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On ENRON
Myron D. Stokes
JAN 14th, 2002

Milken and Boesky move over: your historical, if not legendary, abilities to make somethingness out of nothingness has just been eclipsed to a magnitude beyond comprehension.

The collective genius of Enron's principals was that of maintaining a facade of financial solidity at ground zero of a smoking battlefield once the playground of the high flying Dot.Coms. And regarding the latter, investors and analysts in the late '90s were all too eager to ignore ominous rumblings of shaky, if not profound, instability within companies that in the end were like the Biblical "appearing as a mist in the morning and disappearing with the rising of the sun" (no, this is not a cryptic reference to the astounding financial performance of Toyota and Honda).

The legacy of the faux tech stock lunacy is a patent disregard for even the most basic checks and balances put in place to ensure at least a semblance of inherent stability. This, in a market system known for its volatility and maintained on whimsy. Indeed, Joe Kennedy must be rolling in his grave: Someone finally figured out how to circumvent utterly Federal regulations whose power to thwart the will and intent of Wall St. manipulative geniuses was in their interpretive flexibility.

The sad thing is that a respected accounting firm, Arthur Andersen, could soon join the ranks of the Barclay's Banks as regards its future. Be that as it may, Andersen's Joe Berardino won't go down without a fight and in our estimation, it's a war he is capable of winning. But he can't do it without powerful assistance along multiple pathways, and he would not be wrong to expect the cavalry.

DYNERGY AS SAVIOR

As the story of Enron unfolded, replete with attempts by Dynergy to shore up the failing empire (current share value: .68 cents) through merger if not outright acquisition, it brought to mind an analysis we issued in November of 1999. In it, we stated that not only was the world's largest industry on the brink of significant difficulty owing to an economic downturn, but that the DOW was poised to fall. And for the NASDAQ, disaster.

At the time, we said that "...the Dow's level cannot be maintained anywhere near 11,000 to begin with" and regarding the tech stock heavy NASDAQ, "Practically everyone acknowledges that there is nothing to maintain the momentum of Internet (tech) stock values. The Internet stocks are the modern-day version of the emperor's new clothes, and soon everyone will recognize the emperor has nothing on."

As far as classification on the "imperial" scale, Enron is a Czar Nicholas in apparent opulence to an Archduke Ferdinand. Nevertheless, both suffered untimely deaths.

In our estimation, however, the demise of Enron is not inevitable, nor can it be, junk bond status or not. Why? because in the same way that the symbiotic relationship between the U.S. and Japan economies render them inextricably linked -- Japan now being a partner with this country in maintaining the core stability of world economics, E.U. machinations accepted -- Enron has woven itself into the fabric of Wall St. Conversely, its unraveling could well become the catalyst for rendering a recession a depression. And were this permitted, just how would its massive and institutionally interlinked debts ($31 billion) be absorbed?

FEDERAL INTERVENTION?

Clearly, the current administration has its hands full prosecuting a protracted war and doing everything in its power to, in the words of GM, "keep America rolling". But like it or not, and potential scandal notwithstanding, it must and will act to prevent a disaster from becoming a catastrophe.

Enron may very well provide the impetus for a policy reversal on the part of a soon-to-be-retired Alan Greenspan: That of a Federal Interest Rate increase along with all the positive potential it entails.

Although we'd like to believe that Enron will serve as yet another heeded lesson in financial history on how not to run a company, it won't. And in this case, a company born of the merger-frenzied '80s and the tech-stock imprudent '90s.

The funny thing is, the whole of Wall St., banks, brokerages, analysts and investors, were and are enamored, indeed, fascinated, with the extraordinary accomplishments of the Enron principals. Why else would the "fallen" giant continue to be recommended as a "buy" by virtually all the major players as noted in today's New York Times? Such recommendations may be overt, or whispered in booths amid the articulated gloom of myriad Wall St. watering holes.

We suspect that at this moment, frenzied activity punctuates the early morning activity on Capitol Hill -- as it did last night. This is despite dismissive, some say cold-blooded, comments by White House Cabinet members responding to assertions of no response to requests for assistance by frantic Enron executives.

SURVIVOR: IN DEEPEST DARKEST WALL ST.

Make no mistake, Enron continued to fly in the stratosphere -- in spite of clear warnings that all was not well -- because it was largely viewed as the biggest survivor of the tech stock fall-out. In a way not dissimilar to the demise of thousands of upstart automobile companies in the early part of the 20th century, leaving GM, Ford and Chrysler to divide the spoils, Enron maintained an apparently strong presence.

I must say we don't totally disagree with Treasury Secretary Paul O'Neill's comment to the effect that "Companies come and go. It's part of the genius of capitalism." He is quite correct. But whether he likes it or not, the Administration will act to preserve Enron if not within the month, within hours.

If we're wrong, have a cup of Latte' on us at StarBucks, and if Joe Kennedy could listen, he can have one too...


Carpe diem, really.


Myron

 

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