WorldCom Selloff Jude Wanniski June 26, 2002

In our "Overcooked Bear" letter on Monday, we argued that the macro forces were no longer working against the market, but micro forces are always swirling: "When a company like Enron causes a great kerfluffle in Washington, the risks that Washington will take ACTION to prevent further Enrons increase, and with them the cost of doing business." The Worldcom accounting scandal is big enough to scare the markets everywhere, but not big enough to stop the world economy in its tracks. Just as the S&L crisis was the natural result of the inflation that PRECEDED it, these accounting scandals are the result of the deflation that preceded them. In both cases, managers misjudged and took risks they would not have taken had we not gone off the gold standard in 1971, which brought the inflationary and deflationary storms that followed. As the deflation recedes, like beautiful lake waters that reveal ugly rot on the shore when they recede, there will be more Worldcoms.