Good afternoon,
Are we in the “Golden Age of Fraud?” We are according to this money manager, Jim Chanos.
The article is a bit long and discusses various reasons why some stocks may be overvalued. There could be many reasons, but a recurring theme is fudging the numbers. Which isn’t the technical term and may not be illegal, per se, but is usually quite questionable. It was a virtual interview with Mr. Chanos with he in a restaurant in Miami and the reporter in a restaurant in London. As a sidenote, it also includes a description of what each of them ate, which I thought was a neat touch. The article mentions a new term which I had not yet heard, EBITDAC. We’ve all heard of EBITDA, an accounting term which stands for earnings before interest, taxes, depreciation and amortization. The new C represents, wait for it, coronavirus. So now we have earnings before interest, depreciation, amortization and coronavirus. Which essentially allows that companies may estimate what sales or profits would/could have been without corona. Hmmm. That does sound a bit sketchy. Virtual sales and profits are not real. I remember a saying from my early days in finance along the lines of “earnings are fiction, cash is fact.” Which means that companies can manipulate their earnings report up or down as necessary, but not how much cash they earn and/or spend.
I bring this up because lately we have seen many companies jump in price when there is some news report or press release about some future event. For example, a certain electric car company, a former photography firm and/or many biotech firms which may or may not find a corona vaccine. Remember back in the late 90’s when the internet was just becoming a big thing? Analysts were telling us that “eyeballs” or the number of people who visit a site was an important metric in measuring the value of a company. Eyeballs didn’t, or don’t, necessarily lead to sales and thus many companies couldn’t support their rich stock valuations. I’m not saying that we’re in the same situation now, but with some stocks it sure seems like it. So if you’re going to play that game, do it with a speculative piece of your portfolio and like that guy on Hill Street Blues admonished his officers at the beginning of each episode, “Let’s be careful out there.”
The hits just keep coming. The GDP numbers are in for the 2nd quarter, and as expected, they’re terrible.
Of course, this didn’t really surprise anyone. And hopefully that’s as bad as it’s going to get but who knows. This article says there might be more to come
Along those lines, I’ve been getting several questions from clients and friends about what’s ahead for the markets. While not exactly the same question, they all involve some form of “what if.”
What if Biden wins in November? What will happen to the markets then?
What if Trump is re-elected in November?
What if they find a cure/vaccine for corona? What if they don’t?
What if they shut down the economy again?
What if the economy is allowed to open?
What if they play football in the fall? What if they don’t?
And several others like that.
Of course, we don’t know how markets will react to any of that, but we do know that with a properly planned and executed strategy, you’ll be ok in any scenario. If you’d like to discuss some portfolio downside protection and/or what could be some opportunities going forward, give me a call.
I heard some sad news the other day about a terrific bartender at one of my favorite watering holes. A bright, super friendly and very charming younger guy, probably in his 30’s or so, was killed on his way home from work one night. He had left the restaurant after his shift and was riding his motorcycle home when he was hit by a drunk driver. Killed on the spot. Very sad. I didn’t know him well enough to know if he had a family of if his affairs were in order, but what a tragedy. Just serves to remind us all that one day our ticket will be punched and there may not be anything we can do about it. It also reminds us the value of having some life insurance to protect those we leave behind. If you’d like an insurance needs analysis or a review of an existing policy, give me a call.
So the WMR is not completely negative this week, let’s talk about making ourselves healthy so that absent an accident, we can be around a long time. Here are a couple of resources to learn how to boost your immune system.
https://www.health.harvard.edu/staying-healthy/how-to-boost-your-immune-system
Nothing very complicated and fairly easy to implement. Enjoy.
LF26 – “The future ain’t what it used to be.” – Yogi Berra.
Have a great week and stay healthy.
The opinions expressed are those of Michael Acho and not necessarily those of Lincoln Financial Advisors Corp. CRN-3185146-073120
Michael J. Acho, MBA, CFP®
Private Wealth Advisor
---------------------------------------------------
Lincoln Financial Advisors/Sagemark Consulting
1000 Town Center, 26th Floor
Southfield, MI 48075
248-948-5100 direct
248-948-5101 fax
248-933-4339 cell
Michael.Acho@LFG.com
http://lfamichigan.com/page/michael-acho
http://www.linkedin.com/pub/michael-acho/27/913/3a8
If you do not want to receive future emails, please call me at 248-948-5100, or email me at michael.acho@lfg.com or write me at 1000 Town Center, 26th Floor, Southfield, MI 48075.
Lincoln Financial Advisors Corp. and its representatives do not provide legal or tax advice. You may want to consult a legal or tax advisor regarding any legal or tax information as it relates to your personal circumstances.
Please do not send any trading or transaction instructions through this e-mail. They will not be honored or executed. Should you require immediate assistance, please call the Lincoln Financial Advisors Trade Desk at 1-800-237-3813.
Michael J. Acho is a registered representative of Lincoln Financial Advisors Corp.
Securities and investment advisory services offered through Lincoln Financial Advisors Corp., a broker-dealer (member SIPC), registered investment advisor and an insurance agency. Insurance offered through Lincoln affiliates and other fine companies. CRN-2567394-060419
See Lincoln Financial Advisors (LFA’s) Form CRS Customer Relationship Summary, available here, for succinct information about the relationships and services LFA offers to retail investors, related fees and costs, specified conflicts of interest, standards of conduct, and disciplinary history, among other things. LFA’s Forms ADV, Part 2A, which describe LFA’s investment advisory services, Regulation Best Interest Disclosure Document, which describes LFA’s broker-dealer services, and other client disclosure documents can be found here