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Old 02-07-2002, 06:53 PM
Posts: n/a
Default 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.
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