All this brings to mind those moldy movies where the natives try to placate angry gods by offering up human sacrifices. You know, the classics like “King Kong” or “When Dinosaurs Ruled the Earth.’’ With so many businessmen and companies offered up in recent months, you’d think that the Market God would be sated and give us poor investors a break. But so far, he hasn’t smiled upon us. The Wilshire 5000 Total Market Index closed Friday at a five-year low. Every rally seems to fizzle.
One possible explanation is that the Market God is not easily fooled. Take the most unusual news of the week: Global Crossing founder Gary Winnick’s offer to help offset employees’ losses in their 401(k) plan. Winnick is one of the big winners from the stock bubble, having made $734 million by selling Global shares before they collapsed. Investigators are probing his role in making the company’s numbers look better than they really were. He denies wrongdoing. On Tuesday Winnick, at House Energy and Commerce Committee hearings, made a surprise offer to donate $25 million to Global’s 401(k) plan to help offset the losses suffered by the plan’s workers when Global’s stock collapsed. Most of those employees worked for a phone company called Frontier that Global bought three years ago. Winnick said he was moved by the witness who preceded him, Lenette Crumpler. Crumpler, a clerk who’s worked for Frontier for 31 years, spoke eloquently about how her retirement account, invested entirely in company stock, was wiped out. Global shares, which traded at $26.25 when the deal was completed, currently go for about two cents.
But Winnick’s pledge wouldn’t give Crumpler a dime. That’s because his donations are supposed to cover losses that employees suffered on 401(k) contributions made after the takeover was completed. That doesn’t cover Crumpler, who dropped out of the plan when the company changed hands. “When Global Crossing purchased us, I stopped contributing completely,” Crumpler, a single mother with two children, told me. “They were cutting back on overtime, and I couldn’t afford it.” Crumpler had been contributing more than 16 percent of her pay.
I’m certainly not going to knock a $25 million contribution from anyone. It’s $25 million more than other chief executives and accounting firms and investment banking houses and stock analysts, combined, have agreed to contribute. Winnick’s spokesman, Howard Rubenstein, said Winnick’s lawyers are working with Global to remove legal obstacles, and the check should soon be in the mail.
But $25 million won’t remotely cover the losses that Frontier workers have suffered on Global stock in their 401(k)s. According to the Communications Workers of America, which represents many Frontier workers, employees’ 401(k) accounts held company stock worth $250 million the day Global’s takeover was completed. So Winnick’s gesture, while vastly better than nothing, is just cents on the dollar. (Rubenstein says Winnick is trying to cover losses on employee contributions after Global bought Frontier, not their entire loss.) And acting like a good guy wouldn’t hurt if Winnick, who’s tried to buy Global out of bankruptcy once, makes a second pass.
Would a bigger check from Winnick–and contributions from others–appease the Market God? It sure couldn’t hurt. But what we really need for stocks to recover is for them to become cheap relative to corporations’ profits and prospects. Three months ago, the last time I was foolish enough to write about the market, I was mildly optimistic but said stocks could fall an additional 10 or 15 percent. Since then, they’ve fallen 20 percent. The picture is exceptionally murky. The most encouraging sign is that so many things (including, alas, my own holdings) have been beaten down so badly that all I see anywhere is gloom. Stocks are cheaper, by traditional measures, than they’ve been for years. That’s good. But they could get cheaper still.
For now, let’s hope that the market doesn’t imitate the movies. The big Hollywood buzz now is “Red Dragon,’’ part of the gruesome Hannibal Lecter oeuvre. It opened this past weekend. The story line should be familiar to us investors: we’ve already been eaten
