Sweeping losses under the rug is nothing new on Wall St, but it’s getting worse. S&P 500 P/Es range from 16 – 134, depending on which earnings methodology you use. The first number is based on “operating earnings”, and the second is based on the real bottom line. If you need background on the difference between operating and non-GAAP, go here or here.
This graph shows the difference between S&P 500′s GAAP and operating earnings, in billions of dollars. The trend line is telling. Click to enlarge:
The data is from this spreadsheet (S&P). Go to the “Divisors and Aggregates” tab to see table used.
If you’re not familiar with the terms:
GAAP/As-Reported earnings represent the true bottom line, ugly losses and all.
Operating earnings can exclude any number of costs, charges, and losses.
Guess which one is exclusively-used by bulls and analysts(redundant)? Operating earnings, of course.
Some might say, “but wait, look at Q1 2009! Looks like they’ve cleaned up their act” Nope. That is the result of mark-to-imagination accounting. This change by the FASB “eased” mark-to-market rules just in time to make Q1 bank earnings palatable. The change boosted Citi alone’s bottom-line by $3b. Why again, are we so dismissive about Chinese accounting? Yes, they’re up to some tricks of their own. But you know what they say about glass houses. Well, we’re in one.
Q4 2008, for example. True losses were $201b, but on an operating basis the S&P lost less than $1b. That’s pretty shocking. I’m working on chart showing % change, which should account better for inflation. But my Excel skills are lacking, and the negative numbers combined with the 24,000% change in Q4 08 keep throwing my charts off. Any chart-gurus out there want to take a crack at it? The data is here for any so inclined.
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Wall St. On The Tundra – (Vanity Fair): “Iceland’s de facto bankruptcy—its currency (the krona) is kaput, its debt is 850 percent of G.D.P., its people are hoarding food and cash and blowing up their new Range Rovers for the insurance—resulted from a stunning collective madness.”
Bank of Israel Halts Dollar-Purchase Program – (Jerusalem Post): “The Bank of Israel on Tuesday will stop its program of buying $100 million on a daily basis but reserve the right to intervene in the foreign-currency market, the bank announced Monday… Following the announcement, the dollar dropped 1%.”
Bright spot: Below is a cool video about “Ultra Deep Field”, a project using the Hubble space telescope to see what’s going on in an apparently blank spot of sky. But the must-see is this tool someone created to explore UDF. click-and drag around, scroll to zoom. Every tiny speck of light in this one tiny slice of sky is a galaxy with billions of solar systems. This is Hitchhiker’s Galaxy material.
Naufal Sanaullah of ShadowCapitalism.com put together this excellent 22-page report on why the widely-accepted recovery of 2009 is bunk. The idea of a debt-fueled, jobless recovery is laughable. Naufal, along with co-authors Tyler DeBoer and Qasim Khan, do a good job explaining why. Bearish News even gets a mention on page 2, for our post debunking Q2 2009 earnings.
Keep an eye on this guy. He’s smart and prolific, a rare and dangerous combo. And only 19 years old! His bio page says he is a math major at University of Michigan.
Update: It’s official, Colonial is no more. Estimated FDIC loss will be $2.8b, link.
Looks like Colonial Bank will get the Old Yeller treatment from FDIC tonight. It will be the biggest bank failure of 2009, with $25b in assets. Could be an interesting evening for the FDIC, we’re due for a fail-spree at some point. CNB is just one of 4 big banks widely viewed as doomed-to-fail. FDIC usually makes these announcements Fridays from 7:00-10:00 pm EST.
BB&T is set to take over Colonial’s assets. There was concern over whether a buyer would be found for Colonial, so BB&T is probably getting a sweetheart deal (hence the 8% jump today) for taking on a share of their horrific assets. But most of the toxic mess will be absorbed by FDIC (which will likely be taxpayer-funded by EOY).
One interesting side effect of Colonial’s failure will be to mortgage availability. They are one of the last big facilitators of loans through independent mortgage brokers (which played a big role in the collapse). CNN explains in “If Colonial fails, mortgages get more scare”. Snippet:
The Southern regional bank, based in Montgomery, Ala., is the largest remaining player in warehouse lending, which provides short-term financing to independent mortgage bankers. At one time, these mortgage bankers originated half of all U.S. home loans using these funds.
Sweeping losses under the rug is nothing new on Wall St, but it’s getting worse. S&P 500 P/Es range from 16 – 134, depending on which earnings methodology you use. The first number is based on “operating earnings”, and the second is based on the real bottom line. If you need background on the difference between operating and non-GAAP, go here or here.
