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drrayjo

Stocks Lower As Consumer Outlook Dips

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Further to someone yesterday commenting on how imbecilic it appears that the markets seem to respond more to how consumers "feel" than to real, meaningful data, today is a case in point.

FTSE shrugs off worst GDP data in 50 years but sinks when the DOW sinks....on the news that "consumer confidence fell unexpectedly"!

Who really cares what consumers FEEL?! In the main they are only swallowing the false positive stories peddled by the markets and their masters designed not to hurt their spendy feelings in the first place!

I suppose it should be no surprise that the appeal of an idiotic positive-feedback loop persists for such a compromised, discredited system but it is frankly pathetic. We are treated like children being shielded from the truth that Santa and his HPI elves do not, in fact, exist. Only mum and dad think they can spirit them up through prayer.

http://www.thestreet.com/story/10530860/1/...cm_ven=GOOGLEFI

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If only you could think positive you would realise how this works and how fundamentals such as numbers do not really matter.

Enron / World Com are good pointers all based on happy clappy bu11sh1t that everyone loved even though it was all fraud. Who cares it was good positive vibes. Get that share price up.

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If only you could think positive you would realise how this works and how fundamentals such as numbers do not really matter.

Enron / World Com are good pointers all based on happy clappy bu11sh1t that everyone loved even though it was all fraud. Who cares it was good positive vibes. Get that share price up.

Damn straight. Unfortunately there are queues of people who actually want to drink that kind of Kool-Aid (actually Flavor-Aid) $hit.

Get to Jonestown.

http://en.wikipedia.org/wiki/Jim_Jones

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Like it or not its surely no surprise to anyone that consumer confidence levels or their commercial equivalents have a role to play in moving markets.

They appear to play the MAIN role in this fantasy-based economy.

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Further to someone yesterday commenting on how imbecilic it appears that the markets seem to respond more to how consumers "feel" than to real, meaningful data, today is a case in point.

FTSE shrugs off worst GDP data in 50 years but sinks when the DOW sinks....on the news that "consumer confidence fell unexpectedly"!

Who really cares what consumers FEEL?! In the main they are only swallowing the false positive stories peddled by the markets and their masters designed not to hurt their spendy feelings in the first place!

I suppose it should be no surprise that the appeal of an idiotic positive-feedback loop persists for such a compromised, discredited system but it is frankly pathetic. We are treated like children being shielded from the truth that Santa and his HPI elves do not, in fact, exist. Only mum and dad think they can spirit them up through prayer.

http://www.thestreet.com/story/10530860/1/...cm_ven=GOOGLEFI

very good point drrayjo & one that has been made many times before.

irrational exuberance &, as always, sentiment, is driving in a controlled & manipulated market.

People have had a 10 year mega boom & are now totally in denial because they have pinned their hopes & their children's hopes on one asset, property.

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http://www.forbes.com/2001/11/09/1109topnews.html

Enron, once a rocket fueled by new-wave business and accounting practices, admitted yesterday that its financial records for the past four-and-a-half years were false and would have to be restated.

"Financial statements for [1997 through 2000 and the first two quarters of 2001] and the audit reports relating to the year-end financial statements for 1997 through 2000 should not be relied upon," the company said.

"Should not be relied upon"? Nice euphemism. Even when admitting wrongdoing, Enron (nyse: ENE - news - people ) cannot be relied upon to be straightforward; but the numbers are plain enough. From 1997 to 2000, Enron said that its actual net income was $591 million less than it had reported on its financial statements.

The announcement delayed, but did not necessarily derail, a planned buyout by crosstown rival Dynegy (nyse: DYN - news - people ). The acquisition was supposed to have been announced yesterday, according to reports. While the two companies confirmed they were in talks, no agreement has been reached.

During the 1997-to-2000 period, Enron's share price quadrupled as investors saw remarkable revenue growth. The growth stemmed from Enron's transformation of itself from a traditional oil and gas pipeline company to an energy trader and then a telecommunications bandwidth trader. Enron did not restate its revenues and it is not clear how much trading it was doing with partnerships that Enron now says were actually part of Enron.

For those who aren't familiar with the Enron story.

http://en.wikipedia.org/wiki/Enron

Enron Creditors Recovery Corporation (formerly Enron Corporation, former NYSE ticker symbol ENE) was an American energy company based in Houston, Texas. Before its bankruptcy in late 2001, Enron employed approximately 22,000[1] and was one of the world's leading electricity, natural gas, pulp and paper, and communications companies, with claimed revenues of nearly $101 billion in 2000.[2] Fortune named Enron "America's Most Innovative Company" for six consecutive years. At the end of 2001 it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud, known as the "Enron scandal". Enron has since become a popular symbol of willful corporate fraud and corruption. The scandal was also considered a landmark case in the field of business fraud and brought into question the accounting practices of many corporations throughout the United States.

Enron filed for bankruptcy protection in the Southern District of New York in late 2001 and selected Weil, Gotshal & Manges as its bankruptcy counsel. It emerged from bankruptcy in November 2004 after one of the biggest and most complex bankruptcy cases in U.S. history. On September 7, 2006, Enron sold Prisma Energy International Inc., its last remaining business, to Ashmore Energy International Ltd. Following the scandal, lawsuits against Enron's directors were notable because the directors settled the suits by paying very significant sums of money personally. The scandal also caused the dissolution of the Arthur Andersen accounting firm, affecting the wider business world.[3]

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http://www.scu.edu/ethics/dialogue/candc/cases/worldcom.html

It was 1983 in a coffee shop in Hattiesburg, Mississippi that Mr. Ebbers first helped create the business concept that would become WorldCom. "Who could have thought that a small business in itty bitty Mississippi would one day rival AT&T?" asked an editorial in Jackson, Mississippi's Clarion-Ledger newspaper.5 Bernie's fall-and the company's-was abrupt. In June 1999 with WorldCom's shares trading at $64, he was a billionaire,6 and WorldCom was the darling of the New Economy. By early May of 2002, Ebbers resigned his post as CEO, declaring that he was "1,000 percent convinced in my heart that this is a temporary thing."7 Two months later, in spite of Bernie's unflagging optimism, WorldCom declared itself the largest bankruptcy in American history.8

This case describes three major issues in the fall of WorldCom: the corporate strategy of growth through acquisition, the use of loans to senior executives, and threats to corporate governance created by chumminess and lack of arm's-length dealing. The case concludes with a brief description of the hero of the case-whistle blower Cynthia Cooper.

The Growth Through Acquisition Merry-Go-Round

From its humble beginnings as an obscure long distance telephone company WorldCom, through the execution of an aggressive acquisition strategy, evolved into the second-largest long distance telephone company in the United States and one of the largest companies handling worldwide Internet data traffic.9 According to the WorldCom Web site, at its high point, the company

* Provided mission-critical communications services for tens of thousands of businesses around the world

* Carried more international voice traffic than any other company

* Carried a significant amount of the world's Internet traffic

* Owned and operated a global IP (Internet Protocol) backbone that provided connectivity in more than 2,600 cities and in more than 100 countries

* Owned and operated 75 data centers on five continents. [Data centers provide hosting and allocation services to businesses for their mission-critical business computer applications.]10

From 1999:

MCI WorldCom Inc. (Nasdaq: WCOM)

MCI WorldCom will take off Friday after it approved a 3-for-2 stock split after the bell Thursday.

Its shares closed up 2 15/16 to 91 7/16 ahead of the announcement.

Company officials said the stock would take affect Dec. 30 for all shareholders of record on Dec. 15. Following the split, MCI WorldCom will have 2.85 billion shares outstanding.

Earlier Thursday, Sanford Bernstein analyst Tod Jacobs said the company made "compelling" arguments that its proposed $115 billion merger with Sprint Corp. (NYSE: FON) would not harm competition.

Last quarter, MCI WorldCom beat Street estimates by 2 cents a share, earning $1.1 billion, or 56 cents a share, on sales of $8.5 billion.

http://en.wikipedia.org/wiki/MCI_Inc.

Accounting scandals

Bernard Ebbers became very wealthy from the rising price of his holdings in WorldCom’s stock.[1] However, shortly after the MCI acquisition in 1998, the telecommunications industry entered a downturn and WorldCom’s growth strategy suffered a serious blow when it was forced to abandon its proposed merger with Sprint in late 2000. By that time, WorldCom’s stock was declining and Ebbers came under increasing pressure from banks to cover margin calls on his WorldCom stock that was used to finance his other businesses (timber and yachting, among others).[1] During 2001, Ebbers persuaded WorldCom’s board of directors to provide him corporate loans and guarantees in excess of $400 million to cover his margin calls.[1] The board hoped that the loans would avert the need for Ebbers to sell substantial amounts of his WorldCom stock, as his doing so would put further downward pressure in the stock's price. However, this strategy ultimately failed and Ebbers was ousted as CEO in April 2002 and replaced by John Sidgmore, former CEO of UUNet Technologies, Inc.

Beginning in 1999 and continuing through May 2002, the company (under the direction of Ebbers, Scott Sullivan (CFO), David Myers (Controller) and Buford "Buddy" Yates (Director of General Accounting)) used fraudulent accounting methods to mask its declining earnings by painting a false picture of financial growth and profitability to prop up the price of WorldCom’s stock.[1]

The fraud was accomplished primarily in two ways:

1. Underreporting ‘line costs’ (interconnection expenses with other telecommunication companies) by capitalizing these costs on the balance sheet rather than properly expensing them.

2. Inflating revenues with bogus accounting entries from ‘corporate unallocated revenue accounts’.

In 2002 a small team of internal auditors at WorldCom worked together, often at night and in secret, to investigate and unearth $3.8 billion in fraud.[2][3][4] Shortly thereafter, the company’s audit committee and board of directors were notified of the fraud and acted swiftly: Sullivan was fired, Myers resigned, Arthur Andersen withdrew its audit opinion for 2001, and the U.S. Securities and Exchange Commission (SEC) launched an investigation into these matters on June 26, 2002 (see accounting scandals). By the end of 2003, it was estimated that the company's total assets had been inflated by around $11 billion.[1]

[edit] Bankruptcy

On July 21, 2002, WorldCom filed for Chapter 11 bankruptcy protection in the largest such filing in United States history at the time (since overtaken by the collapse of Lehman Brothers in September 2008). The WorldCom bankruptcy proceedings were held before U.S. Federal Bankruptcy Judge Arthur J. Gonzalez who simultaneously heard the Enron bankruptcy proceedings which were the second largest bankruptcy case resulting from one of the largest corporate fraud scandals. None of the criminal proceedings against WorldCom and its officers and agents were originated by referral from Gonzalez or Department of Justice lawyers.

WorldCom changed its name to MCI, and moved the corporate headquarters from Clinton, Mississippi to Dulles, Virginia, on April 14, 2003.

Under the bankruptcy reorganization agreement, the company paid $750 million to the SEC in cash and stock in the new MCI, which was intended to be paid to wronged investors.

In May 2003, the company was given a no-bid contract by the United States Department of Defense to build a cellular telephone network in Iraq. The deal has been criticized by competitors and others who cite the company's lack of experience in the area.

Info for those with no idea about Worldcom.

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Investors should head over to MoneySavingExpert's forums - the number of people who have filled out their soa's and have larger monthly expenditure than income (and "0" in the cash column) is scary :o:o:o:o:o:o .

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Investors should head over to MoneySavingExpert's forums - the number of people who have filled out their soa's and have larger monthly expenditure than income (and "0" in the cash column) is scary :o:o:o:o:o:o .

We live in a society 90% comprised of idiots.

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Guest sillybear2

To be fair to Enron, they did deserve that award for innovation, they blazed a trail later followed by almost every bank in the world with the inventive use of derivatives, and their off balance sheet activities pale in significance compared to the British government's use of PFI and blatant lies.

Edited by sillybear2

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Looks like the fake manufactured bounce peaked first week in May. Quite disturbing considering the cost to produce it is measured in trillions $. I thought they would keep things rolling 'till the autumn or winter. Wonder what happens next? :ph34r:

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Guest sillybear2
Looks like the fake manufactured bounce peaked first week in May. Quite disturbing considering the cost to produce it is measured in trillions $. I thought they would keep things rolling 'till the autumn or winter. Wonder what happens next? :ph34r:

I like how everyone forgets how the media were talking about Brown saving the world (again) at the G20.

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To be fair to Enron, they did deserve that award for innovation, they blazed a trail later followed by almost every bank in the world, and their off balance sheet activities pale in significance compared to the British government's use of PFI and blatant lies.

:lol:

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I like how everyone forgets how the media were talking about Brown saving the world (again) at the G20.

If they kept on about it the next time he claims to have saved the world no one would believe him.

Silly bear.

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