True grit needed at the SEC

HARVEY Pitt, the embattled chairman of America's Securities and Exchange Commission, must rue the day he uttered the infamous words about running a 'kinder, gentler' SEC. It would be unfair to keep bringing up that statement, made long before the 11 September terrorist attacks, before the corporate ethics scandal and before the US stock market's decline spread globally, were it not so telling about his trusting, affable nature.

Pitt has recently toughened up his public comments but still the agency in charge of regulating balance sheets is at the rearguard of most of the biggest corporate investigations. The New York Attorney General, the Justice Department and newspapers are leading the attack, uncovering possible transgressions almost daily.

A former Wall Street lawyer with many accounting clients, Pitt has had to excuse himself from important decisions because of his past business ties and, inexplicably, the most dramatic move he has made - ordering chief executives personally to certify that corporate financial statements are true and complete - was done quietly.

It took a fortnight for Wall Street to realise that the company earnings season, which starts next week, may bring a fresh wave of confessions as chief executives comply with the SEC's new rule.

President Bush has rebuffed calls to remove Pitt, but Presidents traditionally stand by their appointees, declaring full support even as they search for a replacement. Now that his own former oil industry dealings with regulators are political fodder, Bush has a personal reason to want an SEC chairman whose assurances will carry great weight.

It would not be surprising if Pitt stepped down. He is a decent, intelligent man, but America needs a top market cop with an unquestioned reputation for shrewdness, integrity and grit - a John Wayne, not a Jimmy Stewart.

Risk factor

I DON'T want to go on about this week's Sandler Report on medium and long-term savings, other than to say that I have great difficulty with the idea that any investment which involves equities can ever be considered safe.

People should not invest in the stock market unless they understand that there is a risk and are prepared to lose their capital. Poor people, almost by definition, should not be tempted to take this risk.

A reader hammered this point home by sending me a copy of an advertisement by fund manager M&G which ran in the Daily Telegraph in January this year. The headline said: 'In our opinion there has never ever been a better time to invest in the stock market' and after banging on about the quality of its research and the rewards to come from 'buying at the bottom' it listed four 'special offers' - Cable & Wireless, Royal Doulton, Marconi and Redstone.

The average fall of these four stocks since then is 49%. By the close of play tonight it may well be more.

Short lesson

SELLING shares short, even in a market as sick as this one, is not all it is cracked up to be. Of all the shares in the London market, none had as big a short position as brewer SABMiller. By some estimates, 20% of its entire market cap had been sold short. But on Thursday it abandoned plans to raise £600m of new capital via a share issue to help fund its purchase of Miller, the American brewer. This takes a major drag off the shares and will probably cause an acute technical squeeze.

The markets may well carry on falling, but it is worth a small bet that SABMiller will go the other way while those who have sold short scramble to cover their positions.