Nothing is over until we say it is. -- Bluto, Animal House.

Today, someone decided accounting concerns were "over," or at least overdone. With names recently caught in the accounting maelstrom helping lead the way, including Tyco ( TYC), Qualcomm ( QCOM) and General Electric ( GE), the market picked up where it left off Friday afternoon.

The Dow Jones Industrial Average and S&P 500 each gained 1.4%, and the Nasdaq Composite climbed 1.5%.

Other factors certainly helped the advance, notably semiconductor stocks after Credit Suisse First Boston's upgrades of National Semiconductor ( NSM) and Micrel ( MRCL), and positive comments by Goldman Sachs about Applied Materials ( AMAT) ahead of its earnings report. The Philadelphia Stock Exchange Semiconductor Index rose 3.8%.

Additionally, rising optimism about the pace of the economy's recovery aided cyclical stocks such as International Paper ( IP); the Morgan Stanley Cyclical Index rose 2.9%.

But "today was a continuation of Friday's rally because nothing came out over the weekend that was ominous," said Anthony Cecin, manager of Nasdaq trading at U.S. Bancorp Piper Jaffray in Minneapolis.

Many things fall into the category of ominous, but Cecin was speaking specifically of accounting issues, which were widely cited as a prime determinant of last week's weakness.

So the question becomes whether the accounting concerns are over, or just over for now?

Someone asked me about this recently, and in a moment of optimism (yes, I have them), I mused that because information flows so quickly now, everything gets accelerated. Therefore, it's possible that the accounting concern "cycle" has already worked itself out. Certainly, the cycle has passed its climax, and we're now in the denouement, I contended. One measure of fear in the marketplace, the Chicago Board Options Exchange Volatility Index, has declined markedly from its recent intraday peak near 29, closing today down 7.6% at 23.54.

The problem is that many market participants believe the denouement could last for several chapters, instead of heralding the end of the story.

"The market has taken a pretty good hit for accounting fiascoes that are known but if you turned around tomorrow and said 'We've got to look at some bellwether's accounting,' the market would take another tumble," Cecin said. "The shorts are having a field day raising the specter of another problem."

Cecin, it should be noted, is pretty bullish by nature, as past columns reveal. But he believes 2002 is going to be a "difficult year," in large part because even if companies reported improving earnings, investors are going to "look pretty carefully to see how they got there," he said. "The market is not going to get the benefit of the doubt for the rest of this year. It's going to have to earn every plus day."

In contrast to Cecin, past columns have revealed that Brett Gallagher, who oversees about $3.5 billion as head of U.S. equities at Julius Baer Asset Management, is generally less optimistic. Therefore, it's not surprising he's concerned about the overhang from accounting concerns.

"Everyone is looking for the next Enron, which was apparently a fraud," Gallagher said. "Everyone is looking for the next elephant which doesn't exist in my opinion . What does exist is a stretching of truth across the board by an array of companies."

Specifically, corporate managements were routinely putting everyday operating expenses into the "one-time" category, creating a level of "fluff" in reported earnings, he suggested. But going forward, managements are going to be less aggressive in pushing accountants to allow such transgressions, and accountants "aren't going to let anything slide," the fund manager forecast.

Gallagher has long been skeptical corporate earnings will meet the current analyst consensus but now expects "a shortfall of greater magnitude as everyone pulls back to more conservative accounting."

Notably, Julius Baer had no position in Enron, but it currently maintains long positions in Tyco and Calpine ( CPN), another name recently tarred by accounting concerns that rallied today.

Gallagher had some interesting thoughts on the two companies, which I plan to share in a forthcoming column.

P.S.

As the "shocking revelations" of the accounting crisis unfolds -- and for however long it lasts -- consider the following, which comes from Jim Bianco, president of Bianco Research, via Grant's Interest Rate Observer:

The July 13, 1998, issue of Business Week contained an advertising supplement which revealed the results of a survey of 160 attendees of the magazine's annual forum for chief financial officers. In response to the question "As CFO, I have fought off other executives' requests that I misrepresent corporate results," a whopping 55% said they had fought them off and 12% said they had yielded to the requests (this was an anonymous survey). Only 33% said they had never received such requests.

In other words, 67% of the CFOs had been asked to lie about their company's results, and this was in 1998, before the bubble reached maximum proportions.

"We were told but we did not listen," Bianco surmised.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to Aaron L. Task.

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