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Technology Stocks : WCOM
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To: SofaSpud who wrote (9003)2/4/2002 12:54:16 PM
From: Rob S.  Read Replies (1) of 11568
 
That is scary. And the public is finally coming to realize that they cannot trust the basic financial institutions that are supposed to assure valid financial statements. Faith in U.S. equities is facing a crisis. Worldcom and much of the market is a "house of cards" because they are betting debt and other encumbrances against gains in the future. The investment gains Worldcom has relied upon in the past are questionable. The $49 billion in intangible assets that WCOM has accumulated over the past several years is probably largely worthless. When the basic supply/demand picture is such that prices plummet and there is fear of the situation getting much worse before it gets better, there is absolutely no floor on how low Worldcom can go. The $10 billion in cash can disappear quickly if cash flows erode further. If you tried to liquidate the company at this point the bottom line number would be boldly in red. The argument that the company is more than a more conservatively construed balance sheet, that future cash flows matter, may itself not matter if over the next few quarters the company is forced to tally up. In the balance of the near term scenario, Worldcom is almost certainly busted. It will take a firming up of the competitive landscape for prices to stabilize. With so many competitors freeing themselves of their debt burden through bankruptcy, the problems to the downside look likely to grow worse than get better. So the question may not be what an analysis would show WCOM is worth two or five years from now, but whether it can survive at all for the next 12 months.

When you build your house with a pile of sticks, be careful it doesn't come crashing down in a gale.
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