Financial topics

[Witchiepoo]

Politicians don't try and cause depressions. Not a good way to keep your job.

I think that they really do want to fix what's wrong, but they're just f-ing clueless.

[John]

EARNINGS STATS: BY THE NUMBERS

As of Friday, March 6th:

The blended earnings growth rate for the S&P 500 for Q1 2009,
combining actual numbers for companies that have reported, and
estimates for companies yet to report, fell to -33.1% from -31.4%, due
in part to downward estimate revisions for GM.At the start of the
quarter, the estimated growth rate for Q1 was -12.5%. (Data provided
by Thomson Reuters)

  Date    1Q Earnings growth estimate as of that date
  ------- -------------------------------------------
  Jan  1:              -12.5%   Start of quarter
  Feb 20:              -30.6%
  Feb 27:              -31.4%
  Mar  6:              -33.1%

It'll be interesting to see what happens when actual earnings start
coming out in April. In the last few quarters, growth estimates were
just slightly negative at this point in the quarter, and then they
fell sharply when actuals came out. This time we're starting from
-30%. Does this mean that (a) the estimates are more realistic this
time, and won't fall much farther? Or (b) the estimates are as
unrealistic as ever, and will fall much farther, perhaps to -50%?

Freddy pointed out a couple of days ago that the S&P spreadsheet
shows that they're predicting a P/E ratio of 181 for the third
quarter, based on the current stock prices. At this moment, I'm at a
loss for sufficiently contemptuous words to describe this situation.

But it also means that analysts are still being wildly unrealistic
about what's going on. I hear the same wildly unrealistic remarks on
CNBC and Bloomberg all the time. So, given the two choices above, my
expectation is (b).

Sincerely,

John

[freddyv]

EARNINGS STATS: BY THE NUMBERS

As of Friday, March 6th:

The blended earnings growth rate for the S&P 500 for Q1 2009,
combining actual numbers for companies that have reported, and
estimates for companies yet to report, fell to -33.1% from -31.4%, due
in part to downward estimate revisions for GM.At the start of the
quarter, the estimated growth rate for Q1 was -12.5%. (Data provided
by Thomson Reuters)

  Date    1Q Earnings growth estimate as of that date
  ------- -------------------------------------------
  Jan  1:              -12.5%   Start of quarter
  Feb 20:              -30.6%
  Feb 27:              -31.4%
  Mar  6:              -33.1%

It'll be interesting to see what happens when actual earnings start
coming out in April. In the last few quarters, growth estimates were
just slightly negative at this point in the quarter, and then they
fell sharply when actuals came out. This time we're starting from
-30%. Does this mean that (a) the estimates are more realistic this
time, and won't fall much farther? Or (b) the estimates are as
unrealistic as ever, and will fall much farther, perhaps to -50%?

Freddy pointed out a couple of days ago that the S&P spreadsheet
shows that they're predicting a P/E ratio of 181 for the third
quarter, based on the current stock prices. At this moment, I'm at a
loss for sufficiently contemptuous words to describe this situation.

But it also means that analysts are still being wildly unrealistic
about what's going on. I hear the same wildly unrealistic remarks on
CNBC and Bloomberg all the time. So, given the two choices above, my
expectation is (b).

Sincerely,

John

I can't tell you how frustrated I have become with the dishonesty out there. Take a look at this earnings report by S&P:
http://www2.standardandpoors.com/spf/xl ... EPSEST.XLS

Notice the line that says, "Massive charges warp P/Es (field H33), forward numbers more important - but many investors have a lack of trust in the estimates"

Well, part of that is true. The massive charges that "warp" estimates are unlikely to stop anytime soon and so what is everyone doing? They are using operating earnings so that they can report P/E ratios of 10. But it's not even 10 it's actually 14 at the current level of the S&P 500. As-reported earnings give a current P/E of nearly 52! I am using 700 for the S&P 500 since that is what they base their current P/E ratios on in this report. BTW, the report is updated regularly so it may change at anytime.

The lying about P/E ratios is ubiquitous. Even those who seem to get all the other stuff right are repeating these false numbers that seemt to start out at Thomson Reuters and Bloomberg. What I have figured is that they are using operating earnings but are using earnings up to Q3 of 2008 instead of Q4; that gives a PE of 10 with the S&P at 675. When you use Q4 earnings of $0 (yes, it was a break even quarter for operating earnings) you get a P/E of 13.5. I assume they are using Q3 with the excuse that Q4 is only 98% complete but shouldn't they use the 98% of earnings that have been reported?

But remember, they're using operating earnings which is not how it's supposed to be done in the first place. My understanding is that operating earnings came into use just in the past few decades and if you'll notice, never has the difference between operating and as-reported earnings been so great. S&P has some notes on which earnings should be used when at
http://www2.standardandpoors.com/spf/pd ... asures.pdf and here is what they say about as-reported earnings,

As Reported Earnings: Earnings including all charges except for
discontinued operations and extraordinary items, as defined by
GAAP. This is the broadest measure of corporate performance of the
three considered here. It is also the traditional measure with a long
history. It has been used for the S&P 500 and for company analyses
for decades.

We all know why everyone uses operating earnings, it's because they get the earnings most in line with what they want to hear. Me? I'd rather hear the truth. It has served me well for the past year and a half while this market has tanked.

--Fred

[aedens]

We all know why everyone uses operating earnings, it's because they get the earnings most in line with what they want to hear. Me? I'd rather hear the truth. It has served me well for the past year and a half while this market has tanked.

We have a ways to go and there not helping in Washinton with any real honesty
to resolve capital management. The pump up has taken some time as we know.
Get the common Man work to benefit is Community, and no to the Avarice
they are still feeding would help of course. The Fed did mention some room for
going to far but they must entail fact's. Neoclassical Economic's must be
beat senseless and move on. Of course there better representation's
of the time line and this one conveys sense to current relationship from the at large editor.

[freddyv]

We all know why everyone uses operating earnings, it's because they get the earnings most in line with what they want to hear. Me? I'd rather hear the truth. It has served me well for the past year and a half while this market has tanked.

The quote above, attributed to John, is mine.

--Fred

[JLak]

Also, he's a progressive capitalist, not a socialist. Huge difference.

This is a matter of semantics. Elementary schools teach socialism as an autocracy, but Karl Marx never believed that was possible. "Progressive capitalism" in a market crisis period is right from the playbook of Das Kapital. More importantly, what's your point? That there is no hope for our generation because we've been fed bullshit by liberal loons our entire lives and were always kept too busy to read real books for our own edification?

[mannfm11]

The spread sheet has stuff more important than earnings. You can cook earnings numbers. P=d/k-g is the formula in finance for valuing stock, not P=e/k as the bulls would have you believe. Look under the tab called dividends and the tab called divisors. Notice how the divisor on the SPX has been falling since 2000. The divisor is the value of the SPX per point and the way they have manipulated it down is to have the companies spend their money buying back stock instead of paying dividends. This is a method of Wall Street giving the appearance of the market doing better than it is. The real game was "Why was anyone holding the S&P portfolio at a 1.89% dividend at the end of 2007? This is a real return of less than 3 from the way I have figured it over the years, which makes the 9% to 12% returns out of holding the SPX long term dependent on inflation in the range of 6 to 9 percent. If you want to put in 1.5% for buybacks, which I think is too high long term, it improves, but shareholders never get the buyback money unless they sell. As people are about to find out, the long term on a lot of companies isn't so long term

[aedens]

Five executives including Citi's board member and former chairman Sir Win Bischoff have offloaded more than 7.7 mn shares valued at 9.7 mn dollars.
The transactions were done on March 2 and 3, according to the company's filings with the Securities and Exchange Commission.
The scrip of Vikram Pandit-led Citi, which has been severely hit by the financial turmoil, even dipped below the one-dollar mark last week. As on March 6, the company was trading on the New York Stock Exchange at 1.03 dollars. At 1.25 dollars, one of the firm's top executives and directors Hernandez Roberto offloaded six million shares worth about 7.5 million dollars, the filings show. Bischoff sold 90,423 shares at 1.32 dollars each, amounting to a total of 1,19,358 dollars. Going by the filings, Medina-Mora Manuel, the company's chief executive (Latin America & Mexico), sold 1,500,000 stocks at 1.24 dollars per piece, for 1.86 million dollars.

Gleaned from a site:

I start a company and then IPO common stock at $20 bucks per share. I use your money for 15 years and all the while the market bids my bullshit stock up and down scalping profits for themselves along the way. Then one day I finally begin to pay you a 40 cent per year dividend. I pay this dividend for another 10 years. Even after this I have still netted $16 per share on the original IPO of $20. Over the 25 years I run this ponzi scheme I give myself a huge salary, skim as much as I can off the top, expense all I can on the company, give myself bonuses and stock options out the ass, and flat out steal from petty cash when nobody is looking. When times get hard I declare a company stock buy back into which I sell all of my options. Finally the company goes broke. I'm rich and enjoyed 25 years of easy money but all the retirees that bought my stock are now left holding the bag. I'll tell you what, for every $20 bill you send me I will let you join the "CHL Equity Income Fund." For your participation I will return to you 80 cents per year for every $20 dollar bill you "invest" in the fund. Stocks only have value because we assign a value to them. The stock market only works because we want it to work. What is it in reality? Organized gambling? Ponzi scheme? Confidence game? In a bull run the stock market is nothing more than a search for the greater fool and in a bear run you get to find out who the last fools were. People do often talk of K-wave or Longwave structures, but I should remind you that the current end form of capitalistic system is much more degraded from 1929 or 1874. In 1929 and 1874, there was still a strong tradition of paying dividends. You will find that often company stocks crashed, because they reduced their dividends. Sure there were business cycles and some amount of fraud, but the integrity of corporate structure was never as compromised of today. Robber barons were ruthless businessmen, but they paid their due to all shareholders (because in most cases, they were the largest shareholders). Modern day robber barons are in direct competition with the shareholders. They earn most of their money from promoting and selling stocks, not from business operations. The business cycle is just a sideshow to maintain favorable public opinion and just enough in scale of innovation to generate a new wave for Junior. That being said employee’s owes his employer no gratitude but a defined quality and quantity of work. Capital and Labor have specified responsibilities so think for yourself. it has never been about you Taxpayer.

[JLak]

In 1929 and 1874, there was still a strong tradition of paying dividends.

I was stuck in a car with my boomer bosses and they were giving me 'advice' about investments, coming up with these complex ways to value a company based on future cash flows and recent price strength and all sorts of complicated junk. I suggested that the basis value of a stock is the expectation of future dividends and it was like they never heard of dividends. Zero-dividend common equity is a Ponzi scheme that really got it's start in 1980 when congress added the 401(k) amendment to the tax code and essentially forced an entire generation to invest in it or be punished with taxes. Just try to find a 401(k) plan that allows bond and preferred shares. At that point, investment became all about money flowing into the market instead of payout. Watch the dividend yield drop (sorry, couldn't seem to embed):
http://4.bp.blogspot.com/_5aAsxFJOeMw/R ... v-2007.JPG
Now they are retiring and there is a structural outflow which will continue until more people are forced to invest than are forced to withdraw. The boomer population is so large that this won't happen for 20 years or so.

My point here is that it was government intervention in the markets that caused this disaster, whether generational attitudes had to do with it or not. In colonial times, we started a war (Tea Party) when the government raised taxes on all imports (Stamp Act) and then lifted taxes only on imports of the largest company in the world East India Company (Tea Act). Likewise in 1980, capital gains taxes went up, but taxes on common equity of the largest companies were lifted.

I have more to say about this, but I'd like to see what the forum thinks.

[Matt1989]

Also, he's a progressive capitalist, not a socialist. Huge difference.

This is a matter of semantics. Elementary schools teach socialism as an autocracy, but Karl Marx never believed that was possible. "Progressive capitalism" in a market crisis period is right from the playbook of Das Kapital. More importantly, what's your point? That there is no hope for our generation because we've been fed bullshit by liberal loons our entire lives and were always kept too busy to read real books for our own edification?

Well, since Marx's theory of history will not likely come to fruition, I have to ask what is your point? The whole idea of progressivism is to maintain the capitalist system by moderating its negative effects. If a socialist revolution were a possibility, there would have to be a prior failure of capitalism. Socialism (as commonly conceived) is a 20th century ideology; it will not have any place in this one.