Last week's congressional testimony from fraud investigator Harry Markopolos should have prompted much soul-searching on the part of the Securities and Exchange Commission.
I have long held a negative view of the SEC for any number of reasons, not the least of which was just-departed chief Chris Cox's ban on the short-selling of financial stocks last fall, as though management hadn't caused all the market's problems. (Read "What's next, a ban on stock sales?")
Thus Markopolos -- who said he had tried for years, to no avail, to tip regulators to the Ponzi scheme allegedly carried out by Bernard Madoff -- would be my first pick for SEC chairman. It's a shame that we don't have people in important positions who possess the sort of talent that he does.
This isn't a vote against Mary Schapiro, who has taken over from Cox in the Obama administration. It's too early to judge. I certainly hope she does better.
As to where stock prices may be headed, I think the action Feb. 2 involving SanDisk (SNDK, news, msgs) is worth noting. The flash-memory-chip maker announced ugly results: a big loss, inventory write-downs, foundries that are running at only 70% and cuts in capital expenditures.
It was really a horror show, though in the wake of the news, SanDisk rallied about 5% in after-hours trading. However, the stock was slaughtered by more than 20% the next day, when the company announced it needed to raise capital. So, even though a lot of headlines read "SanDisk lower on lowered revenue guidance," it seemed to me that the only reason the stock had declined was because of that plan.
More from MSN Money
As is 'writ,' prices should rise
The reason I bring that up is because, in general, the stock prices of technology companies have held up pretty well amid weak earnings results and forecasts. On the same day SanDisk released its news, Applied Materials (AMAT, news, msgs) hardly budged after the company divulged unexpected losses, and I could go through a litany of tech stocks that have behaved in a similar manner.Historically, when financials have been weak and tech stocks have dug in, that has nearly always resolved itself in higher stock prices generally. That does not mean that will happen this time (or that the rally will continue), as nothing is foolproof and perhaps any day now techs will slide along with financials as the market plunges into the abyss.
Perhaps no old relationships matter, given how broken the financial system and the economy are, but I continue to be struck by how impervious to bad news tech stocks seem to be.
Now, a word of caution to those folks who allow the recessionary backdrop to influence their stock market decisions: Even though the economy is very weak, I believe many companies' order rates have probably dropped below the level required to sustain whatever low rate of economic activity we're actually running at. As a consequence, when companies beef up their bare-bones orders, business will improve.
That improvement, however, will likely prove temporary. Thus folks should be prepared for lots of head fakes, both from the economy and the market.
Cash-happy, recession-hardy
What I can say is that some companies may enjoy a more enduring improvement in their business. Goldman Sachs Group (GS, news, msgs) is liable to be among the few financial entities of any size that come out of this debacle in any kind of fighting shape. Said differently, I believe Goldman will be a winner, as it will be able to pick through the wreckage of all these financial entities that have seen their equity holders diluted to death or wiped out.In the tech arena, Cisco Systems (CSCO, news, msgs) has a pretty impressive cash hoard of about $30 billion. And, just as Goldman Sachs is liable to be a winner in the financial world, Cisco will be a winner in the tech world. (Though it's a company I've often held short positions against, I'm now long Cisco.) Microsoft (MSFT, news, msgs) will also be a winner. In a recession, much less a debacle, oftentimes the strong get stronger, especially if they have solid balance sheets, as do the aforementioned companies. (Microsoft publishes MSN Money.)
Continued: The nuances of inflation and deflation
Rate this Article
High