom stock, though Bush's loan is a few zeroes short of Borrowin' Bernie's. Then there's the part about how Bush sold $849,000 in Harken stock in 1990. That was only two months, apparently, before the company's stock tanked on a restatement of earnings -- and Bush was eight months late in reporting the transaction to the Securities and Exchange Commission. Again, this is a few zeroes shy of another familiar story -- in 2001, Enron (ENRNQ) Chairman Ken Lay sold $70 million worth of shares in the company as it slid toward bankruptcy. Then, of course, there's the weirdness of the financial transaction at the heart of the Harken matter: The sale of 80% of a Harken subsidiary to a bunch of Harken insiders who completed the transaction with the help of a loan from -- you guessed it -- Harken. The deal took millions of dollars in debt off the company's balance sheet and cut losses by at least $8 million. Until, that is, the SEC made Harken restate the transaction, a process that led to the stock's tanking in 1990. Damned if the whole thing doesn't remind us of Enron again and its penchant for constructing related-party transactions designed to wipe losses off its financials.
Now there are a few candidates for the Dumbest part of this whole affair, most of them stemming from Bush's staunch refusal to admit that he bears a greater resemblance to the alleged robbers than to the alleged cops, corporatewise. Is it Bush's challenge, in Tuesday's corporate responsibility speech, for companies "to put an end to all company loans to corporate officers"? Is it the request by Bush -- a member of Harken's audit committee way back when -- for "board members to check the quality of their company's financial statements, to ask tough questions about accounting methods"? No, it's Bush's comment at a Monday press conference when a pesky reporter ask him if he had favored, or been involved in, the subsidiary sale of which the SEC had expressed its disapproval. "All I can tell you," replied Bush, "is that in the corporate world sometimes things aren't exactly black and white when it comes to accounting procedures." That's true, of course. But given Harken's multiple similarities to companies currently in the news, Bush instructing companies about accounting and governance is kind of like Bill Clinton lecturing the youth of America on the value of sexual abstinence.
3. Money Makes the WorldCom Go AroundOur sympathies go out to WorldCom and its employees as they struggle to save the telco's remaining business and stave off bankruptcy. But despite our concern, we can't help but shake our heads at how desperate the struggle has become. Yes, in a WorldCom internal email we received Thursday, the company notes that checks payable to WorldCom "are being received at various locations and held because people do not know where to send them." Effective immediately, advises the email, please send all checks "or other remittances" directly to the company treasurer in Washington, D.C. Makes you wonder: What was the policy in the years before this urgent email was sent? Have all the people who knew what to do with these checks just been laid off? Or was there so much money rolling around that getting checks to the bank just wasn't an issue? We assume that the next company email will cover collection policies for loose change that has rolled underneath the vending machines. We'll let you know.
4. We Report. You Decide if We're Idiots.Speaking of WorldCom, we were shocked to read an article this week indicating that al Qaeda operatives had infiltrated the telco and other U.S. corporate titans in a conspiracy to undermine the U.S. economy. Yes, in
5. Sorry, Wrong NumbersAs a follow-up to
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV