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 The original idea for this issue was to present a tour de force of the nuts and bolts of indexing. Dow Jones was to lead with the complexities of rules based index management, while S&P contributed by casting light on the index committee process. We would discuss how an index fund is run, managing a portfolio using ETFs, and passive management for financial advisors. The theme survives largely intact.
In mid May, however, there was one significant change. With a backdrop of slumping markets and scandalous corporate behavior, Standard & Poor's released a timely white paper (the entire text of which is available on journalofindexes.com) calling for a more honest core earnings standard. Its author was David Blitzer, chairman of the S&P 500 Index Committee, who, while working on the committee article for this publication, was suddenly caught up in a blitz of media engagements and accounting standards debates.
After the proverbial light-bulb flash of inspiration and a flurry of e-mails, we decided to leverage David's S&P core earnings efforts and bring some currency to the 3Q issue. David was quick with the article, and the writing was excellent. It was read by a strong cast of reviewers: Peter Wall of FTSE, Steve Kim of CSFB, Joanne Hill of Goldman Sachs and Khalid Ghayur of MSCI. The response was mostly positive, but the strength of some of David's comments stuck a couple of us as perhaps a bit much.
I was struck by one line, "A wholesale exit from the equity markets would be damaging to the U.S. markets, the U.S. economy and the dollar-and to everyone in the markets."
Well, in the time leading up to publication, things have only gotten worse, with a variety of other companies caught up in accounting scandals and everyone wondering who will be next. In fact, U.S. markets and the dollar have suffered. And at this point you would be hard pressed to find anyone who thinks it has nothing to do with trust in the markets. Indeed, if we can't trust the accounting statements of corporations, what is the basis for market valuations?
Jim Wiandt |
