\":accounting problems2\"
 

With the collapse of Enron and the probability of Tyco doing the same, and maybe others too due to the "domino" effect, it will be a long time before investors flock back to the market. When people don't trust the audited financial statements these companies issue to the public,how will they know if they represent the true picture of its operations? They cant make informed decisions.

Re: \":accounting problems2\"
 

The Enron effect is definitely real but IMO overdone. The real factor driving the market is that it has been overbought on expectations of a very aggressive V-shaped recovery and is now getting cold feet. The fact that people have less faith in the accounting is leading to higher risk premiums which is driving the market lower but this is overdone as well both in equity markets and with corporate bond spreads.


If you believe that the risk premium for corporates are too high(as I do), the better trade will be buying corporate bonds vs govies as opposed to going long equities(unless you believe that the economy will surprise to the upside, which IMO is again unlikely given inflated expectations). Of course for individual investors, it is not always easy to access the bond markets.

Re: \":accounting problems2\"
 

Well maybe its a healthy change from people riding too damn much on earnings releases. If company A misses by a cent does that imply its future expectations should be reduced by 5-10%? Of course not, that is the ridiculous thing and this line of thinking is what fed Enron. Lets face it, much of the public is stupid and falls into this racket that is spread by CNBC, the I-Banks, high tech companies, and so many others. Fundamental economics leads into cash flow projections which leads into stock prices, that is how it should be. Since the market doesn't function that way so much these days, I only invest very sporadically in individual shares.