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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (5565)	2/11/2002 6:09:30 PM
From: MulhollandDrive	Read Replies (2) \| Respond to of 33421

>>History confirms what a lot of stock analysts and investors have been discovering to their chagrin lately -- that burst bubbles and accounting controversies tend to go hand in hand. Accounting scandals and bankruptcies, in fact, are one important reason that it can take the stock market years to recover fully from a bubble. "This is not an isolated event," says Ray Dalio, president of Bridgewater Associates, a money-management firm in Westport, Conn., that oversees $35 billion. "This is something that will spread" as many companies' accounting practices are examined. "Many more stories will come out. The examination will inevitably turn up more cases of aggressive accounting and there will be a penalty for that aggressive accounting."<< John, That make complete sense to me. As stock price multiples went into the stratosphere, it only seems logical that the pressure would be on to make the "e" fit the "p"....

To: John Pitera who wrote (5565)	2/11/2002 7:04:16 PM
From: Hawkmoon	Read Replies (2) \| Respond to 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