There are many rules in the world of investing or speculating. One that I like to follow is that:

“Accounting Troubles Equals Sell”

It seems simple but it can be difficult to practice given the emotions involved. One can point to the recent Nortel fiasco to get an idea of what eventually can happen. There is a company that was financially strong (apparently) and was a darling of the tech boom of the late 1990’s. After the bust they started making announcements about restating earnings.


I lost count after the third time as I had long exited any thoughts of being long the stock and I didn’t have the stomach to short a stock under 10. The decline was slow at times and painful until they announced bankrupcy.

GM is another example. Warren Buffett mentioned their difficulties back in the early 1990’s or so and other commentators reflected on their continued death spiral since that time. Yet bankruptcy took until the 2008 credit crises pushed them over the edge.

I predict multiple government bailouts, union fights and heartache for the foreseeable future until some brave politician says enough!

Dubai itself may be a gnat on the world financial trouble coming in at only 90 Billion tops. I hazard a guess that it won’t be the last as now it shows the world that Governments can and do default despite the “implicit guarantees” to the contrary.

Marc Faber in the attached video sums it up nicely.

Enjoy the video and watch the exits!