Last weeks commentary:
With all the discussion of risk there is another risk that can't be over looked, yet is also suppose to be unpredictable, this is event risk. Last September event risk was brought to the forefront, however, the market was already in a down trend so hopefully traders were somewhat prepared. As is most, if not all, the companies whose stock have been hit by an "event."
A company bankruptcy was normally an event risk that was reserved for share holders of that company, but anymore, the entire market has become so sensitive to anything suspicious about one company, that it can bring the whole market down. So like another terrorist attack, people are trying to anticipate the next company that will once again bring on a wave of stock selling to the good as well as bad companies. And like a terrorist warning, we have been given notice that we are at code yellow.
So here we sit, waiting to see what companies certify their accounting by August 14, as though it was a potential attack on our system, is it?
While this recent amount of corporate seems unprecedented, I at least, in over 35 years of following the markets, I don't ever remember a time where the public's perception of the capitalist system is that of "crooks and thieves." However, in my years I've met with outstanding CEO's, who while no doubt wanted to expand their company and make money, they are also ethical people. And within the broad market there is only a very few that have the potential of causing an "event risk." There are hundreds of stocks in retail, health, defense, oil, etc., and yes, even technology that make legitimate money and keep accurate books.
But yet again, we are talking perception, and as long as the public doesn't trust corporate America, they won't be returning to invest in that arena. So regardless if the August 14 certification has teeth or not, it is the perception that is going to count. And as long as the public is suspicious, corporate fraud will be an event risk that impacts the whole market, not just the single company committing fraud.
And while the Government can try to patch the perception up over the short term, it is going to take the corporations along with the accounting firms themselves to reestablish faith in the system. I expect them to stand up and do just that.
Might I also suggest that the Government also heed the warning and clean up their accounting. By what I've seen, for example, the accounting for social security funds is very similar to an Enron shell corporation.....um now there is an event risk to pay attention to, falling dollar anyone?
Have a good week,
Sam
Sam@savvy-trader.com
