The Observer from London, Greater London, England • 31

BUSINESS 7 The Observer 10 August 1997 Fancy investing in equities? Tiy a crash course Ben Laurance full 1 per cent of gross domestic product. Now, the award of stock options has no immediate impact on the company's profits, whereas giving a manager a pay rise does: a pay rise to an employee is a cost today; awarding stock options is merely a potential liability. It is probably true that the levels of corporate profitability currently being reported in the US do not fully take into account these potential liabilities. In short, corporate earnings are being overstated. If this distortion were taken out of the system, current US share prices would be even more stretched, and even harder to justify, than they already appear.

The second point has a more melancholy tinge. Private investors have a history of jumping on to the equities bandwagon just at the wrong time. It happened on a huge scale in the 1920s in the US. To a lesser extent, it happened in the 1980s in Britain. Two aspects of this likely (and yes, 1 do believe it's likely) fall have been inadequately explored.

Of course, one can argue until the bulls come home about exactly what event will trigger a crash, its likely size and exactly when it will be. But just take as a working assumption that sooner or later, there will be a sharp fall in equity prices. Then consider two points. First, there is the increase in recent years of the use of stock options in the US to reward senior and in some cases not-so-senior managers. The awarding of options has now become a significant element of overall remuneration packages.

As we pointed out last month, it is reckoned that in 1996 income from the exercise of US stock options (where someone takes up the right to buy shares in their company at a given price and promptly sells the shares at a profit) amounted to no less than $70 billion a unit trust investment by private clients was three-and-a-half times the level seen in the same quarter of 1995. The mere fact that private investors have been prepared to shovel money into the stock market does not mean that there is going to be a crash. One does not cause the other. But what if there is a crash? Those who hold equity-based investments at the moment probably feeling pretty rich and pleased with themselves will suddenly find the paper value of their personal wealth gravely diminished. Imagine, for example, that a crash on Wall Street were to wipe out all the gains seen since the start of this calendar year.

That would cut the vaiue of equities there by something like $2.4 trillion (yes trillion, or million million). This is not a sum to be sniffed at. It's roughly equivalent to $10,000 for every person in the American population. This is scarcely surprising. After all, companies marketing unit trusts, for example, find it easiest to sell their investment products when they have a good recent performance to boast about.

And in 1997, they have had plenty to boast about. In particular, those pushing schemes based on the FTSE-100 have had a spendid story to tell gains of 24 per cent since the beginning of this year: what sort of a savings account could have given you that sort of return on your money? Against this background of strong stock market gains, persuading private investors to put their money into shares has been a cinch. In the US, 1997 has seen investment in 'mutuals' the rough equivalent of unit trusts averaging more than a stunning $4bn every week. The pattern in the UK has been similar, although not quite on the same scale: in the period April to June this year, net And you can bet your last unit trust that such a fall would have a genuine knock-on effect on the real economy the economy where ordinary people do mundane things like buy new television sets, treat their children at the funfair and go out for meals in restaurants rather than simply sitting at home boggling at how rich (or poor) they have become by having the courage to put their money into shares. When the crash comes, it will be nasty.

No matter how the bulls of the market try to juggle their figures, their arguments for buying look increasingly unconvincing. Relative to dividends, to earnings, to cash flow and' to the book value of assets, the prices now being paid for shares, particularly in the US, are increasingly hard to justify. And when the bubble bursts, everyone will feel the effect not just those who have put their money into the market. IT'S TIME to become extremely jittery. As we suggest on the page opposite, the cocktail of circumstances suggesting that there is going to be a sharp fall in stock markets both in Europe and the US hasn't been as rich as this for many a bull-market year.

Lovers of doom and financial gore should jostle for ringside seats: a crash could be a bloody spectacle. Bibiana Boerio is driving unreconstructed males off the road with one of Britain's most glamorous marques 1 TT foot we at Jawmr JOANNA WALTERS IBIANA Boerio was supposed to become a Macy's or Blooming- aaies, dui iouna sne (I CD Bibiana Boerio: 'Once the cars are in your blood it is difficult to get them out again. I couldn't sell soap or Photograph by Gary Calton 'I have a fierce Italian temper. It does not come out very often but I get going if someone tries to take advantage of me. And if you he to me you are in deep In many ways, Boerio is your typical all-American girl.

Her paternal grandfather came to Pennsylvania from the Italian-Swiss Alpine border; her paternal grandmother from the Czech Republic. Her mother's side hail from the Republic of Ireland and Germany. She and her twin sister Juliana are planning a heritage trail around Ireland and Italy soon to search out their roots. Juliana and Bibiana? 'Juliana was my great aunt's name and so my sister, who came out first, on St Patrick's day, took her name. Then it was a rush to find something for me.

The family tracked down a Roman Catholic saint called Bibiana, who has since been purged from the saints' book and is un-likelv ever to be reinstated she likes to drive to Stratford-upon-Avon to watch Shakespeare. Her home is in rural Warwickshire, where she pines for places with a McDonald's on every corner. Or she organises outings that would make many an unreconstructed male's blood run cold: women's corporate golf trips. 'I don't play myself, though. Far too much fresh air in one she said.

'I like the golf buggies, but that's not really the point of the exercise, is The point of the exercise, in fact, is to galvanise women in a niale-dominated corporate world. Boerio has been responsible for setting up women's committees within Ford in the US and now Europe. They are consulted about ergonomics such as seats and driving position and vehicle styling. Boerio and her Jaguar women's product committee helped create the XK8 luxury sports car and the X200 project, the new smaller Jaguar saloon. just could not muster a passion for fashion.

The diminutive American ignored gender stereotypes and humble small-town Pennsylvania ambitions to become the most powerful woman in the British motor manufacturing industry. She is the finance director of Jaguar, a tough job considering the dual tasks of delivering profits to parent company Ford and ensuring the success of the make-or-break 'small' Jaguar saloon, due for launch in spring 1999. Her BSc in textiles and design from Seton Hill College, Greensburg, Pennsylvania, was supposed to lead her to the department stores of Manhattan. But after being bored to death when she tried it one summer she decided to study for an MBA at the University of Pittsburgh and then found Ford. Given her status at the car company and the fact that she is tipped to climb higher, much higher, up its global corporate ladder most people who meet her expect to encounter a gale-force wind.

But 43-year-old Boerio is more maelstrom: high flying, but self-deprecating. Independent, talented and headhunted, but media-shy. She agreed to be interviewed 'for Jaguar's sake' but insists she dislikes being questioned In case I say the wrong thing and get fired'. She is five feet tall and confesses to being terrified of driving in London, but her car is a 50,000 Jaguar XK8 and she packs a punch around the Coventry headquarters of Britain's venerable marque. 'As a woman among the suits you get noticed, which is good if you do well.

If you do not, you cannot hide' 'No one owes Jaguar a she says. 'We have profit targets from Ford, but we develop our cars and are going to make our profits on our She had been at Ford for 18 years, in the finance, product development and sales and marketing departments. Didn't her decision to jump ship when she was headhunted by the pharmaceuticals company prove the theory that number crunchers only care about numbers, not products? Boerio disagrees. She was attracted to the pharmaceuticals company for the chance to work overseas and because the company was developing drugs to treat cancer, a disease her mother has battled. While she was working her notice, the finance job came up at Jaguar and she was persuaded to fly over for a chat.

By the time she had driven around the car park packed with gleaming Jags and Daimlers at the legendary Browns Lane plant and dined on Dover sole with Jaguar chairman Nick Scheele she was back on board. 'Once the cars are in your blood it is difficult to get them out again. I always tell students that they have to love the product they work for. I couldn't sell soap or she said. 'And I did buy shares in that pharmaceuticals company, even though I never took the mm with me carrying the name From the start the twins, who are not identical, displayed striking academic prowess and fierce independence.

Juliana is a chemistry professor and practising Catholic at a university in the Mormon stronghold of Utah. Bibie, as she is known, handed in her notice at Ford after she was head-hunted for a top job in the pharmaceuticals industry. But she was lured over here to try out for the post at Jaguar, and moved to middle England knowing not a soul. When not working her usual 6am until 10pm hours, But Boerio does not see a problem with being a woman who is rocketing up the corporate structure. 'Others blazed the trail before she said.

'As a woman among the suits you get noticed, which is good if you do well. If you do not, you cannot hide. It is not easy for anyone to make it to a senior position in this organisation. You have to take risks good ones, not crazy ones. I want to do a good job and be She reckons that her determination to consult colleagues has prevented her from being vilified as an arrogant Ford suit from the US corporate HQ.

rw rrA-cfeM. (3 GGXMfo SD4iaa Read my lips, win free air miles rig mTtx ut.t, r.Tu m) i IN ANOTHER PART OF THE IIIIIIKIIIIf llllllf II lllllllllllllll Surname: Initial: MrMrsMsMiss: Address: bag in shock. Ernest delves deep into his inner child and mumbles: 'Not talking about you, Miss Jones, sorry. Talking about the latest capitalist con-trick to further subjugate the lumpen while providing the bourgeoisie with an escape route come the inevitable Ernest is virtually screaming with anger now. Satyr wonders if Dudley has a similar effect on everyone.

Ernest continues: 'The imperialist US government is suggesting Americans pay their taxes by credit card and earn air miles. Can you believe it? Imagine the 'I've got loyalty Miss Jones whispers timidly. 'And they work for me. I earned a new toothbrush. She holds up said object and looks like a pathetic interpre tation of the Statue of Liberty.

'But this is snorts Ernest contemptuously. 'People will use their cards to clock up air miles and the credit debt mountain will increase. The rich will be all right. They'll be able to afford their own Lear jets, but the poor will just suffer more as they hop from card to card in a pathetic attempt to juggle the debt which will create a vortex of Now Satyr is a calm individual and, if he was going to be arrogant, might even describe himself as shrewd. So he takes Ernest's polemical soliloquy with enough salt to make the people in Utah sit up and take notice.

Satyr knows that such an idea, which is in the foetal stage of its infancy, is fraught with problems. The main one, as he sees it, is who will bear the burden? Satyr, who reads the papers and is in touch with the Zeitgeist, understands that plastic is not a noun; for certain types of folk, it has become a verb. People rack up debts and then refuse to pay their credit card bills. And given an even greater incentive to cheat the system by using their cards to pay their tax, the risk of credit card fraud is increased dramatically. And no government would want that.

Like a number of Bill Clinton's plans, this one smacks of an idea dreamed up while strolling the links. Big on ideas, short on practicality. Ernest shouldn't worry. None of Bill's ideas catch on over here. Do they? Satyr Advertiser's code: ERNEST, fresh from his week-long sojourn in the Black Country, displays none of the relaxed qualities that Satyr would expect from a man who had spent seven days breathing Dudley's finest air.

Satyr is about to offer a calming herbal infusion to placate his irritable friend, but Ernest explodes: 'It's happened over there and it'll happen here. First rule of globalisation. "Money," said Marx, "was the universal The timing of the outburst is unfortunate as Miss Jones arrives to catch the last of the diatribe. She drops her hand To get information on particular products, circle the numbers below: 01 PEPS 02 Pensions 03 Banks Building Socities The Observer Money Matters Direct If you do not wish to receive further information from Guardian Media Group please tick box MM28.