3 April 2009 – The Aleph Blog

Corporate Anorexia

Posted on 3 April 2009 by David Merkel

As I looked at replacement candidates for my portfolio, I ran across many companies with negative tangible net worth.? Knowing that intangibles often have value, I looked for the gap that should exist between free cash flow (earnings, less depreciation, amortization, and capital expenditure) and earnings, and more often than not, it was not there.

Ugh, as a buyside insurance analyst, I often encouraged management teams to not buy back stock, but build up capital against contingencies.? It was a contrarian point of view, and not listened to for the most part.

I understand the troubles that come from managements that keep too much of a reserve on hand.? That’s not the problem now.? In the bust phase of the credit cycle, companies with more reserves do better.? The disciplines that minimize net working capital are worthless now in the bust phase.

As I have said before, the boom-bust cycle cannot be repealed.

Two Boxes. Sixty Pounds. Tiny Type. What Are We?

Posted on 3 April 20093 April 2009 by David Merkel

Box 1: Uh, pardon for the interruption, but we’re going to blog for David while he works on a research piece for Finacorp.

Box 2: Tireless, isn’t he?

1: I wouldn’t know, and neither would you.? We’ve only been here 14 hours.

2: True.? The UPS guy was a hoot when he brought the boxes: “These are heavy, what are they?”

1: Yes, but David had no idea what was going on either.? The expression on his face was priceless as he said, “Uh, not sure.”? Then he took me inside.

2: And then walked out to get me, and he put me on top of you.? Then he scanned the writing on me, and seemed not to find much… then he roared with laughter.

1: Yeh, I heard him say to his wife, “I NEVER thought they would send it.”

2: His wife gave him the usual polite expression of “That’s nice dear,” as she went back to homeschooling one of the kids.

1: Precious, huh?? 22 years of marriage is comfortable like an old shoe.

2: Well, he opened me, and looked at some of the documents inside.? He even commented to one of his kids on the two colors on the documents inside me — blue and yellow.? Perhaps we’re from Sweden, or maybe Ikea.

1: Hmph.? Well, the sender was once worth a lot more than that pipsqueak Ikea, but sadly, is worth a lot less now.

2: Is the sender worth less than ABBA?

1: At this point yes to that as well.

2: Too sad.? Hey, when David opened one of the documents in me, he commented, “Hey, I know that guy.”? Then as he looked further, he commented on some financial data with words I can’t even remember now.? Very obscure.

1: He seems to be able to understand what is in us.

2: Yes, but there is a lot here.? I thought I heard him say, “They could have put this on a DVD, couldn’t they?”

1: I can’t answer that.? I’m related to a bunch of dead trees, and so are you.

2: I resemble that remark.? Wait, resent.? Hey, I am not paper, I am information!

1: You wish.? In all of our bulkiness, finding the important stuff is like finding a needle in a haystack.

2: Maybe David can do it?? He did comment that there was a story here after looking at one document.

1: Maybe.? A company created us, a statute created us, a phone call to investor relations created us.? I have no idea how talented David is, but I am rooting for him.

2: Me too.? Now to all our readers, we have given you enough clues that you might be able to identify the sender, and guess what we are.? What are we? 😉