Don't Forget the Second Part

Having a one time transferable note will facilitate the delivery of assets to people who will service those assets.  Back when I discussed this the first time, I likened it to putting out a camp fire with one of those airplanes that strafe water, but now the campfire has spread and it may be the last resort.  Remember, what follows isn't a system to get rich, it's a plan to restore stability, predictability.  Importantly, writing down unrealized future interest ranks far superior to putting hundreds of thousands of families on the streets and onto the federal government's subsidy programs, their departure from which grows increasingly unlikely the longer they are enrolled.

The greatest shame isn't the idiocy that put this country here in the first place, rather the fact that the People's representatives first moved to protect the system, the elite, the way it's always been, rather than taking the opportunity for extreme measure to raise the country up.  Now we've got "moral hazard" at the corporate office, and somehow, that's better than in the hands of the minority who would not know how to wield it.

Click to enlarge.

Say what you want about financial firms, if this economy is built on consumer spending, consumer shelter and financial indoctrination are truly the cornerstones for our future.  Some rich assholes rolling paper over do not add to the economy, they "grow the economy" through interest on fractional banking.

Trading Rules

Disclosure.  The following list contains some original content, as well as a good deal of material that I simply wrote down because it sounded good.  Here's a raised martini to the inventors of the copied content.

• When looking for trend reversals start with low beta names.
• When a new macro trend is set deploy into small cap reversion.
• Do not trade options before 345 if intending to hold overnight.
• Most of your money is made when the markets are closed, through preparation.
• Remember that institutions are cumbersome, press investments until the chart makes a blowoff.
• When a stock closes at or near the high of the day on volume, think about taking half overnight.
• Do not miss a good trade over penny pinching the execution, pick good spots and pull the trigger.
• Scaling is the only way to trade unless a major macro move is on.
• The longer a sector non-leader defies comparable intraday gains/losses the larger the reversion candle will be.  (Attributable to ETF rebalancing?)
• Try to determine early on if the issue at hand (stock or market) is in for a trend day or a range bound day.
• Always be accountable for your plan and always hold your plan accountable for its results.  Existing conditions factor into the plan, they are not excuses for its failures or successes.
• Fade the loudest crowd in a counter-trender on any scent of a reversal and reversion to the broad market.
• When in doubt, palms out.  (Love that, just saw it on Twitter a few weeks ago.)
• Create a risk limit before buying.
• Do not overnight uncertainty.

The Whatever Bro Award

After beefing their 2q2010 to the tune of (0.84) per share against the expectation of only a 55 cent loss ZION ran over 10% in three days to close the gap left by that train wreck they called earnings.  They also announced a penny per share dividend as of last Friday.  How kind.

Charting.  Down trend remains intact until the $23 level, which also happens to be the present location of the 50 dma.

As a bottom picker, the weekly chart actually looks good for a shot if you can get past their consolidation of loan assets in the Western sand states.  These things aside, I have resolved to hate super regional banking into the core of my soul.  They're all telling bald faced lies in collusion with the same Fed and SEC that charged Goldman with failing to accurately disclose.

This blog post serves no purpose but to highlight the fact that this past week's run has been an equity grab of cosmic proportions.  Squeezing shorts may bring nice appreciation over the short to medium term, but eventually there better be fist behind the mouth.  For anyone feeling brave, or perhaps suicidal, Ford just hung two consecutive gapped candles into the nether regions outside of two standard deviations on the daily.

Quick and Dirty Market TA for 7.26.2010

In this edition of the Q&D I have divined some analysis from the SPX chart since everyone loves to talk about it so much.  As always, images can be clicked to enlarge.  Behold:

Friday's candle closed inside of an existing range, and signals a potential revisit to the lower side.  Quite a few Twitterers feel that present conditions warrant an overbought reversal, and should retrenching occur I'd be looking for support around 1065.  However, the weekend press feels quite bearish, and short covering adds the power needed to wipe out old resistances.

An aside.  The reason I prefer charting the DJI lies in the fact that the larger, lower beta components of the Dow better indicate institutional money flow, in my view.  Last Friday's candle on this index closed above two downtrends I have been charting, as well as above the 200 dma.  These in addition to its MACD which also made a decisive move off the zero line over the last 3 days of last week.

Returning to the SPX, see the blue boxed MACD making a nice series of increasingly tall bars in the histogram and with a good angle on the signal line when taking out the zero.  If the market wants higher, I feel like we need to open at or above Friday's close and put in another full bodied candle or two before back-testing the 1102 level.  The confluence of 200 dma and 2 standard deviation Bollinger indicate clear resistance at the 1113-1115 level.

Going back to the Q&D for 5.24.2010 take a look at the DJI weekly.  Presently we see a curling under of the MACD on the DJI weekly here, and a weekly close right at the 10430-ish area that marks the top of a developing resistance area.  Here again, the angle of incidence on this indicator says time to put in a weekly candle above 10434 with an objective toward 10610 over the next few weeks to months as we put in our next lower high.

Many, many stock specific charts have set up with individuals beginning to go off like bottle rockets.  For now, I've got the consolidation scanner at the top of the daily checklist, especially favoring those right angled ascending triangles like the one FNSR broke out of last week.  Props to @ldrogan and @downtowntrader for picking up on that one just days before it exploded.

Good luck.

Notes to El Presidente (0)

Found another email that I had sent to President Obama this past spring, March 8th, 2010, to be exact.

President Obama - 

While "spreading" aid in the form of government stipends and mandated earmarks for housing relief, please consider how the fiscally responsible feel. 

I grow ever more weary of my federal tax dollars going anywhere but for causes of the preservation of global democracy. 

Like pigeons, giving free aid simply for the idiot to arrive and take breeds and positively reinforces laziness. We have seen this for years in medical malpractice and workers comp suits whereby the marginally employed (abuse the system and) take the hard working to the cleaners. And again we see this with food stamps where having greater numbers of illegitimate children rewards the bearer with increasing handouts all at the cost of the common tax paying man. 

I feel like I see in you a pragmatist, though your agenda is railroaded by pandering to Wall Street and your increasingly liberal Democratic Party. 

There come times when the government must admit its fault. Now is that time. The GSE's need to exercise every contractual ability to return falsified mortgages to their original preparers and let the banks solve these problems on their own. 

If the banks feel they can sit on all of this shadow inventory and come out ahead, let them. 

Generational changes such as fiscal responsibility do not come from fringe pain, they come from deep, personal regret precipitated from personal action. 

Action > Reaction > Lesson, in that order.

Now that almost five months have passed, emergency unemployment just got extended again, FinReg is [string of expletives] over complicated, misses point, fails to act in a practical time period, and the GSE's became fully nationalized, I suppose I got my answer on whether or not he reads these emails...

Green Lining: Will Cloud Conversion drive a new Tech Bubble?

Stayed up too late last night going over the changes between Citrix's 2008 and 2009 Form 10K's and experienced a lightbulb moment.  Given that:

• Tech is one of the few sectors that the United States still leads,
• large companies have enormous sums of cash on their balance sheets,
• near to medium term economic reticence leaves these companies seeking more avenues to streamline,
• stupid shit like NFLX are finally starting to give up their Nasdaq "leadership" roles,
• and that The Cloud is an important technology still young in its wide acceptance,

could we not expect the tech sector, to be even more stretched due to reallocation into this last bastion of growth?  While it may seem that widespread recognition has already occurred given the PE's of companies like FNSR, CTXS, JNPR, FFIV, and VMW, their market penetration has only just begun.

As we remain in a buyer's market, smart enterprises, like smart people, will continue invest in themselves,  laying the foundations for future growth, before gambling with uncertainty.  I like tech here but make sure to keep tabs on market share data.  Some segments have begun to get crowded and there will be winners and losers, first though, widespread recognition of the trend must occur after more companies perform handily in this blood bath of a market.

The White House - Presidential Correspondence (1)

In a nod to the tough task of sending an email without ending up on someone's spam list I received the following today from, noreply-WHPC@whitehouse.gov:

Dear Friend:

Thank you for writing me. Each day, I hear from concerned Americans who are struggling in this economy.  Their stories encourage me to work harder to ensure every American can find a good job so they can support their families and their communities.

I have listed below just a few of the actions we are taking to help hard-working American families get through these tough economic times.

CREATING JOBS AND GROWING OUR ECONOMY

My Administration has taken critical steps to get us back on our feet. Our economy is growing again, and last year's flood of job losses has slowed considerably. These are good signs for our future, yet they are little comfort to those who are out of work or struggling to keep their home. We are working tirelessly to push our recovery forward and promote economic growth, accountability, and transparency. To follow developments and track local projects, visit: www.whitehouse.gov/issues/economy and www.recovery.gov.

ENACTING TOUGH WALL STREET REFORM

There were many causes of the turmoil that ripped through our economy over the past two years. But above all, this crisis was caused by failures in the financial industry. It could have been avoided if Wall Street firms were more accountable, if financial dealings were more transparent, and if consumers and shareholders were given more information and authority to make decisions.  But that did not happen. Special interests have waged a relentless campaign to thwart even basic, common-sense rules-rules to prevent abuse and protect consumers. In fact, the financial industry and its powerful lobby have opposed modest safeguards against the kinds of reckless risks and bad practices that led to this very crisis.  The consequences of this failure of responsibility-from Wall Street to Washington-are all around us: 8 million jobs lost, trillions in savings erased, countless dreams diminished or denied. We must do everything we can to ensure that no crisis like this ever happens again. That is why I am fighting to pas set of Wall Street reforms that would put an end to taxpayer bailouts; bring complex financial dealings out of the shadows; protect consumers; and give shareholders more power in the financial system. To learn more, I encourage you to read my April 22 remarks given at Cooper Union, just a few blocks from Wall Street.

ENDING CREDIT CARD COMPANY ABUSES

My Administration is also working to help Americans who have had their credit lines reduced orinterest rates increased without clear justification. Last year, I partnered with Congress to pass the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act. This landmark law took effect in February, and promotes greater fairness, transparency, and accountability in credit card practices. It requires companies to inform credit card holders of payment timetables and accrued interest, and it ends retroactive rate hikes and sudden changes to terms and conditions. To read more about CARD and how it affects you, please visit: www.whitehouse.gov/the_press_office/Fact-Sheet-Reforms-to-Protect-American-Credit-Card-Holders and www.whitehouse.gov/issues/economy.

These reforms will have a tangible impact on the ability of American families and businesses to achieve their goals. For information on credit and consumer protections, please visit: www.hud.gov/foreclosure or call 1-888MYMONEY.

ASSISTING HOMEOWNERS

Many Americans are also struggling to stay in their homes. Access to the American Dream is being tested by a mortgage crisis that threatens the stability of families, neighborhoods, and our entire economy. While many Americans have received help, far too many are still unable to refinance their mortgages or obtain loan modifications. This crisis has not only hurt home values nationwide, it has also had a dramatic effect on the credit Americans need to purchase cars, pay college tuition, and grow small businesses.

For assistance with a home foreclosure or to find a local housing counselor, I encourage you to call your mortgage servicer directly, speak with a housing specialist at 1-888-995-HOPE, or contact the Department of Housing and Urban Development at 1-800-569-4287. You can also visit www.hud.gov/foreclosure or MakingHomeAffordable.gov.

HELPING STRUGGLING FAMILIES

As our economy recovers, we must continue to help those who are losing their jobs and struggling to pay their bills. Every day, I meet with my economic advisors to make sure we are doing all we can to create good jobs and help Americans support their families and pursue theAmerican Dream. My Administration is helping Americans return to work by emphasizing job training in industries that cannot be outsourced. Recently laid-off workers receiving unemployment benefits have new opportunities to pursue higher education and job training programs, including easier access to Pell Grants. To encourage job creation in the United States, I am replacing tax laws that send jobs overseas with new incentives to create them here at home. Available assistance can be found online at:  www.dol.gov/recovery/implement.htm or www.Opportunity.gov. 

Together, we can help more Americans find and keep good jobs and enjoy a healthy standard of living. To locate an employment center near you, select your state at: http://www.dol.gov/dol/location.htm. For information on benefits and opportunities for those out of work, I encourage you to visit: http://www.dol.gov/dol/audience/aud-unemployed.htm. To find career resources, you may call 1-877-872-5627 or visit: www.careeronestop.org.

While it will take time to turn our economy around, I am confident that we will emerge from this crisis stronger than before. For more information on jobs, health benefits, housing assistance, and other public resources call 1-800-FEDINFO or visit: www.usa.gov. Thank you again for writing. 

Sincerely,

Barack Obama

Please bear thee in mind that this letter came in response to my Notes to El Presidente series with installments found here, and here.  Commentary on the above letter to follow.

Disclosure.  Apparently the press corps still uses teletypes because the above came in courier text without formatting of any kind.  Any errors or omissions are likely mine as there were hard returns and spacing through out the debacle.  That said, I took a speed read over the body of the edited version above, and the ideas appear to be communicated in whole as intended by the original text.

Restoring Urgency

In an increasing interest rate and dropping unemployment benefit environment, a real world clamor should arise as Americans angle to lock in the maximum benefits afforded under crisis conditions before spigots close for good, or at least for now.

Ingenuity often derives from desperation, and while desperation without hope can do irreparable harm, triply redundant safety nets disincentivize effort and risk entirely.  Likewise, if a comfortable living can be made off of unemployment benefits, there exists no reason to wake up early and beat the streets.

Untenable decisions shall soon be made, perhaps later than hoped, but the backlash against reckless spending by a government living in ways that its citizens have proven dangerous, coupled with mid-term elections mean that nigh looms our Age of Austerity.

This Age lays the foundation for revival.

I'll be watching deposit trends in regional banking as well as keeping some news-flow shorts handy.

The 50 week moving average presently sits at 10213, with the 21 week moving average at 10491, and the lower Bollinger is about 9687.  Values in most names, especially financials, continue to look expensive.  Manage the difference between headline news quoting time frames for "normalized earnings" against mark-to-market accounting and other reporting trickery.  When employment materially improves, expect personal financial retrenchment in earnest, and only then would I believe that credit losses had seen their trough.  For now, companies keep their middle of the pack earners working full throttle/hammer down without raises, in order to "streamline" most effectively.  A few more months of this in a somewhat stable market environment should see turnover beginning to increase, and overpaid workers as indexed by internal corporate ratings should see their departure replaced with cheaper parts.

The bourgeois has shown us that they are back in black and free to spend.  I wouldn't bet against the high end going forward.

I really wish Barrons hadn't come out in favor of Google over the weekend as those goofballs have supplanted Jim "Krammer" Cramer in terms of group-think and fishy timing.  One thing's for certain, both Krammer and Barrons blow medium term trade planning out of the water, and are reliable contrarian indicators after the intermediate retail pop.  For now I hold a starter pack with a covered call against, with high expectations for the Chrome OS to be launched sometime the second half of this year.  If Chrome OS performs anything like their browser expect sleek, speedy performance, built on an instinctive, handy, and customizable frame.  I will not be a first adopter, but expect to get involved with a late first or early second edition.

Have a good week.

The Finer Living Segment (1)

As I sit here enjoying a vodka martini mixed Trocktini Style, I recount all past entries into The Finer Living Segment, including:

• .270 WSM ammo;
• Monopolowa Vodka;
• Vizio Razor products;
• ErgoHuman ME7ERG.

If you love yourself, and if you have earned it, please take care to enjoy the finer things in life.

Trocktini Recipe

• 1 ea. low ball tumbler;
• 6 ea. full sized ice cubes (or equivalent volume of ice);
• Monopolowa Vodka to cover ice (ice should barely float);
• 1 tbsp. Manzanilla olive juice;
• 4-6 ea. Manzanilla (bar olives) with pimentos;
• 1-2 ea. drops Martini & Rossi dry vermouth.
• Directions:  Place each ingredient, in order, directly into tumbler and swirl upon final addition, using wrist-action.  For best results, let rest for one to two minutes to let ice melt balance flavoring.  Swill at leisure, and at length.

Disclosure.  All credit for the Trocktini goes to the one and only Trock.  The Trocktini does not recognize any other than Monopolowa Vodka.  Any substitutes to the recipe cannot be guaranteed for tastiness.

Bulletin Board Skepticism

For anyone that doesn't know by now, I came up through the Bulletin Boards.  Most folks with a formal education and dedicated careers, and trading with an ethical bent, avoid the OTCBB and Pinks with the kind of physiological aversion developed by girls after spending months on the school yard hearing ghost stories.

Everything you hear about these exchanges are true.  They are the wild west, they are illiquid, they are scummy, and they are scammy.  These exchanges are also exceedingly honest.  If you're looking at a stock and it stinks, you're going to go broke holding too long.  If you're looking at a stock and it seems too good to be true, it is.  Effectually, these exchanges contain the unfiltered truth behind every stock seen around us, because the leadership most likely hasn't been indoctrinated into the Wall Street culture, and therefore, infrequently understands how to maintain a ruse longer than a couple of capital raises.

Trading over-the-counter sharpens what should be an already innate skepticism toward the world for people who deploy their own money.

If I could prove that someone sponsored Monsanto's recent multi-million dollar insider buys then I'd be able to short without regard for price action, however, that's simply not the case.  On the other hand, one has to make sense of the information given.  Namely:

1. Management has been completely caught off guard by the patent expiration of RoundUp;
2. The tone of the most recent conference call sounded confused, and uncertain;
3. The company remains heavily involved in anti-trust and patent litigations;
4. The company has committed to buying back shares.

Those are some big cannon balls to dodge if one's going to buy shares.  Item 1 goes to the case of single minded, institutionalized, management.  Item 2 is purely a developed sense that I trust.  Item 3 never looks good for future price action based on unreasonable expectation of stability.  And Item 4 never happens except with the express purpose of trying to arrest share price declines, assuage analysts and large institutional holders, and/or goose CNBC into giving some Kramer Koverage.

You can't put all your faith into balance sheets anymore, the convolution of rules has made it next to impossible to stay ahead of all the ways to find the fraud they hide.  On top of that, the government passed legislation all but requiring banks to irresponsibly under-state the loss risks they face.

This short post isn't meant to bag on MON in particular, there are plenty of other righteously overpriced doo doo equities out there (STI, RCL, COF ...).  No, I would like to emphasize that folks should look past the ties, slick hair, SAT words, and seemingly good news in order to locate logic, knowing for certain that corporate executives care about one person alone, themselves.

Good luck.

Disclosure.  I passionately dislike all stocks mentioned in this article, but own none of them long or short as of the time of this writing.  I have traded them all short at various times over the past 3 months with varying success, and will likely continue to do so.

Editorial: Missing the Point

Mortimer B. Zuckerman (does anyone know or care who that is?) became the latest corporate scumbag to ascend the media soap box yesterday in an Op-Ed piece entitled Obama Is Barely Treading Water.  Who doesn't derive great joy from bourgeois pontifications about serfdom sentiment, right?  But after Mr. Zuckerman states obvious point after obvious point and statistical "fact" after statistical fact with no punchline at all, one is left to wonder his angle?  Below, a sampling:

A year and a half ago Obama was walking on water. Today he is barely treading water. Then, his soaring rhetoric enraptured the nation. Today, his speeches cannot lift him past a 45 percent approval rating.

There is a widespread feeling that the government doesn't work, that it is incapable of solving America's problems...They are outraged and feel that the system is not a level playing field, but is tilted against them. The millions of unemployed feel abandoned by the president, by the Democratic Congress, and by the Republicans.

The American people wanted change, and who could blame them? But now there is no change they can believe in.

The fundamental problem is starkly simple: jobs and the deepening fear among the public that the American dream is vanishing before their eyes...Some 6.8 million people have been unemployed in the last year for six months or longer. Their valuable skills are at risk, affecting their economic productivity for years to come. Add to this despairing army the large number of those only partially employed and those who have given up their search for work, and we have cumulative totals in the tens of millions.

Millions cannot make minimum payments on their credit cards, or are in default or foreclosure on their mortgages, or are on food stamps. Well over 100,000 people file for bankruptcy every month.

Some 25 million jobless or underemployed people now wish to work full time, but few companies are ready to hire. No speech is going to change that.

The promise of economic health that might salvage industries and jobs, and provide a safety net, has proved illusory. The support for cutting spending and cutting the deficit reflects in part the fact that the American public feels the Obama-Congress spending program has not worked.

Apparently, Mortimer's unfamiliar with the common corporate party line that one should not complain unless one has suggestions on how to fix it.  Had Mort embraced the notion of our crumbling structure based on Western Financialism, made a few salient suggestions, or even plead a cause it may have been excusable for an elitist purveyor of "Class A Properties" (from Boston Properties' website) to appeal to the masses in the manner undertaken, yet he did none.  For the above reasons this writer must believe that the piece was constructed solely for the purpose of snuggling up to the incoming Republican Congress with hopes of getting into the negotiations on how commercial real estate can be saved.

Populism for profit, nothing more.

Should Gold be Compared to the Indicies?

The following musings relate to James Altucher's WSJ blog post from today, Why Gold is the Worst Investment Right Now.

First, and most importantly, I respect James Altucher's opinions even if not always agreeing with them.  He has made some incredible calls over the past 18 months, not the least of which was identifying Genworth as a potential 20 bagger when it traded for a dollar and some change.  However, I do not believe one can accurately compare a single asset like gold to the Dow, an index of companies regularly rebalanced in order to insure that the quality of the underlying meet the standards of the name.  As long as there is money in the game the Dow performs as a self-fulfilling response to belief in the confidence that underpins the equity markets, and indeed, our entire economy.  Further, forecasting from historical performance analysis inherently reduces the bleakest outlier risk metric to zero since there came no events large enough to completely wreck the system.  If gold were only a rock, an asset naked of inherent value, it would have held, or decreased in time adjusted pricing over the quoted periods.

In the past I have described my sentiments toward gold as "insurance against the insurance."  You can buy stocks or bonds, and you can buy CDS or option strategies against them for protection, but what happens during a world-wide strike against confidence in the buying power of paper currency?

We, he and I, can agree that gold seems silly when compared to arable land, survival skills, or well preserved food in the above instance, however, if philosophizing about end-times I charge that one should consider the operant conditioning associated with trading in currency, rather than straight-up barter.

To James gold may be the worst investment right now, but I speculate that the pace of information flow correlates to the speed at which civilizations rise and fall.  With fiber-optic cables we now move information worldwide at the speed of light, where in 1972, radio waves over concentrated areas were the first source of news.  According to my own logic then, outlier risk is actually increasing while Mr. Altucher makes the case against the metal.

If given the choice between a wholly owned house and hunting skills, or four-score bars, give me the former, but let me know who took the bullion ... just in case.

A Bit of Fatherly Advice

Dad and I maintained a "business relationship" throughout childhood.  A sort of pseudo-boss whose tutelage centered around an affinity for parsing action with skepticism, and perpetual armchair quarterbacking.  He inspired detailed cause/effect analysis and successfully passed forward a none too subtle disdain for group think.  We used to joke a bit, but there never came a time when our roles got confused ... until the day he dropped me off at college.

We took separate vehicles and caravaned.  Just the two of us.  For four hours I now like to think that the road over which our trucks passed were the first miles traveled under banner of a more complex relationship.  Having arrived, a sort of stoicism strained our two emotions, both knowing that nothing would be the same.  Dad's home would no longer be my home.  A First Mate had taken command of his own vessel armed with the practical knowledge that only a salty old sea farer could teach.  Yes, the training wheels were coming off.

We labored to carry everything up stairs, and ate a late lunch heavily steeped in bilateral feelings of uncertainty, and of change.  After moving everything into the room, Dad and I scoured the vehicles for any forgotten items, audibly rehashing a checklist of essentials:  computer, towels, cellphone, wallet.  Just a few more minutes to spend together, each second cementing the gravity of our mutual milestone.

I remember the spot where Dad shook my hand and passed into one of those handshake slash one-armed hugs that two dudes do so as not to be too emotionally showy.  Then he put a hand on the outside of each arm, just below the shoulder, and looked me square in the eyes.  After a brief pause meant to re-engage my role as concentrating pupil, he stated, 

Before you go off and do something stupid, always make sure to check out her mom.  She'll end up looking and acting just like her in the end.

I laughed a deep, hearty laugh as the weight of the day's emotional taxation briefly lifted.  He smiled and then did something he had never done before, resting a right paw open and to the side of my neck.  Another deep stare.

You're ready.

Challenge your kids, cherish your kids.  Show them the bedrock.

Market Psychology Diagrams by Nigam Arora

While organizing some desktop files just now, I came across two screen caps from Nigam Arora's website, The Arora Report, detailing his perception of the five phases of market psychology on the long and short sides.  Nigam is a sometimes Twitterer using the handle @TheAroraReport, but when he posts his moves, it's worth the time to take have a look.

Disclosure.  Through the above linked website Mr. Arora sells services, none of which I have used, nor is this post intended to promulgate the efficacy or quality of his products.  It's all about the pretty pictures, baby.

Operational Cash Flow per Share

Twitterer @smallcapanalyst came through with another nice read, here.  The piece linked indicates how operational cash flow per share can give a more accurate read on the health of a company than the typical earnings per share reported.

As a barometer of a company's health, OPS is more reliable than earnings per share (EPS), which can be too easily massaged, the brothers contend. A company either has cash or it doesn't. And, as Dartmouth business professor Rajesh Aggarwal notes, operational cash flow "does make adjustments for things like depreciation and amortization, and it takes into account changes in working capital."

Specifically, the gentlemen interviewed in the article, David and Mark Markowski, use the metric to try to predict the early stages of company-specific inflection points.

...a particular anomaly: negative OPS despite a company's reporting of "record" positive earnings. The phenomenon, which Mike Markowski calls "the EPS syndrome," often is the "first indicator that a company may be in trouble," David says.

Make sure to check the article, and if you're not following @smallcapanalyst already, do so without delay.