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Strategies & Market Trends : Stock Attack II - A Complete Analysis
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To: Lee Lichterman III who wrote (12248)7/20/2001 1:16:59 AM
From: Berney  Read Replies (1) of 52237
 
I've had two macro concerns rolling around in my head for some time.

First is the Corporate current ratio. Management has been practicing just in time inventory for some time. I've been concerned for several years that they were moving to just in time financial management. Last I saw, the average current ratio for the SnP was 1.2 ($1.20 in current assets for each $1.00 in current liabilities). An average is just the best of the worst and the worst of the best; many of the SnP companies have a current ratio less than 1.

Second is the fact that, if these stock prices are so depressed, why don't seem to see the buy back announcements that one would expect IF the companies believed that 1) this was the bottom, and 2) the companies are comfortable enough with their cash position going forward to fund a buy back program. As an accountant, I long-ago saw a quote that indicated that accountants get you to focus on the wrong issues. Businesses don't go out of business because they have a negative EPS. They go out of business for one reason and one reason only: They run out of cash. We keep hearing that this down trend in business is: 1) unprecedented, 2) unexpected, and 3) undeterminable in scope.

I could go on, but the bottom line is that I believe that these two issues are related. Until corporations implement a buy back program to break the backs of the shorts, the cycle will continue. I have to assume that they are smarter than me and, equally, recognize the obvious. Therefore, the fact that they don't is a loud enough message: they have implement a survival mode strategy.

Just a View from the Swamp

Berney
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