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Minyan Mailbag: WorldCom Delayed Reaction


Pleasure delayed is not pleasure denied!


Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next column with that very intent.


Yesterday on the Buzz, you mentioned May 9, 2002 as an important date for WorldCom WCOM (the day it went to junk status or filed for bankruptcy?).

I have looked at several charts (S&P 500, Nasdaq 100, and a couple of junk bond funds), but I have not been able to see any delayed reaction. Was May 9, 2002 the day that they went to junk? What market showed the delayed reaction (stocks or high-yield debt)?

Minyan Ryan


Thanks for the inquiry.

May 9 = 591.96
May 15 = 631.41
July 10 = 403.98

The biotech sector rose in the first week after the debt was downgraded. Then it turned over and bottomed nearly 200 points later (-31%) in July.

May 9 = 1650.49
May 17 = 1741.39
October 9 = 1114.11

The NASDAQ Composite also rose in the first week after the debt was downgraded on May 9. A slight rally started in July, but it failed and the low for the year was put into place in October over 500 points (-32%) later.

As I noted to my own subscribers in our last communication, it is illogical to lay blame for the entire failure of the market in the time periods noted above at the feet of the WorldCom downgrade. However, I've become increasingly convinced over the last year that the downgrade was a major contributing factor. Given the magnitude of the effect (30% drops must be avoided), the much larger size of the GM debt in comparison, and the historical precedent from 2002 -- caution seems warranted.


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