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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: paul_philp who wrote (52241)	7/20/2002 12:52:16 AM
From: Stock Farmer	Read Replies (1) \| Respond to of 54805

Paul, I don't understand your position here. You claim that accounting for stock options has no economic impact. Is trivial. But then you assert concern that if McCain's bill passes it could trigger a depression? I know I am abbreviating two posts, and possibly misrepresenting your position, but it seems to me to be contradictory. Either how they are accounted for does or does not make a difference. If it does not make a difference, then then why not let Senator McCain feel good and pass his bill? If it does make a difference, then if changing the accounted cost from zero to something non-zero could crater an entire industry, surely it's not inconceivable that counting the cost of something that is most assuredly not zero as zero would have some sort of boosting effect of roughly the same size but in the other direction? And if the changed accounting does make a difference, which way is closer to the economic truth? The "zero" cost way, or the "nonzero" cost way? And if the nonzero way would trigger a depression, why? The fact is that stock options and their accounting are not a trivial thing. In the last two years, Tom of SEBL fame cashed in options worth a third of what the company earned for all of the shareholders put together in its entire life as a public company. And a third of the shares are outstanding as unexercised options. Poor souls who own the company are getting soaked. Cisco sold shares worth about 35 B$ since 1997. Half of which were options. And earned 8 B$ in profits over its lifetime. After factoring in equity losses in investments, inventory write downs and so on, we could easily expect shareholder equity of 38 B$. Where'd the missing 10 B$ go? Note how big this is in relation to Cisco's lifetime earnings? It's not often one has the luxury to run a business that can afford to spend $10 to earn $8 and be called "profitable". Trivial? I wouldn't say so. There's enough non-cash flowing freely in oppositition to the free cash flow that a lot of economic engines are running backwards. But nobody really notices. Seems to me to be a very big issue.

To: paul_philp who wrote (52241)	7/20/2002 9:23:02 AM
From: JohnM	Read Replies (1) \| Respond to of 54805

All of this is well and good except for one thing. The post-bubble periods that become long term economic depression ALWAYS happen because of reactionary populist government interventions. Paul, We've exchanged views on the FADG thread and I've always found you interesting to read and more circumspect in your views than this quote. Do you really mean that? Or do you wish to qualify it? I take it, the hard version of that assertion, is either that the US Roosevelt administration of the 30s caused the Depression or made it much worse than it would otherwise have been. I've seen the argument made that the structural changes the Roosevelt administration put in place, while improving citizens' lives over the long term, did little to pull the country out of the Depression. Only the start of WWII, did that, so that argument goes. But I've never seen an argument that the Rooseveltian changes either deepened or caused the depression. Did I misread you? And, of course, what does this have to do with G&K investing? Beats me.