SANDY WEILL AND MARTHA STEWART: SAME FOLKS, DIFFERENT TALES
by Mark Scheinbaum
American Reporter Correspondent
October 25, 2002
LAKE WORTH, Fla., Oct. 25, 2002 -- The end of October is a good time to reflect on Wall Street's history, and there are plenty of recent headlines which will make the academics scratch their heads in years to come.
Here are some recent items to ponder.
But, an equitable world in which insider trading favors lead to Ms. Stewart's punishment, should at least call for the most thorough review of one of Wall Street's fair-haired boys, Citigroup CEO Sandy Weill.
News reports tell us that the New York State Attorney General's office will look at Weill's role, if any, in the analysts' scandal sweeping through Citigroup's Salomon Smith Barney division and other firms. This is like filing suit against your decorator because the bathroom fixtures are the wrong color, when the foundation of your new home is sinking into the mud and cracking. The U.S. Justice Department and the SEC need to look at the entire lobbying environment which killed the Depression Era Glass-Steagal Act, and allowed Travelers Insurance-Citibank - and Smith Barney to merge.
Let's see: the head of Citigroup sat on the AT&T board of directors; the head of AT&T sat on the Citigroup board. Sandy's friend, the AT&T analyst for Citigroup - oops, I mean Smith Barney - who never seemed to like AT&T, changes his mind which makes his boss happy. His happy boss and AT&T's happy boss, do a happy deal, probably over a happy meal which more than likely was at "21" than the MacDonald's variety.
Who got paid? Who asked to get paid? Which politicians encouraged being paid? Which former officeholders greased the wheels? Did former U.S. Treasury Secretary Robert Rubin, former vice chairman of Goldman Sachs, who joined Citigroup after the law was changed, act in a neutral and legal manner? Maybe yes? Maybe no?
I have favored harsh review of Martha, but demand a much harsher review of Sandy.
The confusion investors now have is trying to figure out which electric utilities actually produce and sell power to consumers at the lowest rate possible, and which are shells for other, sometimes unrelated, businesses. Once the names helped us out: Detroit Edison; American Electric Power, Toledo Edison, Con Ed, and so forth. Now, the generically sleek names and logos often hide property management and marine shipping firms, re-insurance companies, telephone directory publishers, and home improvement contractors.
Here's a clue from a confirmed capitalist who thinks maybe on at least one front the socialists have it right: if water, gas, and electric are vital to national security and basic health and safety, they should be government agencies, guarded by the U.S. government. The thought of nuclear power plants being patrolled by rent-a-cops is penny wise and plutonium-pound foolish.
Americans have learned the hard way about investment risk. Many blue-chip accounts are down more than 27 percent in the last year. Slowly, but surely, Americans who ran pall mall into "safe" bond funds, searching for "higher yield," are learning about the perils of interest rate risk. When most retail muni, government, and corporate bonds of longer maturities start sinking, it means interest rates - or "yields" - are going up.
The problem that is rarely discussed with the casual investor is "credit risk." Ford Motor Co. has been prevented from going back above $10 per share because of persistent questions of its corporate credit ratings. Tyco-style credit issues have hit giants from General Electric to Chubb, Nationwide, and other big name insurance companies. People get fat interest on CD's in some banana republic banks not because they love you, but because of the risk of ever getting your money out.
The best investment any serious, long-term, investor can make is the monthly S&P Stock Guide which shows the credit rating of most listed companies. Arrows next to the stock's name show which firms have gone up or down in the ratings since the previous months. Under B-plus in the listings, and the company might actually be much more risky than you like. At least you should be armed with the facts before you invest.
AR Correspondent Mark Scheinbaum is a former UPI newsman. Visit him at www.kaplansecurities.com and www.dougstephan.com, is chief investment strategist for Kaplan & Co., BSE, NASD, SIPC based in Boca Raton, Fla.