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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Freedom Fighter who wrote (1327)	2/23/1999 12:47:00 PM
From: porcupine --''''>	Read Replies (1) \| Respond to of 1722

Wayne, get back to work --!!!!:>

To: Freedom Fighter who wrote (1327)	2/24/1999 8:54:00 AM
From: porcupine --''''>	Read Replies (1) \| Respond to of 1722

Accountants Preparing for Fight on Corporate Mergers Rule MARKET PLACE By LAURA HOLSON -- February 19, 1999 In the first round of what is expected to turn into months of intense lobbying and debate, the accounting establishment is set to consider whether the most favored method companies now use to account for mergers should be abolished. The Financial Accounting Standards Board, which sets the nation's accounting rules, has been seeking comment from investment bankers, corporate executives and others on a controversial plan to limit the pooling-of-interest method of accounting, which allows merged corporations to combine assets and report financial information as if the companies had always been one. To the uninitiated, the proposed change sounds like just another yawnfest best left to pencil pushers. But if adopted, it could radically alter the way mergers are done in the United States. That is because the standards board would like most mergers to be treated as purchases. Under that method, the price above the acquired company's net worth is treated as good will, which must be written off against the acquiring company's earnings, often over several years. The deadline for comments to the standards board was Feb. 15. Most deal makers involved in big-ticket megamergers prefer the pooling-of-interest method. While less than 5 percent of all announced domestic deals last year were done using pooling of interest, the dollar value of those mergers amounted to 52.5 percent of all deals, according to Securities Data Co. Critics of the method say it allows executives to make huge acquisitions and leave barely a trace of what may have been an ill-advised move or an excessive price in the accounting ledgers. Investment banks are concerned that a change in the accounting rules would bring merger activity to a grinding halt. If a merger is accounted for as a purchase, some people fear the acquirer will be unjustly punished by analysts and investors who judge companies and their peers primarily on quarterly earnings per share. Certain industries, like banking, which has strict capital rules, could also find the rules too restrictive. "Any change is sure to have an immediate impact on corporations and investment banks," said Janet Pegg, an accounting analyst at Bear, Stearns. But, she added, "People should understand that it is just bookkeeping." Merger activity should not fade if the tenets of the current boom hold true for the future -- that deals are done for competitive reasons, not because of fancy financial engineering. If the strategic rationale for a merger prevails, industry professionals say, the accounting method should not matter. "The way I look at it, you have to look at what's behind the numbers," said Tim O'Neil, a wireless communications analyst at Soundview Technology Group in Stamford, Conn. "A write-off of good will has nothing to do with whether the transaction is good or not." Besides, the number of cross-border deals is increasing and regulators are more than eager to make United States accounting rules on par with those in foreign countries. "Borders are not borders with trans-country transactions any more," said Lynn Turner, chief accountant at the Securities and Exchange Commission. "For most businesses, even small companies, your business is conducted on an international basis." And the standards board is hoping too that the change will aid investors who want to better evaluate whether a proposed merger makes sense. The mission of the board's review, said Kim Petrone, project manager for business combinations, is to improve the disclosure of financial reports. "Pooling, you could say, masks disclosure," she said. "You don't get full information." But despite the debate expected in the year ahead, changes are far from certain. Analysts say the standards board expects to have a first draft of a proposed rule completed by this summer, which bankers and corporate executives will comment on. Depending on how smoothly that process goes, new accounting rules might not be introduced until the end of 2000. Then deals will still be done, although cash takeovers are likely to reappear in greater numbers. In the meantime, warned Jack Ciesielski, publisher of the Analyst's Accounting Observer, corporate executives can expect to hear a lot of hype from bankers to get their deals done before the new rules take effect. "It's the same old end-of-Western-civilization argument that gets made whenever there is an accounting rule change," he said. "There are players out there who do deals just to do deals. Maybe some of them will go away." Copyright 1999 The New York Times Company

To: Freedom Fighter who wrote (1327)	2/24/1999 11:57:00 PM
From: porcupine --''''>	Read Replies (2) \| Respond to of 1722

"I am far from an expert in Austrian theory. I am a novice...." Imo, you make their case more effectively than they themselves do. "You do not understand it well enough to trash it." You don't need to be an ornithologist to not like the sound of quacking. The AS is an extremist ideology, and that alone invites obliquy. porc is extremely anti-extremist. "I also disagree about whether it has intellectual merit in understanding what's going on in the world and the implications of those actions. I am CERTAIN it does." I made it very clear that I believe the AS does have some merit. I clearly said that Central Bank credit creation leads to suboptimal resource allocation generally and that the Japanese situation, in particular, exemplifies this. Why are you implying that I said it had no intellectual merit? "Economics is a subject that has only marginal value in "value investing" other than to perhaps understand why an economy is performing the way it is in the 'short term'." I must be misunderstanding your point here. As you know, Graham's undertaking was to employ economic principles to acertain the economic value of a company, and buy when its per share market price was safely lower. Buffett perfected the process. That's why Janet Lowe quoted some notable (I wish I could remember his name), who declared "Value Investing is applied economics". [emphasis added] It is a fundamental thesis of free market economics that price and value tend to converge in the long run. Value Investing uses these microeconomic principles in an attempt to ascertain short term discrepancies between price and value. "So it's really not worthy of a long discussion." New readers: Welcome to Wayne's World <g>. Wayne, you have repeatedly put the economic ideas of the AS into play. Yet, when I raise economic issues (e.g., does the production process generate enough income to clear the market of what is produced?), you dismiss economics as having little relevance. But, economic analysis is what distinguishes Value Investing from contrarianism for the sake of contrarianism (buying a security solely because its price has gone down is no more necessarily rational than buying solely ecause it has gone up.) I once heard Peter Lynch say, if one believes the U.S. economy will be in good shape over most of the coming 20 years, one should be in the stock market. Otherwise, one should not. I agree. "It just seems to me that if you truly believe in free markets, (and I know you do) you would not be such a big fan of central banking credit inflation or government intervention for the simple reason that both are not free market activities. Even if the intention is to correct prior mistakes by those very institutions." porc is not a "big fan" of government or industry. porc is a big fan of checks and balances. Beleive it or not, I agree with both the Marxists and the AS as to the nature of the problem. Governments, because of their monopoly on coercive power, are inherently problematic for individual liberty and economic rationality. But, it is nonetheless extremist, unrealistic and dangerous to abolish government, or its role in stabilizing society in general and the economy in particular. Conversely, the institution of private property's narrow focus on individual profit leads to all sorts of human and social ills. But, it is likewise extremist, unrealistic and dangerous to abolish the right of private property. "I have several thoughts about Japan. I am not quite sure how Japan can get out its mess with undo pain. Perhaps they will have to devalue significantly and lower their peoples standard of living to avoid credit deflation. I do not know. I do know this though. It was central bank credit inflation that caused the stock market and real estate bubble back in the 80s that is primarily the cause of the current problems there to begin with. It was subsequent government actions that built all those uneconomical bridges to nowhere, piled up debt etc... trying to jump start the economy for the last few years. It was more central bank credit inflation (attempting to bail banks out from the bubble bursting) that lead to all sorts of overcapacity throughout the rest of Asia as they sought to grow out of the mess. And it was the "Yen Carry" trade in small part that helped cause the financial seizure last year. "10 years of hell for the Japanese has been the result of something that Austrian analysis would have both predicted and prevented to BEGIN WITH. Something that many investment proponents used to cash in on big time when the bubble did finally burst." As I wrote before, the Japanese problem is perhaps the AS's best case. The conflict between the U.S. and East Asia is, in economic terms, the conflict between Capitalism and Mercantilism. The former seeks to maximize the gap between costs, including the cost of capital, and revenues. The latter seeks to maximize asset accumulation -- and the cost of capital be damned. As with any enterprise that essentially ignores costs, bankruptcy is the inevitable outcome. I completely agree that in the latter case, Central Bank fiat credit creation is the fire department spraying gasoline on the flames. And, as the AS would predict, all of East Asia is essentially insolvent. However, I disagree that Japan has had 10 years of hell. On the contrary, the general population has hardly felt the problem, which is the major reason the political will does not yet exist for change. "Hell" is when the government does nothing while panic degenerates into economic and political chaos. " To me understanding and money is already enough merit." porc doesn't understand what that means, but he like the sound of it --'''':>