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Investor Optimism Falls Amid Fears That Enron Problems Are Widespread

by David W. Moore

Eight in 10 investors believe accounting scandal has hurt U.S. economy

GALLUP NEWS SERVICE

PRINCETON, NJ -- Amid fears that the questionable accounting practices revealed by the Enron scandal are widespread in the business community as a whole, investor optimism is sharply lower this month. The UBS/Gallup Index of Investor Optimism is now at 92, down 23 points from last month, but still slightly above the level it reached shortly after the Sept. 11 terrorist attacks and maintained for the last quarter of the year. The Index had a baseline value of 124 when it was launched in October 1996. The monthly survey also finds that about nine in 10 investors have heard at least "a moderate amount" about the controversy surrounding the accounting practices at Enron, and more than six in 10 believe the accounting problems at Enron are widespread. Regardless of how many other companies might be having the same problems, eight in 10 investors feel that the issue of questionable accounting practices itself has hurt the U.S. investment climate.

U.S. Index of Investor Optimism
October 1996 -- February 2002

The decline in the Index is due mostly to lower optimism about the investors' personal situations, the extent to which they will be able to meet their short-term and long-term investment targets, and also whether they will be able to maintain or increase their personal income. In all three areas, optimism is significantly lower this month than last, producing the largest one-month decline on the personal dimension since the Index was established.

The decline is also fueled by lower investor optimism about the stock market, down from 60% expressing optimism in January to 50% this month. In addition, investors' expectations for return on their personal portfolios declined from 10.2% last month to 9.5% in February. Still, expectations are higher now than they were for all of the last quarter of last year, when they averaged about 8.5%.

Concerns About Questionable Accounting Practices

Overall, 62% of investors say they have heard a great deal about the Enron scandal and questionable accounting practices, and another 27% have heard a moderate amount -- making this issue one of the most salient ever recorded by the Index.

Among all investors, 62% say the accounting problems are either very or somewhat widespread, while just 36% believe the problems involve only a few businesses. More significantly, 79% of investors say the controversy has hurt the investment climate in the United States.

In response to the uncertainty over the questionable accounting methods, investors are somewhat more likely to reduce their investments in stocks, and somewhat more likely to increase their holdings in cash or CDs, bonds, and real estate. Overall, 50% of investors say bonds are more promising than stocks, while 40% of investors take the opposite point of view.

Economy: The Worst Is Over

Despite concerns about the Enron scandal, questionable accounting practices and their effect on the stock market, investors express positive views about the future of the economy overall. Fifty-seven percent of investors say the recession has hit bottom, up from just 36% who held that view two months ago. And 71% of investors express confidence that the economy will be in a recovery within six months.

Survey Methods

The results reported here are based on telephone interviews with a randomly selected national sample of 1,001 adult investors, 18 years and older, with at least $10,000 of investable assets, conducted Feb. 1-17, 2002. For results based on this sample, one can say with 95 percent confidence that the maximum error attributable to sampling and other random effects is plus or minus 3 percentage points. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

INVESTOR ATTITUDES : THE INDEX

 

 

 

OVERALL

PERSONAL

ECONOMIC

02 February

92

69

23

02 January

115

85

30

01 December

88

76

12

01 November

84

78

6

01 October

86

76

10

01 September

50

61

-11

01 August

76

73

3

01 July

74

66

8

01 June

85

76

9

01 May

90

78

12

01 April

81

75

6

01 March

82

73

9

01 February

77

73

4

01 January

96

81

15

00 December

106

86

20

00 November

130

90

40

00 October

132

88

44

00 September

147

91

56

00 August

160

100

60

00 July

143

95

48

00 June

149

101

48

00 May

155

101

54

00 April

140

93

47

00 March

150

95

55

00 February

168

97

71

00 January

178

102

76

99 December

174

102

72

99 November

148

91

57

99 October

139

91

48

99 September

160

99

61

99 August

149

96

53

99 July

166

100

66

99 June

146

87

59

99 May

163

98

65

99 April

168

100

68

99 March

151

95

56

99 February

167

97

70

98 December

141

93

48

98 September

147

90

57

98 June

160

93

67

98 March

161

93

68

97 December

151

92

59

97 September

151

91

60

97 June

152

94

58

97 February

128

87

41

96 November

125

89

36

96 October

124

85

39



 

How much have you heard in the news recently about the Enron bankruptcy and the questionable accounting practices that were part of that situation? Have you heard a great deal, a moderate amount, only a little, or not much at all?

 

 

A great deal

A moderate amount

Only a little

Not much at all

Don't know/

Refused

           

02 Feb

62%

27

7

4

*

           

* Less than 0.5%

 

How widespread do you think the accounting problems associated with Enron's bankruptcy can be found in business as a whole 1) very widespread, 2) somewhat widespread, 3) limited to only a few companies, or 4) an isolated case?

 

 

Very widespread

Somewhat widespread

Limited to only a few companies

An isolated case

Don't know/

Refused

           

02 Feb

20%

42

30

6

2

 

 

How much has the issue of questionable accounting problems affected your own views about investing? For each of the following, please indicate if this incident makes you more likely to put your money in that area, less likely, or whether this incident has had no effect. How about (read and rotate A-D)?

 

A. Stocks or stock mutual funds

 

 

More likely

No effect

Less likely

Don't know/

Refused

         

02 Feb

15%

49

34

2

 

B. Bonds or bond mutual funds

 

 

More likely

No effect

Less likely

Don't know/

Refused

         

02 Feb

24%

57

16

3

 

C. Cash, CDs, or money market funds

 

 

More likely

No effect

Less likely

Don't know/

Refused

         

02 Feb

26%

57

15

2

 

D. Real estate investments

 

 

More likely

No effect

Less likely

Don't know/

Refused

         

02 Feb

26%

58

15

1

 

 

 

Do you think that the issue of questionable accounting practices in business is hurting the investment climate in the United States, or not?

 

 

Yes

No

Don't know/

Refused

       

02 Feb

79%

19

2

Gallup


Gallup http://news.gallup.com/poll/5368/Investor-Optimism-Falls-Amid-Fears-Enron-Problems-Widespread.aspx
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