Readers Report
Investors Got What They Deserved
The false prophecies advanced by respected analysts have come back to haunt the individual investor ("The angry market," Cover Story, July 29). Four assumptions have been proven incorrect, namely that stocks suddenly were risk-free, that their price would increase indefinitely, that elevated price-earnings ratios were acceptable because of the New Economy, and that dividends were unimportant. When stocks were properly valued at a Dow of 1700 in 1987, many individual investors refused to buy but did buy when it was grossly overvalued at 11,000 in 1999. The lessons: Markets will always correct in the long run, growth must be real, and dividends still have a role in the market as indicators of the financial health of the corporation.
Nelson Marans
Silver Spring, Md.
I don't believe that we are in a bear market. I believe it is a correction from the "bull--" market that gave stocks idiotic valuations in the first place. During the past two decades, anyone who could say "buy" or "strong buy" could have been a market analyst. (They are still saying this all the way down, too.)
Of significance is the Private Securities Litigation Reform Act of 1995 under Newt Gingrich's Contract with America. This bill protected accountants and law firms from liability for publishing misleading financial results and had the effect of repealing the Glass-Steagall Act (created after the Crash of 1929, so it would never happen again). Both Republicans and Democrats pushed it over Bill Clinton's veto and dogged Securities & Exchange Commission Chairman Arthur Levitt Jr. to not do his job. We investors got what we deserved.
Jim Reinhart
Chandler, Ariz.
A Less Optimistic View on the Economy
In "The case for optimism" (Special Report, July 29), Michael J. Mandel uses long-term trends as the basis for arguments for a stronger-than-expected economic recovery. I'm wondering if we are really just starting to feel the long-term impact of the September 11 attacks. With a massive shift of capital into security and government spending, budget deficits have come roaring back. This feels like spending to stay in place rather than spending to grow.
Although Mandel reports that corporate profits and productivity are up, real profits are coming from a slowing in wage growth resulting in eight times the earnings growth. This expense-driven growth may be signaling that we're settling into a much slower growth period where price-earnings ratios of 10 to 15 times earnings may start to look expensive. If this becomes true, then expect a much longer decline in the major market indexes. Consider that all of the talk about good economic indicators from a normal economic point of view may not properly weigh whether anything is "normal" anymore.
Darryl Demos
Norwell, Mass.
Don't Turn CEOs into Accountants
As a CEO of a small company, I am not against reforms trying to stop corporate corruption ("Getting the message, finally," Editorials, July 29). However, if we change the traits of our CEOs, we will inadvertently change the performance of our corporations.
CEOs must be aggressive, innovative, and competitive and act with resolve and confidence. If you turn CEOs into accountants, signing and certifying their financial results, I bet most will focus on not making mistakes instead of leading the company. CEOs in large part have brought America tremendous wealth. During the business cycle of the 1990s, 99% of the productivity gains translated into $809 billion that went to workers in the form of more jobs and higher compensation, as you say in "Restating the '90s" (Cover Story, Apr. 1).
Americans are angry now. But it's unwise and dangerous to act when you are angry. To remove the limited liabilities from the system could change the fundamentals of capitalism. Don't discourage the good CEOs, who in part will be the ones that we count on to generate the wealth of our society.
Tricia Liu
CEO
MediaChip Corp.
Parsippany, N.J.
Setting the Record Straight on Aviall
We at Aviall read "Cash-flow hocus-pocus" (BusinessWeek Investor, July 15) with deep dismay and indignation. Given today's environment of mounting public distrust of corporate reporting, we believe your implication that Aviall Inc. misrepresented its operating results was incorrect and unfair.
Your statement, Aviall "was able to take advantage of generally accepted accounting principles (GAAP) that allow overdrafts to be lumped into accounts payable" implies that we have a choice in this accounting treatment and exercised that choice to distort our cash flow intentionally. This is wholly incorrect, as under GAAP, we have no choice but to classify overdrafts as current liabilities. Furthermore, the operating cash deficit reported in 2001 was primarily related to a large investment we made in a significant new product line in December, 2001, that is enabling us to increase our earnings substantially in 2002. Far from a "nasty surprise," this investment and similar investments in other new product lines were disclosed in press releases and in our form 10-K.
If you believe reporting in accordance with GAAP distorts the operating performance of a corporation, perhaps you should write an article discussing those issues. However, you should cease to attempt to tar innocent corporations with the brush of accounting "hocus-pocus" for following the strict rules laid out by authorities such as the Financial Accounting Standards Board and the Securities & Exchange Commission.
Also, Aviall is the leading independent parts distributor in the aviation market, not a "manufacturer" as you stated in your article.
C.Van Den Handel
Vice-President and Treasurer
Aviall Inc.
Dallas
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Copyright 2002, by The McGraw-Hill Companies Inc. All rights reserved.
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