Almost two day's after Chairman Bernanke's testimony before the House Financial Services Committee, the markets are getting back to the economic realities that face us.
After Wednesday's oversold rally, the Dow closed down 83 points, and the NASDAQ Composite closed down 41 points.
So what are the realities? If you have been keeping up with my journal, you are well aware of what the realities are. Forget about putting a microscope on the day to day economic releases, and begin focusing on the big picture.
Here is a big picture comment that many won't make. In light of the recent news about the back dating of stock options you need to know this;
Many corporate executives are more interested in enriching themselves with options and stock grants, than having a passion for what they do, and earning their money like normal people.
Personally, I believe ALL stock grants and options should be abolished. The only pay a corporate executive should receive is salary, and a cash bonus based on performance. If they want to own company stock, they should reach into their pockets like the rest of us and buy in the open market.
If you follow my comments daily, you know that I follow insider trading very closely. Whenever I see an insider transaction, and see the words "Non Open Market" purchase or disposition, I just want to throw up.
If company insiders really believe in what they are doing, and are constantly in search for honest ways to increase shareholder value, make them prove it. You can easily make them prove it by not granting them anything more than a salary and a bonus.
As I track insider activity, I have to constantly play "junior detective" to separate the "real" insider transactions, from the transactions based on grants and options. If corporate America really wants to come clean, they need to stop giving away stocks and options to executives, that they, and their analysts, want us to buy.
So far, the game has been played like this; a corporate executive gets on TV and tells us how great everything is, then his favorite investment banking analyst confirms his opinion. After hearing the great news, investors buy, and corporate executives sell. What a great business!
Through the years, some companies (former insurance giant Conseco comes to mind) actually loaned money to executives to buy company stock. Of course in Conseco's case, the stock tanked. Other companies have participated in these questionable practices as well.- Read Article
As long as Wall Street and the regulatory agencies continue to allow corporate America to get away with these lavish perks, individual investors need to wise up and get pickier about what stocks we buy, and the prices we pay.
So, back dating aside, there would be no back dating if options and grants did not exist.
Oh, I can hear Cisco's CEO, John Chambers now. He would say something like " In order for us to attract and keep good talent, and keep us competitive in the global economy, we need these pay incentives in order to compete."
HORSEMALARKY!
If no companies were allowed to issued grants or options, you would not have a problem, John. What else would they do? Would they go to India, and make a tenth of what they would make here with salary and bonus? I think not.
This is like saying if professional sports quit paying millions of dollars a year to athletes, that none of the good players would play. What else would they do? Teach, and collect $35,000/ year. I think not.
When people are asked what businesses they trust the least, car salesman is always at the top of the list. Based on what we are seeing today, there is nothing worse than a self-righteous, self- serving, greedy corporate executive. Car salesman are saints compared to these guys.
