Additional References
EWFF, April 2005
The de-equitization of American social life is reaccelerating. Recall what the March 4 EWFF said would happen to Martha Stewart’s stock, as supporters hailed her triumphant release from prison: “Stewart will find her return to the business world a lot less accommodating than her jail cell.” Within hours, Martha Stewart Living Omnimedia was cascading lower in a decline that reduced its value by 45% in 13 days. The market’s harsh response to “the new Martha” is just a small hint of the rejection that stock market totems and icons will experience in the newly emerging phase of decline. A similar collapse of Martha’s stock from slightly higher levels to the same $20 level preceded the Dow Industrials’ all-time peak in 2000.
EWFF, March 2005
Don’t be fooled by reports of besieged corporate leaders; it is only a preview of coming attractions. The latest executive compensation surveys reveal that, by at least one key measure, the infatuation with corporate leadership reached record levels in 2004. According to Mercer Human Resource Consulting, the average CEO bonus rose to a new high of $1.14 million. The bonuses represent a 46% increase from 2003. Based on CEO compensation, the bear market has yet to begin. Some formerly beleaguered leaders, like Martha Stewart, are also back on the high ground of 1999. Even though she’s been in jail, Stewart’s star is soaring, with the landing of roles in two TV shows and a company stock that has soared back to heavenly heights. After collapsing to about $5 near the lows of October 2002, Martha Stewart Living Omnimedia shares rose to $37, right where they were one day after MSO came to market in October 1999. MSO’s price/earnings ratio cannot be calculated because the firm lost $7.5 million in the fourth quarter of 2004. It expects to lose more than twice that amount in the first quarter of 2005. “Jail can give beaten CEOs and burned-out celebrities the martyr’s halo,” explains Thursday’s Washington Post. As long as the trend is rising, MSO can bask in its optimistic potential of the future. But Stewart’s smiling visage on the cover of the March 7 Newsweek suggests that another peak is near. A similarly beaming Martha appeared on a January 2000 cover of Business Week, just as the Dow was topping. Newsweek says Stewart will emerge from prison “thinner, wealthier and ready for prime time,” but the early celebration over her “recovery” is a sure sign that the countertrend rally is ending. As the bear market reasserts itself, Stewart will find her return to the business world a lot less accommodating than her jail cell. According to a February 11 story about the “Evolving Saga of America’s CEO,” CEOs took their lumps in January when 92 got the boot or retired, the highest figure since February 2001 when 119 CEO changes took place. “The CEO is on the hot seat,” says John Challenger, who heads a Chicago outplacement firm. “Mistakes aren’t forgiven.” That goes double for Martha Stewart because bull market favorites tend to get singled out for special attention on the downside.
EWFF, October, 2002
Back in the fall of 1999 when the bull market was just a few months from its final highs, Martha Stewart’s public image became such a bankable commodity that Wall Street sold shares in it. The Elliott Wave Financial Forecast offered the socionomic explanation [shown below in November 1999] for her incarnation as a high-flying IPO.
Stewart’s stock, along with that of World Wrestling Entertainment (the former WWF), did not wait for the peak in the rest of the market to turn down. The chart at right shows that both were such delicate manifestations of the long-term uptrend that they ran to all-time peaks the moment they went public and have been working their way lower ever since. Their initial breaks foreshadowed the peak of the major averages in the first quarter of 2000, as EWFF indicated that it would in November 1999. The forecast was based on an understanding of the hero-making dynamics of a bull market. “The operative principle of social mood is that every bull market has its champions,” explained The Elliott Wave Theorist in 1998. “These heroes are of their times, and their images become vulnerable when the wind changes.”
The bear market has guided Stewart’s image with the same precision as the bull. In September, the now “tarnished queen of perfection” beat the NASDAQ to a new low when she refused to testify before Congress about insider trading charges and had her case forwarded to the Justice Department. “Everything negative that could happen has happened,” said the author of a Stewart biography. “A curtain has been drawn back in a way that is causing her excruciating and irreparable damage.”
But the curtain to “everything negative” has nothing to do with Martha Stewart. This is clear from the alleged offense, which would not even have been prosecuted in the bull market, and the fact that corporate executives everywhere face similar attacks. The more fully that they leveraged the benevolent effects of a rising social mood, the more likely it is that they now face the slings and arrows of angry shareholders, politicians and community activists. At the top of the ever-lengthening list of fat cat targets is Dennis Kozlowski, Tyco’s former chief executive officer. Three months ago, virtually no one had ever even heard of him. Now he is so notorious and such a threat to society that his bail was set at $100 million. The charges against him range from his forgiveness of $50 million in loans to himself and other Tyco executives and the purchase of items like a $15,000 dog umbrella stand. EWFF anticipated these strikes against the excesses of the old bull market at the start of the bear market. The backlash is precisely why we said GE’s former chairman Jack Welch would regret his decision to ignore GE’s mandatory retirement age and stay on after 2000 (see July 2001 issue). According to Newsweek, “Welch is no doubt wishing he could rethink this whole episode.” When his wife’s divorce filing revealed a “lavish lifestyle, Welch became the latest CEO in the cross hairs.” By staying in the spotlight long after the bull market, Welch opened his image as “America’s most revered CEO” up to the current series of unfortunate events.
EWFF, November 1999
In another late-breaking milestone, Martha Stewart “struck stock market gold” October 19 with the sale of 14% of her firm to the public. Stewart’s first book, Entertaining, came out in 1982 as the bull market was taking off. Since then, she has become “the queen of gracious living,” a self-made billionaire “credited with creating a lifestyle industry.” She is not the first bull-market hero to equitize her persona (the World Wrestling Federation even went public on the same day), but she may be the most fully valued. The Martha Stewart company has a capitalization of $1.7 billion and earnings of $14 million, which makes her an excellent “role model” according to one consultant, who added, “we need them because it gives women hope and desire to strive.” Overvaluation is now a social virtue.
EWFF, October 1999
Wildly bullish expressions of the long-term high in sentiment, such as plans by the NYSE, Martha Stewart and World Wrestling Federation to go public have not been affected by the market’s persistent erosion. Ever-more-ambitious designs, like a proposed offering from the New York Yankees, continue to emerge. That deal would be one of the biggest IPOs ever.
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