Tomorrow, we observe the one-year anniversary of the terrorist attacks on New York and Washington. Today, two events show us why the markets are still 10% to 20% lower than they were a year ago.
First, Attorney General John Ashcroft says there is a "high risk of terrorist attacks" tomorrow, especially overseas.
But most important to investors, it seems, is another development in another Wall Street scandal. Rep. Billy Tauzin's (R-La.) committee has been investigating whether Martha Stewart sold shares of ImClone Systems
The Motley Fool 50 dipped briefly on today's news, then recovered to gain almost 1%. It still refuses to sign up for Martha's flower-arranging classes, however.
In today's Motley Fool Take:
- Corruption, Not Terror, Ails the Market
- Quote of Note
- Buy, Hold, or Sell? So What!
- Shameless Plug: Get a Discount Broker
- Thank Heaven for 7-Eleven
- Discussion Board of the Day: Living Below Your Means
- Quick Takes: Ameritrade, Nokia, Gap, UPS, more
- And Finally...
Corruption, Not Terror, Ails the Market
One day before the anniversary of 9/11, a CBS News/CBS MarketWatch poll shows many Americans fear the worst is yet to come for the stock market. Despite that, optimism abounds, as only 7% believe a drop of 17% or more is likely in the Dow Jones Industrial Average. By contrast, 32% believe the Dow will close above 9,000 this year -- a gain of 6%.
It's fun to look at numbers like these, but the real story behind the poll is the incredible level of mistrust U.S. citizens have for corporate executives. Get this: While about a quarter of respondents worry about the effects of terrorism on the markets, fully half say scandals such as the ones at Enron and WorldCom make them less likely to invest.
Think about that, all you CEOs, CFOs, analysts, and auditors out there. You have more influence on your country's investing confidence than anything terrorists can muster. Think back to the horrific events of one year ago, and you'll understand what a powerful statement this is. It's a credit to Americans that we have so much faith in our country and our economic system. Wall Street was attacked, the markets closed down, but we knew they would open again.
And yet the dirty, rotten, thieving players who lied to investors and padded their own pockets have accomplished what the terrorists only dreamed of -- undermining Americans' confidence in the markets. Shame on them.
Quote of Note
"Courage is the price that life exacts for granting peace." -- Amelia Earhart, American aviator
Buy, Hold, or Sell? So What!
Yesterday brought the Securities and Exchange Commission's deadline for Wall Street analysts to rate companies with a uniform code of buy, hold, or sell. In honor of this August event, Bloomberg analyzed the current ratings from the nine largest securities firms. The service found Lehman Brothers, Salomon Smith Barney, and Morgan Stanley the most bearish with the most sells, with Deutsche Bank and UBS Warburg the least. Here's the breakdown:
Firm Buy % Hold % Sell % Lehman Bros. 32 40 28 Salomon Smith Barney 36 38 26 Morgan Stanley 34 46 20 Bear Stearns 37 42 19 CSFB 42 37 19 Merrill Lynch 49 45 6.3 Goldman Sachs 57 38 6 UBS Warburg 51 44 5 Deutsche Bank 54 43 3
We'll take the bet that the difference in sell percentages between the top five and bottom four is statistically significant. However, because there is sometimes more than meets even the Foolish eye, we called three of the four banks with the lowest sell percentages (finding a phone number for the fourth, UBS Warburg, taxed our writer) for comments, and by press time, we heard from Deutsche Bank and Goldman Sachs.
Deutsche Bank spokesperson Chris Cortezi distinguished her firm from others this way: "Our ratings are based on absolute returns -- the target prices analysts have set. A 'sell' is defined as a stock that will fall by 10% or more over 12 months. A lot of the other firms have systems where the rating is based on that analyst's universe of coverage, a stock relative to its sector. If you say your sector is going 20%, but X stock will be less, then it's outperforming your sector."
The Goldman Sachs' spokesperson -- who asked us not to use his name so his friends wouldn't kid him for appearing on The Motley Fool (we're offended!) -- said, "A number of firms have changed rating systems. Five or six announced yesterday. We've announced a new system to implement in fourth quarter. When we implement our new rating system in fourth quarter, there will be a broader distribution of ratings."
Our take? The distribution of ratings is a red herring. Even if the SEC were able to enforce total objectivity on the part of analysts, it's analysis, not ratings, that matters. Investors in individual stocks must understand a business and its financials well enough to make an informed decision. If analysts offer helpful information -- and a few have been known to -- great, though we revealed in The Motley Fool Manifesto that much stands in the way. But don't let the rating, an analyst's view of the stock's prospects in the next 12 months, by itself sway you.
Shameless Plug: Get a Discount Broker
We don't think you should be paying a commission larger than 2% when you invest. If you're using a full-service broker, it's hard to invest smaller amounts. But most discount brokers online only charge between $10 and $30 per transaction. Have a look at our Discount Broker Center to compare different brokers and learn more.
Thank Heaven for 7-Eleven
Big things are afoot with the Big Gulp people. 7-Eleven
With its share price languishing in the single digits, the stock seems to be fighting the same kind of stigma associated with its stores -- as petty corner stores serving up frozen Slurpees to those on the run, or suburban hangouts for folks who like to drink their brews out of brown paper bags.
The reality is far more exciting. Sales at the same-store level grew by 5.1% last year, after surging 5.3% higher back in 2000. It's hard to get any more recession-resilient than 7-Eleven. From the commuter scooping out discounted gasoline to the weary consumer buying groceries in small amounts, 7-Eleven has proven its relevance in today's environment. Now it's time to prove that standing in the stock market.
Discussion Board of the Day: Living Below Your Means
Whether you enjoy bargain eats at 7-Eleven or long for fancier fare elsewhere at affordable prices, there are many ways to pinch pennies without pinching your budget. Want more? Have tips to share? All this and more -- in the Living Below Your Means discussion board. Only on Fool.com.
Is it time to sever the severence? That's what the board of WorldCom is considering as the troubled global communications specialist ponders whether to strip its fallen chief Bernie Ebbers of his severence package. With $1.5 million in annual payments and generously low interest rates on personal loans, the company might decide that -- amidst fighting through accounting irregularities and its continuing quest to remain solvent -- maybe sending more money Ebbers' way isn't in WorldCom's best interest.
The buy orders will be flying in for Ameritrade
Wireless may be bouncing back. Fueled by strong summer demand in Europe, Nokia
Who says that you can't exercise in retirement? Mickey Drexler, closing out his tenure as Gap
How do you make green from brown? If you're UPS
There is one less biotech battle to watch, as Biosite
Biotech drug maker Genentech
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