The March payrolls data, which many people think arrived last Friday, will actually be released on May 3.  Apparently the Department of Labor is trying out a new reporting system: one in which either themselves or someone else makes up the numbers initially, and the BLS calculates the actual numbers in its revisions.  Yes, this is a somewhat playful conspiratorial viewpoint.  However, consider the last 6 employment reports.

Perhaps it is time to realize that both corporate American and the U.S. government can mislead investors?  As such, perhaps the hedonic productivity numbers are misleading enough to bring the BLS up on charges?  Moreover, perhaps a secret task force should investigate the Fed for initially over estimating January consumer credit by a whopping $5.8 billion?  After all, if the U.S. government can report surpluses even as debt "to the penny" rises clearly something is screwy.  Who, but the government of course, is to say that most economic statistics mean anything?

Soft Jobs Data Quells Interest Rate Fears
Conspiratorial aspirations aside, we are at the point now in which 'worst is over' thinking has completely vanished.  As such, with 1Q01 basic GDP estimates topping 5% it is a safe bet that investors will need solid evidence of an earnings turnaround as soon as 2Q02 if the markets have any chance of starting a run.

With this in mind, last weeks jobs report did not, and should not sit well with the markets.  Granted, a weaker than expected labor market will probably be enough to keep the Fed on hold from raising interest rates until at least June. However, when exactly did the economic recovery become so convincing that economic weakness is a positive for the markets?  To be sure, so long as corporate profits are in the tank there is little fear of the economic motor over heating.

As for the labor market in general, the recent 'improvement' should be looked at contextually.  For example, the conference boards help-wanted index rose by 4 points in March to a reading of 51.  While this improvement tells us the 'worst is over' it by no means foretells of a strong employment situation.  Rather, the index was at 71 exactly 1 year ago.

Put simply, without profits companies will not hire new employees.  As such, when looking at the rosy rear-view economic statistics consider the adage 'good things come to those who wait'.  Yes, the economy is out of the gutter.  So what?  Investors are still waiting for good things…

Savvy Investors Turn Sour
Once upon a time you were branded a moron if you did not own Nortel, a buffoon if Cisco was not one of your blue chip holdings, and a chump if you did not have at least a small position in some Linux based company (supposedly Linux or 'RedHat' was to become the next Microsoft). 

Now that these 'savvy (techno) investors' (their words not mine) have seen their dreams shatter and they are looking for someone else to blame.

"The complaint alleges that during the Class Period, defendants were motivated to inflate the value of JDS Uniphase stock so that the Company could make acquisitions using stock and so the individual defendants, who are the top officers and directors of JDS Uniphase, could sell their shares."  Reuters.

In the case of JDSU how it can be proved in the courts that greedy CEOs cooked the books to entice investors to keep buying their shares is anyone's guess.  This just in: pooling of interests was LEGAL, and exercising and selling stock options was LEGAL. As for those rosy outlooks offered by management each quarter the judge will no doubt look into safe harbor provisions of the Private Securities Reform Act of 1995.

As JDS Uniphase and numerous other companies continue to write of billions in goodwill (no more pooling or amortization of goodwill) desperate shareholders will continue to take what little money they have left and hand it over to lawyers.  Part of me hopes that these shareholders win and that the money comes out of management's pockets.  However, I doubt this will be the case.

Harvey Pitt On The Attack?
Moneyline did a less than informative spotlight on non-expensed stock options last Friday.  To begin with, Moneyline failed to mention that companies receive tax credits from the issuance of non-expensed stock options (one of the most important obstacles in trying to get options expensed).  Moreover, Moneyline failed to investigate Mr. Pitt's bias before comment:

"Last night in Chicago, SEC Chairman Harvey Pitt said shareholders should have the power to approve or reject options packages for executives, but he did not touch this issue of whether or not those options should be declared as compensation expenses…" CNN Transcript

In fact, Mr. Pitt does not believe that stock options should be expensed: he has flat out said that the issuance of unexepensed options is not on the table – and he does not back current legislation that would see options get expensed. Furthermore, Mr. Pitt has tried to argue that he does not have the time to get stock options expensed given his 'Enron' related workload:

"I would be exceedingly reluctant to reopen this issue (non-expensed stock options). We have so many other things to do. I don't think the non-expensing of options caused what happened with Enron." Washington Post, March 20, 2002

How Mr. Pitt assumes that getting corporate America to go for a shareholder approved compensation plan would be easier than passing legislation that is already in the house defies explanation.  Then again, perhaps mention of an idea that is so ludicrously impossible to achieve (making shareholders approve compensation packages) is Mr. Pitt's intention .  Think of it this way: while waving his fist at corporate America he makes himself look like a fighter for investor rights.  Furthermore, his 'words' make his critics forget that he is one the few that does not want stock options to be expensed, and also allows others to buy into the idea that he is not a pawn.  And yes, the usually thorough MoneyLine bought into Pitt's speech when the neglected to investigate Mr. Pitt's stance on unexpensed stock options:

"…he did not touch this issue of whether or not those options should be declared as compensation expenses."

Until Pitt's stance on the matter of stock options changes do not buy into his supposedly tough yet highly hypocritical rhetoric.  That said, if Pitt actually passes a plan where shareholders have to approve compensation packages I will be the first to herald this a major victory for the investor and admit that I have misjudged him.

To sum up, every statistic or opinion that investors look at needs to be policed, shareholders should begin suing the BLS for doctoring up the productivity numbers, and Harvey Pitt still intends to attend luncheons and issue meaningless rhetoric rather than actually doing something.  As for the U.S. economy and stock markets - two things:

1) Profits will determine what the Fed does next.
2) 58,000 jobs were created in March.  Maybe.     

© 2002 Brady Willett
Editorial Archive

This article, which appeared as "The Spotlight" April 2002 on www.fallstreet.com is used by permission. Contact: Mr. Willett is author of "Lessons UnLearned."

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