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Commentary > The Bottom Line
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What a day!
Pitt is gone, Republicans are in control, the Fed cut big time, and Cisco is iffy.
November 6, 2002: 5:42 PM EST
By Adam Lashinsky, CNN/Money Contributing Columnist

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SAN FRANCISCO (CNN/Money) - Welcome to life on the see-saw. During the late 1990s, investing was a rocket ship: One way up. Then for most of this sorry century, it's been the coal-minor's market: An elevator that goes down into dark, dirty places.

But Wednesday -- especially with all its conflicting news -- it's a see-saw. Get used to it.

How should investors make sense of all that's going on? Here's my take on all the recent events.

The SEC A prediction: Harvey Pitt will quickly become "Harvey Who?" His demise as chairman of the Securities and Exchange Commission is all very Washington. It's not very stock market.

Sure, the markets would benefit in the long term from a stronger SEC, not to mention a stronger chairman. But in the short term, this is all about politics. Note that the White House apparently wasn't concerned that Pitt has been viewed as a tool of the accounting industry during his entire tenure at the SEC.

It wasn't until he embarrassed the president with the Webster affair (crime: withholding information, not appointing the wrong guy to the accounting board) that Pitt had to go. Immediate impact on financial markets: Zippo.

The Election You would have thought that Mr. Market would have been really pleased by news -- widely confirmed long before the markets opened Wednesday morning -- that the Republicans had re-taken control of both houses of Congress.

The conventional wisdom is that if President Bush has a mandate and the power to lower taxes, appoint conservative judges and start a war, then American wallets would be safe. Never mind that there's been widespread criticism of the president's economic team almost since they took office. A Republican victory seems like it should have been good for stocks.

And yet, the market merely meandered all morning and into the mid-afternoon, waiting instead for the news from the Fed. So much for the importance of politics on the stock market.

The Fed I never understood why traders love Fed rate cuts as much as they do. Don't worry, I get the basic rationale: Interest rate declines make the returns on stocks relatively more attractive; lower cost of capital makes doing business less expensive, etc.

However, rate cuts typically come for a reason, namely that the economy is lousy. Wednesday's cut was no exception. That the Fed unanimously would cut rates a half a percentage point (twice what was expected) shows how glum the central bank is, though it couched its opinion on the economy as being in a "soft spot" at the moment.

Recently by Adam Lashinsky
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Yesterday's news
eBay: Great business, eh stock
3 words: 'bear' 'market' 'rally'

And so, after being down most of the day, and initially not knowing quite what to make of the Fed's action, major markets turned up before the close. Traders therefore stuck with the perverse logic that though things are bad, stocks are worth more today than yesterday.

One, and only one, thing is clear. With so much news and so much confusion, all an individual can do is pay attention to asset allocation and long-term planning. Trying to hop on a moving see-saw is obviously a dangerous proposition.


Cisco After the bell, Cisco Systems delivered the thinnest of downbeat news. CEO John Chambers repeatedly used the expression "simply put," while abstaining from putting anything simply. Finally, after almost an hour of dithering, Chambers said revenues for the next quarter would be "flat to down." Analysts had expected revenues next quarter to be flat to up. It's hard to see how this is good news. (see full Cisco analysis here)

Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at lashinskysbottomline@yahoo.com.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.