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4 Comments
Added by LaFlamaBlanca
August 29, 2013

From the 8/24 commentary about housing: New home sales are recorded at signing while existing home sales are recorded at closing, making existing home sales backward looking. A recent post by Mark Hanson fully explains what's going on - http://mhanson.com/archives/1439

Hanson, btw, has nailed just about every single data point recently in the housing market. For those that follow the housing market, he's one of the best in the business.
Added by rcomeau
August 30, 2013

Good clarification, thanks! That explains why one could go up while the other went down.
Added by rcomeau
December 30, 2013

I'll point out a recent example of a CEO using the asset writedown technique just after taking over a messy company, Blackberry.

In the article above on Earnings - GAAP vs Operating Earnings, I wrote:

"Alternatively, when things have gone bad for a while and let’s say a CEO got fired, when the new CEO comes in, they will typically scrub the books and within a quarter you will see a big one-time write-off on non-performing assets. These large assets are typically set up on monthly depreciation
schedules and that expense is hitting each quarter. If you have a big expense hitting each quarter, and no revenue being generated from it, you are not very profitable. If you write all those non-performing assets down (and now the rules will be bent the other way, so instead of ignoring dead assets, you classify any questionable or marginally poor performing asset as “non-performing”), your expenses (from depreciation) will go down significantly, and in one quarter the new CEO (who got his stock at the lowest possible price be fore the write-down) “APPEARS” to have made the company more profitable on an operating income basis (which ignores the one-time write off). This improvement in profitability is permanent (the part attributable to not incurring the monthly depreciat
ion on non-performing assets), and the company’s stock should begin to rise. Since the CEO got his stock on the way in the door at the lowest possible price, he has probably already made a lot of money, for doing a simple accounting trick."

Then from the news regarding Blackberry, we have:

"December 20, 2013

After posting a staggering quarterly loss on Friday, shares of BlackBerry Ltd. surged as much as 17% after newly appointed interim chief executive John Chen laid out his vision for an attempted turnaround of the embattled smartphone maker.

Shares of BlackBerry tumbled as much as 7% in pre-market trading, shortly after the Waterloo, Ont.-based company posted a landmark US$4.4-billion third quarter loss – or roughly US$8.37 per share diluted — due largely to a series of inventory writedowns and asset impairment charges caused by the company’s declining position in the global smartphone marketplace.

But despite the bleak financial numbers, Mr. Chen struck an upbeat chord during a call with analysts, as he laid out his strategy for BlackBerry, which includes plans to refocus the company on its enterprise user base and a new outsourcing partnership with Taiwanese device manufacturer Foxconn Technology Group.

Investor optimism pushed the stock up throughout the day Friday. New York-listed shares closed up 15%, or 0.97 cents, at US$7.22."

Not bad, CEO makes 15% profit on all the stock he was awarded walking in the door for making a few accounting entries. He just wrote off $4.4. billion of assets and that depreciation expense will no longer hit his books and hurt his profitability. It is a demonstration of how badly the previous CEO failed, that all those assets are considered worthless, and the previous CEO just couldn't bring himself to do it after telling everyone for years that he was taking them to the promised land. Don't believe everything a CEO tells you, some of those guys talk good but fail to deliver.

Of course to really get rich, now the new CEO has to craft a business plan to maximize the value the company offers the marketplace, through internal development, alliances, or improved processes, but he's already in the black. If I had a nickel for every time I've seen this done, I'd have $4 or $5 by now...
Added by Anonymous
December 31, 2013

Rich
Could you write an article about what to expect in 2014? Also of your picks please?

Abe
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