March 2002 Newsletter
Issue Three, Volume Three

THE REAL PAIN

By Mike Gasior

I know for a fact that some of my faithful readers think that I might be exaggerating some of the "you suck" e-mail that I receive, but just read the following note. This is a verbatim transcript of the FIRST response I got after last months issue where I must have come off sounding somewhat indifferent to the plight of Enron shareholders and employees:

"The fact that the citizens of this country can no longer trust the accounting professions or stock analysts. The fact that Enron had their hands in every agency of the good old U.S.A. The possibility that some more FOG's ( friends of George) will steal from your neighbors - as you say nothing will change. That means nothing to you, you have probably been paid off by Mr. Fastow to spill all that garbage.

Have a good life and may what happened to the Enron Employees, happen to you and everyone of your family."

And yes…I did receive some other e-mail of similar ilk although it certainly doesn't represent the viewpoint of the majority of people, or my subscribers either. Certainly, I appreciate the heartfelt wishes of unemployment and bankruptcy for me and my entire family, but luckily for me the extensive payment I was given by Mr. Fastow should help to tide us over.

Sadly for this somewhat challenged and panty-waisted reader, none of my family worked for Enron. Even if they had, I would have definitely counseled them not to have their entire life savings invested in the company they worked for. Anyone with an ounce of common sense knows this already, and if they took a risk like this regardless they knew deep in their heart that they shouldn't have done so.

With regard to getting laid off, well things like that happen. My paternal grandmother who meant the world to me taught me many of the "life lessons" which I find tremendously valuable in adult life, since they make so much common sense. She had graduated from eighth grade and worked like a bull nearly every day after that until she passed a few years ago. Her wisdoms came from a life filled with work and coming of age during the depression.

The first lesson was one I tend to employ nearly every moment of my adult life. As many grandparents do, Grandma Gasior was fond of pumping a few bucks into your hand when your parents weren't looking so you might pursue some of life's greater pleasures. Well, on one occasion when I might have been 13 or 14 years old she stopped me in my front yard and tried to slip me a quick $5. I suppose I had reached an age where this actually embarrassed me, so I quickly told her "no Grandma, you shouldn't be giving me money." With a VERY serious look in her eye, she looked at me and said EXACTLY the following words:

"Mikey. When somebody offers you money, you TAKE IT!"

There was important lesson number one, and the one I live by daily.

The lesson that applies to this whole Enron mess was when she uttered the following two sentences after reading about some layoffs in our local newspaper:

"I work all week and I get paid at the end. After that everybody's even."

I honestly never meant to sound callous toward the misfortune of anybody. I may also be known for going to extraordinary lengths to make my point, and here comes some of that.

I also PROMISE that this next section is the LAST time I EVER talk about Enron.

"HOW DO YOU LOSE $63 BILLION?"

That question was pondered by none other than Don Imus during the heat of the Enron fiasco. I must confess to having an actual affection for Imus (although this is an acquired taste after listening to him for something approaching 25 years) and I usually find him more insightful than the mainstream media who I find completely annoying. Some of my favorite radio memories are of Don Imus back in the 70's when he would show up for his morning radio show on WNBC in New York still torqued up on coke and loaded besides. Now THERE is guaranteed entertainment for you!

Well the fact is losing $63 billion is a lot easier than one might think. I suppose Enron is just fascinating because of all the smoke and mirrors, plus all the intrigue caused by document shredding, shady investment vehicles and political contributions. If I lose a thousand dollars, I don't particularly care HOW it was lost. I'm still out a grand and it's as simple as that. With this in mind, consider the following list. The dollar figures represented are the value lost by shareholders as of the close of business Friday, March 29, 2002.

$352,077,968,103 - Cisco since April 2000

$321,691,750,536- Microsoft since January 2000

$298,830,713,581 - Intel since August 2000

$294,857,716,701- AOL/Time Warner since December 1999

$250,738,002,114 - Lucent since December 1999

$248,394,518,930 - Nortel since August 2000

$224,054,873,164 - General Electric since September 2000

$202,622,222,410 - JDS Uniphase since July 2000

$195,416,107,382 - EMC since September 2000

$154,648,319,727 - Sun Microsystems since September 2000

$121,598,173,913 - Oracles loss since January 2001

$127,395,982,783 - Worldcom since June 2000

$107,986,112,615 – Yahoo! since March 2000

$32,576,481,835 - Priceline.com since April 1999

$31,990,671,328 - Amazon.com since December 1999

A few interesting footnotes to the above list are these:

-- CEO Larry Ellison of Oracle pulled in $706 million in total compensation last year, mostly by exercising stock options. This is among the highest paychecks EVER by a CEO, even as shareholders lost over $120 billion.

-- Jozef Straus, who is co-CEO of JDS Uniphase realized a $150.3 million gain from stock option exercises last year as his shareholders lost over $200 billion.

-- Tim Koogle who is the former CEO of Yahoo held enough low-priced options to realize a $64 million gain during 2001 even though his fellow shareholders managed more than a $100 billion in losses.

So let all of us PLEASE stop lamenting money lost by Enron shareholders. In this sort of perspective, $63 billion is chump change.

WE'RE EVEN AT THE END OF THE WEEK

I've been laid off as well as fired and it's true that being unemployed does suck. But these sorts of things happen and it's a sad thing.

Enron has laid off about 4,000 of their 20,600 employees since the bankruptcy filing. Some are going to have a hard time making ends meet, and that's sad also. Sadder to me actually is that more than HALF of all Americans have LESS than $1,000 in total savings. This at a time when Americans toil under the heaviest debt load they have EVER carried as well as the largest tax burden (43% of GDP to be exact) EVER!

But being laid off from Enron doesn't grant you any special martyr status, nor project some unique aura around you. You tell me if any of the people on the following list were somehow less innocent than the Enron employees, or less deserving of FRONT PAGE coverage on the New York Times.

This is strictly a partial list, and if anything the numbers are LOW. Quickly remind yourself of Enron's 4,000 layoff when you consider that the number that follows each of these companies names is how many people they have laid off since last year:

Nortel – 35,000

Montgomery Ward – 28,000

Chrysler – 26,000

Lucent – 22,000

Ford – 20,000

American Airlines – 20,000

United Airlines – 20,000

Boeing – 20,000

Hewlett Packard – 18,000

Cisco – 16,500

Merrill Lynch – 13,500

Delta Airlines – 13,000

VF Corporation – 13,000

Continental Airlines – 12,000

Delphi Automotive – 11,500

Dana – 11,250

U.S. Airways – 11,000

Qwest – 11,000

Motorola – 11,000

Starwood Hotels and Resorts – 10,000

Northwest Airlines – 10,000

Alcatel – 10,000

Proctor & Gamble – 9,600

Motorola – 9,400

TDK – 8,800

Solectron – 8,200

3M – 7,000

Compaq Computer – 7,000

Sara Lee – 7,000

Siemens – 7,000

Honeywell – 6,975

SBC Communications – 6,500

Alcoa – 6,500

Worldcom – 6,000

American Express – 5,500

J.C. Penny – 5,300

Intel – 5,000

United Technologies – 5,000

Sears – 4,900

Supervalu – 4,500

Aetna – 4,400

Agilent – 4,000

Xerox – 4,000

Eastman Kodak – 4,000

Emerson – 4,000

Disney – 4,000

ADC Telecom – 4,000
It's a sobering list, but this is what happens when you work in a capitalistic society. Before any of you limousine liberals write me some scathing note, PLEASE move to either Cuba or China and find some work there. THEN write me the nasty note on your computer at work. Oops…sorry there. Then write me the note, put it inside a bottle, and toss it into the ocean. I'll be waiting for it.

MY FINAL POINTS ABOUT ENRON

I agree that investors losing $63 billion is nothing to sneeze at, but lots of money is lost every single day in the stock market. Whether the loss is caused by fraud, incompetence or stupidity typically doesn't make the person feel any better. If you can't afford to sustain losses in the stock market, then you should not have been in it. You would have to agree that K-Mart arrived at their current bankrupt situation due to total incompetence by management. Thousands of people will lose their job and hundreds of millions of dollars will be lost by investors. Why aren't these people receiving any Congressional hearings? It's because things like this happen in life and you try to learn from them.

Losing ones job is a difficult and trying thing also, but it has happened to literally millions of people before Enron, and has happened to hundreds of thousands of people since Enron. Losing your job due to managements fraudulent activities might make for good headlines but it doesn't make it any less tragic than the poor K-Mart employee who got their pink slip in the last few months.

Remember what I told you last month, which was to keep your eye on Washington. Nothing is going to change and the politicians continue to be cowards.

MORE STUPID POLITICIAN STORIES

Section 912. This is part of some brand new bankruptcy legislation currently working its way through Congress, which the majority of people would probably care little, or nothing about.

Let me set it up this way:

To make it possible for Enron to form all those shady partnerships and then transfer assets from the company's balance sheet they had to hire a battery of $400 an hour lawyers to certify that the new partnership was going to "control" the new assets. This certification was to satisfy the "true sale" test the law required. Needless to say, this takes time and is expensive as well.

If this new bankruptcy legislation passes with the addition of Section 912, companies would be given huge discretion to decide for themselves whether a "sale" has taken place, and basically make it easier to move assets off the company balance sheet. This provision would have made things much easier for a bunch of crooks like the Enron folks. It seems amazing (and par for the course) that politicians would be considering ANY laws that could make an Enron fiasco easier to happen.

There are many people who are FOR this Section 912, and one of the organizations that are for it is the Bond Market Association.

I have TREMENDOUS affection for my friends at the BMA and they are completely on the mark by supporting this Section 912. It's CRUCIAL in the Asset Backed Securities market that the assets by legally separated from the company selling them off and for the assets to be untouchable in the event of a bankruptcy. For example:

-- Ford Motor Credit packages up a bunch of auto loans into an Asset Backed Security and puts the loans into "trust" for an investor.

-- Prudential Financial buys the new security, which is backed up by the auto loans.

-- Ford files bankruptcy.

-- Creditors might try to argue that the loans being held in trust for Prudential are somehow still part of Ford's assets and try to make attachments to them.

This is how the ABS market works, and Section 912 does not affect this at all. All Section 912 would change is making it easier and cheaper to move these assets to the new security by getting rid of all the lawyers, and anybody on Wall Street would be in favor of it for obvious reasons.

Section 912 might have unintentional effects if passed as part of this bankruptcy legislation and that is my only worry. The Bond Market Association is EXACTLY on target for their membership by supporting its passage.

Another item I can bring up here is why so many of these partnerships (Special Purpose Vehicles actually) are set up "offshore". Since I have spent much time in Bermuda and Grand Cayman during the last decade I have acquired an in-depth knowledge of these arrangements, and TOO many people think there is some sort of shady tax-dodging purpose. While there are various reasons that make an offshore structure more attractive, it is often NOT any tax reason. A common reason that an issuer would want to arrange the previously mentioned Asset Backed Security offshore is to further insulate any chance of creditors trying to attach the assets. Trying to pursue assets held somewhere other than the USA during a bankruptcy is usually somewhere between difficult and impossible which makes issuing such "Special Purpose Vehicles" offshore so popular. It is a very legitimate business strategy made to look "dirty" by our dirtball friends at Enron.

THE STRONG DOLLAR

It can occasionally drive me nuts how out of touch Americans can be about world news and economics.

Here is an actual recent conversation I was party to:

Mike: "The strong dollar is gonna be a huge problem all this year I think."

Idiot: "I think it's gonna be great."

Mike: "Great? How?"

Idiot: "It's good for America."

Mike: "How is that?"

Idiot: "It makes America stronger."

Mike: "HOW?!"

Idiot: "It makes it so we can buy more stuff."

Mike: "Buy what stuff? And buying it where?"

Idiot: "Like Canada. We can buy stuff wicked cheap there."

Mike: "Have you ever been to Canada?"

Idiot: "No."

Mike: "Do you know someone who has recently gone to Canada?"

Idiot: "No."

Mike: "Well are you late for your Lithium milkshake you freaking moron?!"

Absolutely true conversation. Unbelievable.

Follow this logic for just one moment. If it costs John Deere $15,000 US to make a tractor and they offer the tractor for sale in Europe for 20,000 Euros. At an exchange rate of $1.00 US per Euro this represents $20,000 US and a $5,000 US profit for John Deere. At the current exchange rate of $871 US per Euro this represents $17,420 US and drops Deere's profit margin to $2,420 US. A reduction of $2,580 US or over 50%.

The story is no better for John Deere here in the USA. Imagine a Japanese tractor maker like Kabota who can make a nice tractor for 1,500,000 Yen. If they sell the tractor in the USA for $20,000 US and the exchange rate is $.0095 per Yen. Kabota makes 2,105,263 Yen, or 605,263 Yen profit. With the dollar strong like it is at $.007532 US per Yen, this translates into a profit for Kabota of 1,155,337 Yen, almost a 100% increase in profit at the same $20,000 US sale price.

The sum total is that John Deere gets its butt kicked in the export market AND kicked again in their own home/domestic market. As the proud owner of two fine John Deere tractors, I'm not pleased, nor should Americans continue to be unaware of this problem. The strong dollar affects all US companies.

IMAGINE THIS

I'm often accused of never talking about anything positive, but this news story blew me away. Of course this is spoken by someone who has always hated the dentist and had his wisdom teethyanked a few weeks ago.

Cavities are a way of life with something like 90% of adult Americans suffering from untreated dental decay. Never mind that childhood cavities are the most common childhood disease for kids between 5 and 9 years old. What if I were to tell you that we might be on the cusp of eliminating cavities almost altogether?

It is a fact that almost all cavities are caused by a bacterial microbe called Streptococcus mutans, which produces acids that just keep eating away at the enamel of your teeth. Well, this gentleman named Jeffrey Hillman has invented a bacterium that does not produce the acid and actually serves as an antibiotic. This new strain would knock out the old one and your mouth would never produce another cavity.

It appears that all you would need is to have your mouth sprayed with a solution containing this new bacterium when you're a kid and it would last your entire lifetime. They are currently testing the stuff on rats, and human trials are going to begin soon. FDA approval of it is supposed to happen sometime before the end of the year.

Better still, with this breakthrough they may learn ways to mimic the technique to help fight many diseases which humans are subjected to which are brought on by bacteria. Who would have ever imagined that they might someday "cure" cavities and maybe more. Man, life is just too cool sometimes.

UPCOMING SEMINARS

I must tell you that I am totally pleased with our new location in New York and that people who have attended sessions have been very complimentary.

I am also very excited about the weeklong series of programs that I will be offering in New York, Chicago, Los Angeles and Hartford this year. Some of the program topics are very timely for our current market conditions and I encourage you to visit the website to view the offerings.

You can see the entire schedule by visiting the following link:

http://www.afs-seminars.com/schedule.html

You can also call my office at (860)347-6568.

The final decisions have been made and we will also be posting the programs to be held in Bermuda and Grand Cayman in the next few days and I will keep you posted with regard to these.

In the meantime, I hope your holiday was a wonderful and that I see you or hear from you soon.

http://www.afs-seminars.com

Copyright 2002, Michael Gasior. All Rights Reserved.

PREVIOUS | NEXT