Today is the 10th anniversary of Lehman’s September 15, 2008 bankruptcy filing. Below are the anniversary dates for other four of US’s five largest brokers as of January 1, 2008. All five shared a common trait that Enron had prior to its sudden bankruptcy filing. September is also the 11th anniversary of my Equities Magazine “Have Wall Street’s Brokers Been Pigging out?” article in which I told all of my readers to get out of all five.
- March 16, 2008-Bear Stearns acquired by J.P. Morgan Chase.
- September 14, 2008-Merrill Lynch acquired by Bank of America.
- September 23, 2008-Goldman Sachs rescued by Warren Buffet’s $5 billion investment.
- September 23, 2008-Morgan Stanley rescued by Mitsubishi Finance’s $9 billion investment.
Each of the five had been diagnosed as having a common bankruptcy trait shared by Enron which I had discovered in 2002. The sudden collapse of Enron in 2001, compelled me to perform an autopsy on the company and its financials. It’s especially since:
- At 10/18/01, all 15 of Wall Street’s analysts rated Enron a “buy” and when it filed for bankruptcy in December 2001, there was only one sell rating.
- Fortune Magazine had named as “America’s Most Innovative Company” for six consecutive (1996-2001) years
The chart below depicts the share price of Enron, “the Tesla of the 1990s” and also its Earnings Per Share (EPS).
Enron’s filing for bankruptcy with its EPS at an all-time high was shocking. I had founded a startup, StockDiagnostics.com which had developed the software to identify financial statement and trading pattern anomalies of public companies. The software was utilized for my deep research dive into Enron’s financials. My hope was to discover what could have predicted and prevented its demise. After discovering the key trait, it was back tested against the financials of more than 100 US companies which had gone bankrupt over the previous five years. They included Sunbeam which had also declared bankruptcy under circumstances which were eerily similar to Enron’s. The trait was then programed into a predictive algorithm which was named “The EPS Syndrome”. Beginning 2002, the syndrome was utilized to predict the bankruptcies of some of the US’ most visible and seemingly healthy public companies. Beginning in 2007, five of the US’s largest brokers including Lehman Brothers had multiple diagnoses of the syndrome in the quarters leading up to the 2008 financial crisis debacle. The video below which is about “The EPS syndrome” includes Lehman.
The charts which depicted the diagnoses of the “The EPS Syndrome” that were used to make the predictions for the five brokers in my September 2007 article are available under the “Negative Cash Flow Research” category at BullsNBears.com. See also “About ‘The EPS Syndrome’ and how it was discovered”. The syndrome is utilized to identify short selling opportunities for the shares of publicly held companies only after a Secular Bull market has peaked and the birth of the Secular Bear market has begun confirmed. The end of Secular Bull is the ideal time to enter into a short selling strategy for the following reasons:
- Accounting gimmickry is overlooked by most professional investors at the top of a bull
- Many of the IPOs which occur at the end of a secular bull have weak and unproven business models which produce earnings which have weak or negative cash flow from operations
The gains for the first three years after end of a Secular Bull can be significant. From 2002 to 2004, a subscriber of StockDiagnostics.com was able to turn $50,000 into $2 million from utilizing a put parlaying strategy. The short recommendations will be integrated with the strategies which are available at AlphaTack.com.