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Strategies & Market Trends : MDA - Market Direction Analysis
SPY 665.67-0.9%Nov 17 4:00 PM EST
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To: Gersh Avery who wrote (65570)1/2/2001 2:14:44 AM
From: Yorikke  Read Replies (1) of 99985
 
In the context of investment income one should also consider the recent ruling that Goodwill need not be Amortized in many buy-outs. (Assuming here that buy-outs are the ultimate investment.)

Not only will investment income be down, but the actual values of the 'noncash' assets of recent buy outs will be far less than stated on the books of the firm. (If one paid 'over market' prices for a firm in an industry where its competitors are suddenly valued at half their previous share prices--what does that do to the buy out valuation?)

The goodwill will not only be overvalued; but, according to the new rules, need not be written off; and in some cases amortized amounts can be reclaimed!

This creates a situation where the Asset valuations will be far in excess of actual or real values; and where serious problems can be 'hidden' even deeper in the footnotes, if anywhere.

The coming months will see some 'reversals' and 'deletions' of previous goodwill expenditure. How this impacts the next few quarters results will be interesting to see. It will mean another layer of fluff to wade through to really see the truth in the Income Statement and Balance Sheet.

Given the quick bottom line orientation of many in the media and investing public, and the difficulty of ferreting out this kind of sleigh of hand, it will likely mean simple acceptance of the more positive income numbers.

CPA theorists seem to have decided that Balance Sheets that resemble houses of straw are acceptable. Time will likely prove them foolish little piggies.
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