John Pitera's Market Laboratory Message Board

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Strategies & Market Trends : John Pitera's Market Laboratory

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To: John Pitera who wrote (5565)	2/11/2002 7:04:16 PM
From: Hawkmoon	Read Replies (2) of 33421

Funny thing is I was listening to the local business radio channel on the way home from work this afternoon, and this broker who works for a local firm and specializes in value stocks predicted that Enron was the red flag that will set Congress into motion investigating the abuse of stock option plans to subsidize wage costs, as well as a review of GAAP accounting methods. He mentioned that he could only count about 3 companies on the S&P500 who properly use stock options in a manner that's not detrimental long-term to shareholders equity. Of course, this is a guy who likes railroads, IHP, and FUN, as well as Waste Management, because of the amount of free cash flow they generate, so he definitely has a different perspective from the Henry Blogetts of the world. He essentially echoes the comments of Bill Parish about how the abuse of options will ultimately prove detrimental to a company, as massive dilution takes effect and earnings are diluted. billparish.com And I can certainly see this being the case with companies like MSFT, which will eventually see the faltering economy finally put a pinch on their earnings and cash flow (unless they can unlock some actual earnings from overseas from new markets). And they aren't violating rules under GAAP which permits them to claim deductions against those stock options. So the WSJ article does seem to have some merit in its predictions. But it's likely it will be more about funny accounting standards related to GAAP, than actually finding companies violated some kind of law. I personally believe there's a bull market going on all the time... somewhere. What I hope to do is have the foresight to "catch the wave" with enough time to participate profitably. Hawk

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