‘A Nation of Enrons”

Last updated on: March 28, 2008 at 8:08 pm by Lynn Hayes

‘A Nation of Enrons” 2008-03-28T20:08:00-04:00 Lynn Hayes

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This was in my inbox today. Those of us who follow astrology will not be surprised to read from the Motley Fool that the corporate culture is collapsing under the influence of Pluto (breakdown and transformation) in Capricorn (business, achievement, capitalism):

Half a decade ago, the entire nation was shocked when award-winning “innovator” Enron turned out to be little more than a cash-shredding pyramid scheme. The crucial failing for investors was Enron’s use of opaque, “mark-to-market” accounting. The problem comes when the market is batty (or doesn’t exist), so you instead mark your assets to a model, especially one that’s wrong, either because you made an error or because you based it on exceedingly generous assumptions.

In the end, we learned that Enron’s accounting was pretty much mark-to-fairy-tale, with the company booking enormous gains from assumed future profits on schemes (like bandwidth trading) that sounded great, but had little chance of producing anything besides headlines.

You might think we’d learned our lessons about fantasy accounting after Enron, but you would be wrong. Things actually got worse. The infection moved to the comfy-sounding “homeownership” market. Against a star-spangled, feel-good backdrop touting the “American Dream,” our recent mark-to-model mania tripped up a lot more than one big company. In fact, it swept through the entire banking world. (Bear Stearns (NYSE: BSC) is not the first to choke on lousy, poorly modeled mortgage-backed securities “income,” and I’ll eat a Miami condo if it’s the last.)

I’ve been reading articles about the slowdown of big mega retailers, and I’m wondering if the coming transformation of the corporate world might bring about the return of independent business (when Uranus in Aries squares Pluto in Cap 2010-2013). Perhaps it’s just wishful thinking, but it seems that this ever-expanding marketplace will have to burst its bubble at some point, leaving local mom and pop shops to fill in the gaps.

The Motley Fool does have some good news for investors, though:

I am certain that systemic failure has steered us into a terrifying run at the ditch, to be followed by a painful, protracted rough patch. It was all spawned by greed gone amok on Wall Street and Main Street. Yet I believe history will prove this to be one of the best times to have invested in stocks, especially attractive-priced small caps. Here’s why:

The market is in panic mode, and when markets panic, no one’s thinking.

Small caps have been crushed more than the rest of the market, as investors seek “safe” large caps.

Over time, value-priced small caps produce some of the most amazing returns in the market. Really.

There are loads of small caps out there poised for years, if not decades, of fantastic growth, but the market is pricing them as if they are dead and buried.

Sounds very Saturn in Virgo, but value investing is back, along with cautious spending and thrifty saving, all very nice Virgoan traits!

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