Earnings Are a Load of Nonsense

Earnings
season has always been a crapshoot largely because of the nature of our
financial system. To whit, we have accountants whose jobs consist entirely of
finding ways to minimize taxes and eek out profits from even the flimsiest of
circumstances (financial firms have become masters of this).

Indeed, it’s
common practice for companies to prepare TWO tax statements, one that is
released to the public and another that goes to the IRS. The IRS version
usually features numerous tax dodges such as shifting revenues to tax havens/
off shore subsidiaries, as well as phony accounting charges and the like.

Consider the
two following news stories:

Goldman Sachs’s Tax Rate Drops to 1%, or $14 Million

 Goldman Sachs Group Inc., which got $10
billion and debt guarantees from the U.S. government in October, expects to pay
$14 million in taxes worldwide for 2008 compared with $6 billion in 2007… The company’s effective income tax rate
dropped to 1 percent from 34.1 percent… The firm reported a $2.3 billion
profit for the year after paying $10.9 billion in employee compensation and
benefits.

(http://www.bloomberg.com/apps/news?pid=20601110&sid=a6bQVsZS2_18)

GE: 7,000 Tax Returns, $0 U.S. Tax Bill

General
Electric filed more than 7,000 income tax returns in hundreds of global
jurisdictions last year, but when push came to shove, the company owed the U.S.
government a whopping bill of $0…

 (http://money.cnn.com/2010/04/16/news/companies/ge_7000_tax_returns/index.htm)

After the
accountants get through with “cooking the books,” corporate earnings are then
supposed to be accurately forecast by Wall Street analysts, most if not all of
whom, work for firms that make millions performing mergers/ acquisitions/ IPOs
and other investment banking deals with the very companies the analysts are
supposed to be objectively covering.

We then have
institutional investors who invest based on the analysts’ views which are based
on the accountants’ voodoo (the institutions themselves usually have
relationships with the analysts’ firms as well). And then we have the public,
whose funds are either invested with the institutions OR are whipsawed and
destroyed by the institutions moves.

All of these
moves have become exacerbated by the US’s decision to abandon anything remotely
resembling accurate accounting standards. Nowhere is this more evident that in
the financials sector.

Most
commentators have been ecstatic over financials “earnings” recovery over the
last two years. They fail to note that these results have largely been the
result of accounting gimmicks, NOT actual money being made.

The most
obvious gimmick involved marking down debt and recording the mark down as a
profit.

In laymen’s
terms, banks had issued bonds to investors (the banks get the investors’ money,
the investors get a bond with a certain yield).  These bonds have since fallen in value. So the bank is
claiming that because it could repurchase the bonds at lower prices (pocketing
the difference between the lower price and the initial higher price the
investors paid), that these bonds could be recorded at a profit.

Take a
moment to let that sink in... The banks DID NOT actually buyback the bonds
(they couldn’t even if they wanted to since they doesn’t have the funds), so
they’re merely claiming that they COULD do this if they WANTED to.

Using this
kind of logic, someone could claim that they made $3 million last year because
technically they could rob every store they’ve ever spent money at during their
lifetime in order to recoup their earnings. There’s a word for this type of
thinking; it’s called insanity.

Aside from
this, financial firms have posted profits based on all kinds of other
accounting fraud including but not limited to: marking junk assets at super
inflated levels, papering over real losses with one time charge-offs, and more.

Bottomline: earnings, especially financials’
earnings are a load of nonsense.  If you’re buying these companies’ stocks, expect to lose a
lot of money in the future.

Best Regards,

Graham
Summers

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Comments

[Robslob]

Just stop paying taxes...buy precious metals and the gubment will never know where your wealth went...good luck getting blood out of a turnip "on paper"...

[alien-IQ]

with all due respect and appreciation for your previous posts...seriously..."Earnings are a load of nonsense"...really? Did you just now figure this out?

[LostWages]

My little company, that barely gets me into the middle class, is paying more taxes than GE?  Unfuckingbelievable!

When the SHTF, it's gonna get ugly. We need to hit the reset button and start over.

[tom a taxpayer]

Graham Summers - Thanks for shining light on these lying, thieving bassturds.

[whatz that smell]

because your post is so fuking boring, i'm gonna eek out here at soon as i eke out this sentence.

[DavidC]

I'm quite happy to act as an editor for contributions - you don't 'eek' out (unless you're in a Scooby Doo cartoon), you 'eke' out...

DavidC