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10:21 am ET Jul 3, 2002
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P is a fact, E is negotiable Amid the lies, stock market's retreat is gentle, so far
By Thom Calandra, CBS.MarketWatch.com
Last Update: 10:18 AM ET Jul 3, 2002
SAN FRANCISCO (CBS.MW) - How many times, during the good stock-market days, did we hear chart readers tell us the market was saying we're going higher? And higher.

Until March 10, 2000, anyway. And how many times in these bad stock-market days have we heard chart readers tell us the market is going lower? And lower.

Everyone's a genius. With the wind at their back, chart-readers and other market technicians always seem to have a leg up on the rest of us. Yet their methods rarely take into account the so-called fundamentals of the 8,000-plus companies that compose the U.S. stock market.

Technicians can quote you chapter, page and verse of statistics - resistance, support, volume, put-call ratios, moving averages and so on. Yet their work rarely relies on earnings, profit margins, market share or return on capital.

Maybe that's a good thing these days. After all, how do you handicap companies when their top executives take great liberties with the numbers? The latest book to hit my desk, "How Companies Lie: Why Enron Is Just the Tip of the Iceberg," bills itself as the investor's guide to corporate smoke and mirrors.

In it, authors A. Larry Elliott and Richard J. Schroth, two longstanding corporate consultants, explore the notion that executives of publicly traded companies for decades have reaped financial rewards for how well they skirted ethical boundaries. "What's that smell in this room?" the authors quote Big Daddy from Cat on a Hot Tin Roof. "Didn't you notice a powerful and obnoxious odor of mendacity in this room?"

In the technical world, says Canadian newsletter author and gold enthusiast Ian McAvity, "Nobody ever had to restate a chart." McAvity, editor of Deliberations on World Markets, is referring to the quarterly earnings restatements or accounting probes of WorldCom (WCOME), Xerox (XRX), Adelphia Communications (ADELQ) and others.

McAvity, who sees gold going far higher in this corporate storm, says "the worst corporate scandals haven't yet surfaced. It isn't over yet." A technician himself, McAvity's hand-crafted charts and numbers go back 30 years, and more. So he puts his faith first in numbers, and then listens to what the CEOs and CFOs have to say to investors. "My old favorite still remains: On the question of P/Es, P is a fact, E is negotiable," he says about stock prices and their earnings multiples. In other words, how do you handicap the horse when the horse is cheating?"

I have no answer to that except to repeat what my trusted market technician, financial author and fund manager Joseph Duarte in Dallas told me Wednesday: "Take a long nap, but keep the alarm on just in case."

The stock market's 28-month decline has been a death of a thousand cuts, one that has been missing the adrenalized panic-selling we saw in October 1987 and in almost every other bear market of the 20th century. See CBS MarketWatch's latest report on Paul Desmond's 90-90 days.

Warren Wicke, an individual investor, wonders whether an "unprecedented availablity of sophisticated trading software and skilled day-trader/hedge-funders are slowing the capitulation/crash" that is surely ahead of us.

Sure. Call it the decimalizing - not the decimation -- of the stock market. For most Americans, the market's fall from grace has been one of the most civil retreats from stocks in memory. No blazing headlines - not this year, anyway. The Men in Black have yet to be called to the scene of the slime.That's the way the mutual fund managers, gatekeepers for a $4 trillion destruction of wealth and a monopoly of red ink, prefer it.

When the alarm rings, if there's any justice in the world, the worst of the professional money mis-managers will be out of their jobs. With any luck, ordinary Americans already will have withdrawn what savings they have left from the industry's fee-leeching funds.

The panic is still ahead of us. Rest assured.