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CNN Sunday Morning

Interview With Vera Gibbons

Aired February 24, 2002 - 07:23   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KYRA PHILLIPS, CNN ANCHOR: Fallout from the Enron implosion is spreading across Wall Street. More companies are coming under scrutiny for questionable accounting practices similar to Enron. And now, where do we put our 401(k) money. That's just one question.

Joining us from New York now are regular guests on CNN's SATURDAY and SUNDAY MORNING, Vera Gibbons of "Smart Money" magazine.

Hi, Vera.

VERA GIBBONS, "SMART MONEY" MAGAZINE: Hi, Kyra, nice to see you.

PHILLIPS: Good to see you too. Well, let's talk about this other companies coming under scrutiny. Do you agree with that and if so, what companies are?

GIBBONS: We've got a major case of Enronitis going on, not only companies that are associated with Enron, but other companies that had absolutely nothing to do with Enron are coming under scrutiny. And I think investors are more nervous than ever. They are looking twice at the companies, trying to figure out how some of these companies made money in the first place. I think we're all very, very skittish, very nervous.

PHILLIPS: So what are some of these companies we should watch? Let's get some specifics out here.

GIBBONS: Oh, there's a bunch. There's Calpine. There's Williams. There's Tyco and a slew of other companies that have absolutely nothing to do with the Enron disaster. And I think the danger is that if there are more companies out there that do get into trouble and certainly, there are a lot of companies that are under scrutiny today, that could be very bad for the market.

They would, you know, worse case scenario, freeze up the financial markets, restrict the flow of capital. It would shrink household wealth, raise borrowing costs. That would obviously hurt consumer spending, business spending and the worst-case scenario would be that this -- these problems could actually nip the recovery in the bud.

But again, this is the worst-case scenario. Most companies out there are in fact, clean companies, good, solid companies. But you know, tell that to an investor and they're going to say, "You know, I don't care. I'm nervous. I'm getting out of the market all together."

PHILLIPS: Absolutely.

GIBBONS: At least that's what the pessimists are saying. They're saying, forget about it, you've got to get out of the market. The optimists are jumping in there saying, look, there are plenty of bargains to be had; there are good quality companies at next to nothing prices. But even good companies like IBM and GE, for example, are getting hit. People are looking at their balance sheets and thinking they're too complicated, I don't understand them and they're selling good quality company stock.

PHILLIPS: All right, when we -- when we're talking about these companies coming under scrutiny, what's a smart way to really look a company? We don't anyone to make any quick decisions because that of course, could affect the market in a really bad way. So what's a healthy way to analyze the balance sheets and the companies that are being scrutinized so heavily?

GIBBONS: Well, I think part of the problem is that even educated investors who knew how to read balance sheets, who knew how to read financial statements, you know, that didn't help them much at all. I think until we get some sort of overhaul of our accounting standards, investors are going to remain on edge.

We really need to see, you know, the SEC get in there and overhaul our accounting standards, to restore investor confidence because even the smartest of investors, those investors who were educated, who did know how to read balance sheet and did know how to read a financial statement were, in fact, cheated.

So I think, you know, even if you can take a second and third look at these companies that still may not necessarily help you. I think some people today are going to go back and buy companies that they know, they know how the business operates, companies that have a solid history with those earnings and growth. People are going to go back, I would imagine, and buy blue chip companies that may not actually make them a ton of money, but at least, these are companies that they can trust, back to the sort of Peter Lynch wave investing -- investment companies you know, and you understand how they're actually making money.

PHILLIPS: So do you think this is a bad time then for start up companies?

GIBBONS: Well, I think the start up companies may have an easy time getting -- actually, getting -- an easier time getting money from their friends because so many people have actually pulled out of the markets that I think, you know, it might be -- they might have an easier time collecting money from some of their friends to get the company started. But...

PHILLIPS: Well, President Bush's call for stricter regulations...

GIBBONS: Yes. PHILLIPS: ... is this the answer?

GIBBONS: I think it is because he actually called for stricter regulations in his state of the union address a couple of weeks ago, three weeks ago. And I think clearly, something needs to be done because we have -- the accounting irregularities are like this big, dark cloud hanging over the stock market. And until the irregularities are cleared up, investors are going to remain on edge.

I mean so many people today think of the stock market as some sort of manipulative game only for insiders and if more people start to think that way, then they're going to park their money elsewhere. They're certainly not going to entrust their savings to the stock market.

PHILLIPS: So Vera, are you putting money in the stock market right now? I'm just curious.

GIBBONS: Am I personally? I tell you -- well, I think, you know, homes that are depreciated on average, 37 percent over the past five years -- I own my apartment and I'm very happy that I do because I'm sure I've made some money on it. But you know, people are buying up homes left and right and while I do think that the warm weather and the low interest rates do have something -- they do both have something to do with the fact that, you know, new homes -- the construction level has gone up to 6.5 percent in January.

I also think it does has something to do with the fact that the stock market is declining and home values are, in fact, appreciating. I'm happy I own my apartment. I don't know if I'd dump a ton of money in the stock market right now, but I do know people at "Smart Money" are putting money into the stock market and finding good, decent, quality companies at next to nothing prices. So...

PHILLIPS: I noticed how you answered that question. A home definitely is a good investment. Miles and I both are shaking our heads here. And I was waiting for the stock market answer. OK.

GIBBONS: Well, the thing with homes, you don't have to read a single balance sheet, a single financial statement to get that 37 percent.

PHILLIPS: That's true.

GIBBONS: I just sat back and got the return. So...

PHILLIPS: Vera Gibbons, "Smart Money" magazine, always a pleasure. Thank you very much.

GIBBONS: Thanks, Kyra.

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