Phil Brennan, NewsMax.com
Tuesday, March 12, 2002

That's the warning Martin D. Weiss has for investors in his new book, "The Ultimate Safe Money Guide: How Everyone 50 & Over Can Protect, Save and Grow Their Money."

Like few others in the investment advisory field, Dr. Weiss knows the ins and outs - and pitfalls that await investors when they set out to buy stocks or put their money in securities.

Weiss and his Safe Money Report investigate banks, insurance companies and corporations and then rate them for his clients.

Unlike many other "rating" agencies that are part of big financial firms, or have dealings with the same companies they are evaluating, Weiss offers independent analysis.

For years Martin Weiss been keeping a sharp eye on the stock market and other investment vehicles, separating facts from hype, and telling his clients what they needed to know about the investments they were about to make.

He was one of the first to blow the whistle on Enron and Global Crossing. Other analysts were still giving "buy" signals for these companies and high ratings on their bonds almost to the day they filed for bankruptcy.

Weiss' independent and intensive probing enabled him to forecast the disastrous collapse of hundreds of savings and loan companies. His report was bitterly criticized at the time.

"How dare you say hundreds of the best savings and loans in this country are going down the tubes,” a top official of one S&L stormed. "How dare you say that our accountants are cooking the books?"

Not long after the S&L edifice came crashing down. Since then Weiss has been compiling a record for accuracy in his reports even the government's General Accounting Office (GAO) has praised.

After a three-year study the GAO concluded that Weiss had beat his leading competitor, A.M. Best, by a factor of three-to-one in forecasting financial troubles.

A lot of what he reveals is just plain shocking - and not a little frightening.

As the Enron collapse has shown, Wall Street can be far off the mark in promoting a company's stock as a safe one for investors. In this first part of a five part series, NewsMax.com reveals some of the sleazy practices Weiss shows to be common on Wall Street and in the investment community.

Lessons From Enron and Global Crossing

The Enron and Global Crossing debacles had not occurred when Weiss finished writing his book, but the details of the mammoth corporate collapses could well serve as a prologue to his exposé of Wall Street shenanigans.

Much of what he warned about happened in these two disasters, and that's why this book can be considered as an extraordinary road map for the average investor who wants to stay away from stock market scams.

In his book, Weiss showed how much of a risk investors take when they rely on the buy-and-sell recommendations of the brokerage houses.

Enron is a classic case.

In the March 5, 2000 edition of Fortune, long before the collapse, the magazine's ace business correspondent Bethany McLean wrote a story about the energy giant that asked "Is Enron Overpriced?"

"It's in a bunch of complex businesses," she wrote. "Its financial statements are nearly impenetrable. So why is Enron trading at such a huge multiple?"

Her story appeared at a time when Wall Street was hyping Enron as a sound investment, but as she showed in a crackerjack piece of investigative reporting, the investment wizards on the Street didn't have the slightest idea of what they were talking about - and many admitted as much.

At the time, Enron stock was selling at a huge 55 times trailing earnings. The company was boasting that its stock should be selling for $126 a share, and the company's profits, Enron said, were going through the roof. That's what it said, anyway, and the big-shot brokerage houses were swallowing the hype hook, line and sinker without taking as much as a second look.

Clueless Analysts

"Enron has built unique and, in our view, extraordinary franchises in several business units in very large markets," gushed Goldman Sachs analyst David Fleischer.

Said one portfolio manager, "Enron has no shame in telling you what it's worth." First Call chimed in by noting that that 13 of Enron's 18 analysts rated the stock a buy.

All of this ecstasy over Enron was, however, being accompanied by one shocking fact: Nobody could find out exactly what it was doing, or get a clear idea of what was going on behind closed doors or how much of a profit Enron was really making.

Here's how Bethany McLean put it: "But for all the attention that's lavished on Enron, the company remains largely impenetrable to outsiders, as even some of its admirers are quick to admit. Start with a pretty straightforward question: How exactly does Enron make its money?

"Details are hard to come by because Enron keeps many of the specifics confidential for what it terms 'competitive reasons.' And the numbers that Enron does present are often extremely complicated. Even quantitatively-minded Wall Streeters who scrutinize the company for a living think so. 'If you figure it out, let me know,' laughs credit analyst Todd Shipman at S&P. 'Do you have a year?' asks Ralph Pellecchia, Fitch's credit analyst, in response to the same question."

Despite this, and the doubts expressed by some analysts, brokers remained promoters of a stock in which many of them were heavily invested. Keeping the stock price high was in their best interests.

Take J.P. Morgan, for example.

"Enron is an earnings-at-risk story,'' said Chris Wolfe, the equity market strategist at J.P. Morgan's private bank, who despite his remark was an Enron fan. "If it doesn't meet earnings, [the stock] could implode."

"It's very difficult for us on Wall Street with as little information as we have," Goldman Sachs' Fleischer told McLean, who described him as "a big bull."

And so, the beat went on.

None of this could have come as a surprise to Dr. Weiss, who wrote: "The Stock Market decline of the early twenty-first century was caused neither by terrorists nor war. It was a direct consequence of the Great Stock Market Scam - an elaborate system of deceptions that threatened the retirement savings of millions of Americans over age 50."

As an example of what he's writing about, he harks back to April 26, 1999, citing Morgan Stanley Dean Whitter "plus 18 other Wall Street Brokerage firm's recommendation that "could have transformed a comfortable retirement into a lifetime of welfare."

The recommendation: buy stock in Priceline.com. "When they made this recommendation, Priceline was selling at $104. Twenty-one months later it was trading for $1.50 a share.

"If you listened to Morgan Stanley, or to any of the other 18 firms, and you sank $10,000 into this turkey, you'd be left with a meager $144. That's a whopping 97 percent loss."

Dr. Weiss goes on to cite other high-profile killer turkeys pushed by Wall Street - investments that fleeced hordes of Americans out of their savings.

For all of these disasters he puts the blame on "misinformation."

"Indeed, the critical information you need to make sound investment decisions was - and is - passed through a series of filters, each removing some piece of bad news, each adding a new layer of hype, distortion, or even outright lies."

It didn't just start with Enron. And it's still going on.

Next in this series, NewsMax.com will look at the filters.

Get Martin Weiss's "Ultimate Safe Money Guide" at a great price from NewsMax.

Read more on this subject in related Hot Topics:

Enron

Global Crossing Scandal

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