By DAVID MOON, Moon Capital
January 13, 2008
Someone once told me he believed there are no coincidences in life. I'm not
sure if I believe that or not, but I know what happened this past week was no
On the same day that a Knoxville bank was robbed a
sixth time by the same baby-faced bandit with black electrical tape on his
fingertips, the Dow Jones Industrial Average dipped into what is customarily
considered a correction. After dropping more than five percent in the first week
of trading this year, the major stock index has now declined more than 10
percent from its high last year.
That move, combined no doubt with some sort of
personal subprime tragedy, obviously moved one Knoxville man to make some
unauthorized bank withdrawals.
There are plenty of scoundrels on Wall Street,
but they usually wear two-thousand-dollar suits to the bank, not sunglasses and
hooded sweatshirts on 70-degree days.
The negative investment news this year continues to
center on mortgages and residential real estate. Much of the sell-off this week
was precipitated by bad news from KB Homes, a homebuilder, and worrisome reports
about Countrywide Financial, a lender.
But scores of other companies are using increased
default rates on mortgages to explain their own poor performance.
This week, AT&T blamed its poor results on
repercussions from the mortgage mess. I understand that people may be less
likely to add a bunch of video services to their cable or telephone bills if
they're about to lose their houses, but I suspect that Verizon, Comcast and DISH
also have a little to do with AT&T's woes.
One of my favorite recent blame-game examples was
from Office Depot, the office-supply giant. In early December the company
lowered its revenues and earnings projections for the fourth quarter. The stock
price declined 9.8 percent in a single day, after falling by 50 percent in six
According to the company, what is responsible
for these problems?
The real estate market.
That's right. Office Depot wants you to believe that
people aren't buying as much copy paper and pencils because the interest rates
on their adjustable-rate mortgages are about to increase.
It reminds me of the retail stores that always blame
poor results on the weather. The porridge is always either too hot or too
The problems in the real estate market are real.
Lenders, borrowers and brokers have all been irresponsible ' and those actions
are coming to light.
Downturns in asset classes happen. They happen in
stocks, bonds, baseball cards and cattle. Real estate is no different.
But these natural real estate problems are not the
root of all financial problems. Subprime mortgages did not cause global warming
or send Britney Spears off the deep end. It did not cause a conniving would-be
Willie Sutton to dress like the Unabomber and rob a bunch of Knoxville
Some stocks are being punished by investors for
mistakenly being identified with the mortgage meltdown. Others are using the
mess as a convenient excuse for their own unassociated woes.
Don't confuse the two.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).