

Heaven Can Wait

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We inevitably think of that sly old quip every time some irrepressible Wall Street chirper terms a market getting its head handed to it "a healthy correction." That glad if counterintuitive cry found frequent utterance last week as stocks absorbed their worst drubbing since February's ugly drop. "Healthy," we always wonder, for whom? Apart, to be sure, from the few remaining bears left in the neighborhood, who, alas, are too comatose to experience even a pinch of pleasure.

A few more weeks of such "a healthy correction" and they'll begin to carry out droves of those pitiable souls, margined up to the yin-yang, who'll discover to their rue that leverage works its magnifying magic on the way down, just as relentlessly as it did on the way up.

While it was hardly universally anticipated, the market's steep plunge did not lack for explanations, often from the very same seers who, it seems like only yesterday (perhaps because it was), were confidently predicting it would continue to climb the staircase to heaven. By week's end, the mood had sobered some, to the point, at least, that the consensus was that heaven might have to wait a day or two.

While there was an abundance of different diagnoses offered for the market's sudden attack of vertigo, rather puzzling was that most of the presumed causes had been around for a spell and pretty much either ignored or disdained by the Street's cognoscenti. For example, the specter of inflation is not exactly a brand-new apparition. It has, for the most part, been dismissed with a knowing smirk and reassuring reference to a conceit called "core inflation," which can register everything about inflation except price rises.

Then Ben Bernanke publicly voiced his heightened concerns about gathering inflation (this epiphany, incidentally, was the result of his wife dispatching him to the local supermarket to get a box of Cheerios), a pronouncement that shook Wall Street to the core. Yields on 10-year Treasuries broke through 5% like a knife through butter, stirring all kinds of nightmarish visions of a world bereft of cheap money: the most ominous, perhaps, the taming of the private-equity funds, for which borrowing is breathing, and its inevitable dire consequences -- the demise of the leveraged-buyout boom and, with it, the stock market's most powerful stimulant.

What higher interest rates (read: higher mortgage rates) would do to an already reeling housing industry is too gruesome to contemplate aloud in a family magazine. And it would spell misery for a consumer deeply in hock and the many companies that have been piling on debt to further such worthy undertakings as stock buybacks to goose the price of their equities and make both their shareholders and their options happy.

As intimated, very little of what spooked the markets last week was exactly new. The bond market has been wobbly for quite a spell; the urge to go public by private equity was a clear sign that the folks who blew the bubble are anxious that it might pop; the intermittent sightings of a bottom in housing were sheer illusion. We suppose fears gained gravitas from the belated recognition afforded by economic grandees like the chairman of the Federal Reserve, but none materialized out of thin air. And none, we're sorry to say, is apt to vanish any time soon.

The real trouble with the market is that it has been living on fantasy and fed by euphoria. And it'll take more than a healthy correction or a dead-cat bounce to cure what truly ails it.

ALTHOUGH THAT THREE-DAY SKID of the stock market cast a pall on the week, it wasn't all gloom and doom. Just when we had decided that the political scene was one big bore, an Alabama legislator showed we were wrong.

The lawmaker's name is Charles Bishop, he serves in the Alabama Senate, he's a proud Republican, and we're hugely indebted to him for reviving our lagging interest in politics and all its glories. Last week, Mr. Bishop punched a Democratic colleague who had the temerity to call him a "son of an expletive." So reports the AP. The Democratic senator, nursing his bruise, denies he did any such thing. But unassuaged, Mr. Bishop thunders that where he comes from -- the woods of Arkansas -- "people don't say that about your mom" (whose maiden name, we take it, was not Expletive).

We suggest that all those Cheshire cats of both parties who are so repulsively eager to snare the presidential nomination take a leaf from Mr. Bishop's book and stop grinning witlessly at each other during their so-called debates, and, in place of stale pleasantries serve the expletives a knuckle sandwich. At the very least, they'd draw a crowd instead of a yawn.

MOST ECONOMISTS WHOSE STUFF floats across our desk (or screen) seem to be edging toward a more benign assessment of the economy's prospects in the second half of this year. While we don't hear much prattle about a boom or the like, the current sentiment leans toward the notion that GDP will recover from its feeble rise in the first quarter, and productivity growth, at barely 1%, will pick up as well. Such optimism, even though a mite more tempered than usual for this gang, is in striking contrast with the view from the trenches, as expressed in the latest Duke University/CFO business-outlook survey.

Of the chief financial officers polled, those who were glum outnumbered those who were upbeat on the prospects for the economy by 30% to 26%; that's a sharp reversal from the previous quarter, and, in fact, as mournful a reading as just about any in the past five years. The leading depressants cited were the usual: slowing consumer demand, largely reflecting the effects of the housing slump and surging gasoline prices, and wage inflation (the CFOs see salaries and wages rising by more than 4% over the coming year).

Not surprisingly, they've cut back on capital-spending plans and don't expect to expand their payrolls (although they think their companies will step up outsourcing of jobs by about 7%).

All in all, not exactly a pretty picture. And it certainly doesn't make us in any great hurry to hang up our recession forecast.

We should mention that despite their grim outlook for the economy, they overwhelmingly believe that the vast wave of mergers and acquisitions that are sweeping over the corporate landscape will continue unabated for the rest of this year. Of course, for some of them anyway, namely those whose business is really dragging, this may simply be a case of wishful thinking.

AN OLD FRIEND OF OURS AND A STAUNCH booster of Barron's, Meyer Berman, died a few weeks ago. Meyer was an extremely talented investor whose horizons extended beyond Wall Street and whose humorous, occasionally eccentric but invariably perceptive take on the world and its inhabitants made him a delight to be around.

He had a real passion for the market that was animated by an unfailing moral sense, a quality that might seem odd in someone who achieved more than a measure of fame as a short seller. Yet, contrary to popular myth, a fair number of short sellers that we've known over the years are possessed of strong moral impulse (which isn't to say, of course, that there aren't a lot of miserable cads practicing that black art as well).

Meyer was blessed with an uncanny gift for spotting phonies, frauds and miscreants no matter how skillfully garbed in pious raiment. He had a remarkable feel for a company going bad, often long before their woes surfaced in income statement, balance sheet or discovery proceedings, a gift that typically found him pitted against analysts following the company and institutions that owned its shares. The bigger the crowd on the opposite side, the more he enjoyed it and the greater his conviction he was right (as he usually proved to be).

He loved to do field work; to get out and see the companies he had in his crosshairs taking care of business, as it were, or maybe, not taking care of business. We remember his recounting paying a visit to some outlets of a restaurant chain, whose stock he considered way overpriced, thanks to a combination of shrewd hype and dubious accounting.

In this case, he silently and unobtrusively studied the patrons and took particular notice of how much of the food they had ordered was left on the plate. Invariably, management grew suspicious and kicked him out. But not before he had confirmed that customer satisfaction was decidedly meager. In due course, as we recall, the chain cratered and so did its shares.

Although throughout an investment career that spanned decades Meyer remained an unreconstructed bear, he was not averse to going long. And, indeed, he made an absolute killing in oils during the first energy crisis, in the 'Seventies. But, as we say, his heart was in exposing corporate bad actors, and his success doing so endowed him with enormous inner satisfaction as well as material gain.

Meyer was a first-rate person, a true and loyal friend. The investment world is the poorer for his loss, and, gosh knows, we'll miss him.