Blackrock Stunner: S&P 500 Profits Are 86% Higher Than They Would Be Without Accounting Fudges

Tyler Durden's picture

We have previously observed that while pundits are happy to focus on non-GAAP earnings which over the past several years have become a total farce, the reality is that GAAP EPS for the S&P in 2014 will be 1.3% lower than a year ago, and that as a result of crashing energy company profits, 2015 GAAP EPS will be lower still, meaning that contrary to the propaganda, the US will see two consecutive years of declining wage growth. That said, not even we expected to read the following shocker revealing just how naked the corporate profitability emperor truly is, and coming from the world's largest asset manager on top of everything.

Presenting the stunning punchline from Blackrock's 2015 Investment Outlook:

Corporate earnings are a key risk. Analysts predict double-digit growth in 2015, yet such high expectations will be tough to meet. Companies have picked the low-hanging fruit by slashing costs since the financial crisis. How do you generate 10% earnings-per-share growth when nominal GDP growth is just 4%?


It becomes tempting to take on too much leverage, use financial wizardry to reward shareholders or even stretch accounting principles. S&P 500 profits are 86% higher than they would be if accounting standards of the national accounts were used, Pelham Smithers Associates notes. And the gap between the two measures is widening, the research firm finds.

So assuming 126 non-GAAP, accounting-levitated 2015 S&P consensus EPS, this means the real EPS is... 67? Which in turn means that the real forward P/E as of this moment is over 30x!

Then again, judging by the buying frenzy being unleashed in the S&P, it is time to BTFATH with both hands and on margin, because as long as nobody admits the truth, one must buy, buy, buy.

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Headbanger's picture


Or translation:  "SEEEE YA!!!"

BaBaBouy's picture

A Keynesian Dollar, In The Right Hands, Is Worth $1.86 ... Really!

Bindar Dundat's picture

And we are surprised...Why?

OceanX's picture

"And we are surprised...Why?"

Because some thought they were 2 to 300% higher...

max2205's picture

Wall St lie about earnings?   Shocked!


We shocked and lied to some folks.....

logicalman's picture

More proof that the law is applied asymmetrically.

If the average Joe tried it, he'd be enjoying striped sunlight in short order.

KnuckleDragger-X's picture

Wall St doesn't lie, they merely state a different reality. Besides, GAAP is for the lower class proles....

Hal n back's picture

Blackstone needed to pay for a study to find that out?

PT's picture

They paid their accountants to do their own books, just like they always do.  But then they released the results and called it a "study".  So, yes.

KnuckleDragger-X's picture

There are two numbers, the ones they tell the IRS and the ones they tell to the sheep.....

Hal n back's picture

So let me get this straight: Blackrock manages money in a lot of mutual funds for the public. Fior 5 years they say nothing about the market being overvalued--but for some reason today they say it--now-the markets did not just get overvalued today using buybacks and non gaap. How about bank mark to fantasy accounting and the Volcker rule?


So they have been happily collecting their fees while knowing the marekts were overvlaued just like all managers of these funds.


Now lets pontificate on how much of the MSM picks up on this little thing thats been discussed here for 6 years.

This market has to adjust down to several issues: 1) buyback BS, 2) Non Gaap BS, 3) high pe when no growth,


I think tyler posted about the san fran fed releasing a research paper saying the pe comes down 50% due to boomers leaving the stock market. What happens when the boomers stop spending for 2 reasons at least--first as we get older we just do not need stiff and second, most are financially unprepared for retirement and are working longer--when the market crpas they will have less to spoend--then soc sec and medicare and state  and federal   and private pensions are in trouble,.  so good bye to that source of funds for spending.

Nope--the fed will keep buying futures on SPX and Treasuries. If nothing else just for fun to see how far it can push this.

sun tzu's picture

S&P PE reached 45 before the dotcom bubble burst. Let's see how high it goes before the QE bubble pops. This rally is running on fumes, but the market can stay irrational longer than anyone can stay solvent

KnuckleDragger-X's picture

Magic money is...well....magical. 80% of all trades are computer derived and sooner or later Skynet will declare war....

SoilMyselfRotten's picture

Gonna take one helluva trick to make their numbers next year


P.S. CNBC just made their commodity calls for 2015. Drumroll, gold to flirt with $1000. TIME TO BUY!

sun tzu's picture

They'll all lower their tax estimated tax rates to zero

sun tzu's picture

They'll all lower their tax estimated tax rates to zero

spinone's picture

The entire "recovery" is built on manipulation and fraud.  But you also missed out on some big returns if you let that keep you out of the market.

Would you pick up $1000 bills in front of a steamroller?

PT's picture

But for the last 15 years that steamroller hasn't run anyone over.  I'm not sure.

sun tzu's picture

Plenty of people have been run over. Those who were over-leveraged and not protected by the Fed. Case in point Lehman and Bear Stearns. 

RaceToTheBottom's picture

WS pretending that it was not of their doing?  Very Rich.....

JRobby's picture

GAAP? FASB? More useless letters in a simple to understand scenario: TOO MUCH DEBT!!!!!!

Give the world economy a qualified audit opinion, namely: GOING CONCERN

Happy New Year!!

Peace, be healthy and happy.

actionjacksonbrownie's picture

The only letters that metter:



FED   .GOV    BTFD!!!

fuu's picture


wmbz's picture

Most likely an understatement.

In the world of make beleive, numbers are always what you want them to be!

Nobody cares or calls you out on blatent lies what does it matter!

We need MOAR! It is never enough.

PT's picture

Using Blackrock standards, profits are 86% higher.  Using honest accounting standards, profits are , ummm, what % turns a negative into a positive?

Using honest accounting standards, profits CYNK quite rapidly.

BeerMe's picture

Accounting is for liars and always has been.

thepigman's picture

Pelham Smithers must be wrong!!!! Otherwise equity buyers are being defrauded. lol

Kevin Henry loves stocks at this level.

JustObserving's picture

What is not fake about fiat economies?  From conjured currencies to artificially induced zero or negative interest rates to manipulation of all commodities including oil and gold and silver. It is just a magic show but all shows end and reality asserts itself

Colonel Klink's picture

Blackcock, another scumbag financial corporation just like Gollum ballSacks.

Raping, pillaging, and murdering the world daily.

matt1021_98's picture

ZH - give us ACTIONABLE info in 2015! I can make 100x more money listening to dumb dumb Jim Cramer. Where is the top? Why? When are all the fed miracles priced in? Where did you get it wrong in 2014, 2013...? What has changed? Think timing and think profits - that's all that matters. Regurgitating the gloom boom and doom report doesn't provide much value unless you stick your neck out with actionable recos. Happy holidays

Colonel Klink's picture

Hard to give actionable information on feral Federal Reserve manipulation unless you're on the inside, like any robbery job.  Where they got it wrong in 201? is failing to realize the unlimited amounts the Fed can pump into the market and the unlimited ignorance of the world.

PT's picture

Which company subcontracts to the NSA to provide the taps on Jamie Dimon's telephones?

Colonel Klink's picture

Here in 'Murika, Jamie Diamond taps the NSA.

PT's picture

Damn!  I was worried someone would say that.  But surely there's some other rich psychopath needy enough and powerful enough to do the deed.  All he has to do is put in a cheap quote while paying his people well ...

Duc888's picture



Matt, just buy stawks.

Freedumb's picture

I'd put the top at about S&P 300000, because at about that level we've made the full transition to the Weimar Republic

jcaz's picture

Ah, so you want someone to hold your hand and tell you when to buy and sell...  Call mommy.

The mere fact that you made your request precludes your ability to understand even the most elementary response,  but lemme give it a shot-

This ain't Moneyline,  douchebag-  Tyler has NEVER told you to buy or sell shit, and if you think he has,  you live in your own Jim-Cramer-masturbatory fantasy world...

The fact is, if you even had a working clue about trading,  you'd benefit from Tyler's work-  his data has been spot-on, and well above any other source of info, and guess how much you've paid for it?   DUH!!!!

In short- go back to Yahoo chatboards and fuck off while the adults do business here.

Government needs you to pay taxes's picture

Fade the Golden Sacks equity research department, with a lag of 2 tradiing days. 

Emergency Ward's picture

Here: When the DOW hits 99,000, get out!  Only the over-optimistic will wait for 100,000 (that won't happen until 2016).

Disclosure: I am completely unqualified to give financial advice.

The Most Interesting Frog in the World's picture

I don't know the exact number, but something on the order of 90+% of hedge funds have underperformed the S&P 500 index in the last two years.  And the vast majority of active managers, same thing.  But, this is exactly what happened in late '90's/early 2000 and 2007.  Amybody that has done their homework, frankly, has underperformed.  

The Fed has to be shitting their pants at this point.  I do not believe they are coordinating with Japan, China and Europe as some have suggested.  I believe we have an all out currency war.  The US dollar is strengthening and given China's recent action, which was in reaction to Japan, which was in reaction to US policy, and if Germany caves, Europe will be in full blown currency deval to offset what China, Japan and the US have already done.  It is circular and self-defeating.  

The only question at this point is, will the Fed re-start QE early in 2015? This whole notion of raising interest rates while the rest of the world is going full retard ZIRP, NIRP, QE and Kamakzi Keynesianism is an absolute joke.

PT's picture

matt1021_98 :

I, too, am too ignorant, too far from the action, to work it out.  For us, the answer ain't here.  This merry-go-round don't stop so the noobs can get on.  You gotta take a running jump and hope you make it.  Or find a slower merry-go-round.

I suggest that EVERYONE become a politician open to "campaign donations".  That way TPTB will have to pay off EVERYONE in order to get anything done.  (and even that idea is flawed)

moneybots's picture

"Regurgitating the gloom boom and doom report doesn't provide much value unless you stick your neck out with actionable recos."

"ZH - give us ACTIONABLE info in 2015!"


They did.  BTFATH, BTFD.  That line never get old.

shovelhead's picture

You just got it.

These values are complete fiction and have been for 6 years, so buy buy buy because there' no shortage of greater fools...

For the moment.

And you're smart enough to know when the tide goes out, right?

So buy buy buy.

What more do you need?

buzzsaw99's picture

who cares? it's a policy tool not a market.

Temerity Trader's picture

<”…Corporate earnings are a key risk. Analysts predict double-digit growth in 2015, yet such high expectations will be tough to meet. Companies have picked the low-hanging fruit by slashing costs since the financial crisis. How do you generate 10% earnings-per-share growth when nominal GDP growth is just 4%?..”>  That is such ‘Old Normal’ thinking.  Hmmm, massive buybacks with cheap Fed $?  More layoffs of higher  paid U.S. employees?  Sell off real estate holdings for big profits then lease the facilities back? Loan your customers money a very low rates to buy your products ? Just to name a few.

Nothing new under the sun, and so far very effective with the central banks easy money policies firmly in place. Why will it end? It works well so far. Laid off workers are happier, they watch T.V, get EBT cards and many government programs to pay the bills. Far better than the 9-5 grinding work routine.

If limitless debt is now possible with almost no inflation, this can go on for many years.  M&A, downsizing, synergies gained, lots of smoke and mirrors yet to come. The U.S. shows 5% GDP “growth”  most of the rest of the world far less.  Investors all over the world are pouring into the U.S. markets.  How many times have bears been certain it is all unsustainable?  Look around you, see all those brand new cars and SUVs everywhere?  Duh!  Nothing down, near-zero rates loans for 7-8 years.  Loose home loans again, hell, still haven’t fully tapped the refi, cash-out granite countertop market again.  Student loan forgiveness?  1T $ freed up for more consumption! They can make this go on for a very long time before it all comes apart. 


JimS's picture

Trader: I agree with you 100%, well spoken. This financial fiasco will continue on it's present course, unabated, at its current rate of "growth" (probably at ever increasing rates), until it doesn't. It will stop on a "fucking dime", reverse course, and deline at a lightening rate. When that happens, all hell breaks loose. Plan for the absolute worst you can imagine, and "hope" for the "best".

ebworthen's picture

With Wall Street and the Corporatocracy flush with free money from .gov and the FED is it any wonder?

"...stretch accounting principles..." and every other principle, moral, and ethic.

Financialization bubble 2.0 getting quite turgid.

ZeroPoint's picture

And on the reverse side of the coin - Silver is trading almost 10 dollars below the mining cost. Paper profits on paper assets and real losses on real assets. You are now entering the twilight zone....

Soul Glow's picture

Arthur Anderson lives!