BY DR. DONALD MOINE, Ph.D 

On the morning of February 26, 2001, several of my clients and friends e-mailed me a thought provoking front page story in the Wall Street Journal titled "NASDAQ's New Role: Economic Barometer." The article had caught my eye at 6:00 A.M. and after reading it, I just couldn't stop think about it.

What struck me was the opening paragraph which read, "As goes the NASDAQ, increasingly, so goes the economy." The ISI Group, a New York economic consulting firm has found that, 'The NASDAQ has become almost four times more important than disposable personal income in explaining swings in consumer spending."

Obviously the NASDAQ has taken a huge hit. Millions of investors and employees of NASDAQ-listed companies have literally lost a fortune. How are these losses affecting consumer spending and our economy? Have investors and employees taken any steps to insure themselves against these record setting losses? My research indicates that the vast majority of companies traded on the NASDAQ and the investors and the employees of those companies are using few, if any, protective options to soften the punishing 50 percent or more losses that many NASDAQ companies have suffered this past year. Given the importance of the NASDAQ to our country's economic health, consider the positive implications of the wider use of protective option strategies such as protective puts.

The article concludes "�the NASDAQ, for so long the symbol of America's economic exuberance, is now the symbol of the country's eroding confidence. And confidence, the Federal Reserve has made clear, is the key to whether the current slowdown becomes a recession." Could the broader use of protective puts help avoid recessions? The idea is certainly worthy of serious consideration.

Economic Insurance
We insure all of the other valuable assets in our lives -- our homes, our cars, our health, even our lives themselves. Why? Losses are much less devastating and are much easier to manage when we have insurance. Then, why not insure our corporate stock -- the most valuable asset in America? It is possible through the use of protective puts.

Why didn't Lucent, its board of directors, executives, employees, and/or investors insure the value of their shares in the company? When the stock was at $70 a share last year, the $45 put options were incredibly cheap. A $45 put option gives the holder the right to sell the stock at $45 a share during a given time period, no matter how low the stock actually goes. The $30 put options were so inexpensive, the costs of them were negligible. Today the stock is at $12 and change. Do you think the tens of thousands of Lucent employees with now worthless stock options would be more active consumers and investors if they had the right to sell their Lucent at $45 a share rather than $12.59 a share? How about the thousands of Lucent employees and retirees who watched the Lucent stock in their pension plans and 401k' s lose over 80 percent of its value in one short year. Would these people contribute more to our national economy if they had the right to sell that stock today for $60 a share? Of course, and $60 protective puts would have given them the right to do so. Had these stakeholders in Lucent been shown how to use protective options, tens of billions of dollars could have been saved. That money would be in the economy right now, adding to personal savings and stimulating business expansion, product development, growth and consumer activity.

I'm not picking on Lucent. The same story of relative lack of equity protection is currently playing at well over 1,000 U.S. companies. The list ranges from Akamai, Applied Materials, AT& T, Broadcom, Cisco, Emulux, Microsoft, Nortel, Oracle, Siebel, Texas Instruments, Veritas, Worldcom, Yahoo, and hundreds of additional companies in every industry. While some employees and executives at these companies may be using protective options, the volume of put trades reveals their numbers are small indeed. Employees and investors collectively lost well over $1 trillion because they did not insure the value of their equity stakes. Is this unprecedented $1 trillion loss in the net worth of Americans negatively affecting our economy? Obviously. Will it lead to a recession, as the front page story in the Wall Street Journal suggested? I hope not, but at this point a recession is a distinct possibility.

Why was our most valuable national asset left largely unprotected? Directors of major corporations, executives, and investors obviously did not understand how to use protective options or the need to use them. With an increasing number of lawsuits now being filed against major corporations, stock brokers, and financial planners due to poor guidance or misleading guidance, and with the possibility of a recession becoming more evident each day, I hope that the use of this form of equity insurance becomes more accepted and widespread in the future. The good news is that more people are finally developing an understanding of how equity insurance can protect the value of their stock options.

Without at least a small amount of protective equity insurance, "investing" in any stock today is little more than gambling. What Microsoft, AT&T, Edison, and hundreds of other outstanding corporations have taught us is that there is no company so superior that it is immune from a stock blow up. I hope that with more education and the wider use of protective equity strategies, American employees, pensioners, and investors will never again have to suffer a $1 trillion loss such as the one endured this past year. Our country cannot afford it and there is no reason to suffer through it. The Japanese equity markets suffered a much smaller loss in the early 1990's and ten years later, the country has still not recovered. With the range of protective option strategies now available to American investors and employees, we do not have to pay the high price or suffer a possible recession due to a collapse in equity prices.

Dr. Donald Moine is an industrial psychologist specializing in compensation consulting and sales with Association for Human Achievement, Inc. in Palos Verdes, California. Dr. Moine has given seminars and consulted for dozens of major corporations all over the world. He may be reached at DrMoine@aol.com.