As liquidity recedes like the tide — with the Dow and S&P 500 remain flat for the year — we are beginning to see who is wearing a bathing suit.
Many firms use special vehicles or side deals to manage revenue and earnings. While markets rise and pricing power exists, this practice can work and work well.
But once liquidity dries up, these once lucrative arrangements don’t have the same power to boost revenue and manage earnings.
Case in point, Valeant Pharma — in the news lately for being compared to Enron — which may have used pharmacies it controlled to stuff the sales channel making profits look stronger than they were.
Marvell Technologies, whose accounting firm PriceWaterhouseCoopers resigned this month over irregularities.
These may be extremes to the lowering liquidity, but you have major US corporations missing on earnings by a mile and this is further evidence that another shoe is about to drop.
It probably won’t be Apple, which reports today, but the stock took a hit yesterday in an odd trade, which goes against recent earnings reporting trading trends.
The balance sheet stress — without the Fed raising rates — is growing and CEOs are scrambling to make numbers so the bonuses stay high.
Its a recipe for a financial disaster, when you don’t put in the footwork and grow sales, but want excellent results.