GAAP

Moments ago IBM reported what can be defined simply as abysmal results.

It is more evident than ever that the world economy is heading into a deflationary conflagration, but today’s generation of house trained bulls wouldn’t recognize a warning if it slapped them upside their horns. They refused once again last week to exit the casino because they got another signal from Hilsenramp that the Fed is on “hold” until at least next March. Call it Ostrich Economics. But do it quick. Those side-effects are coming to the casino some day real soon.

When looking at JNJ's EPS line, things were not nearly as bad, because despite a 7% slide in revenues and a whopping 40% collapse in pretax net income, somehow JNJ reported Q3 non-GAAP EPS of a solid $1.49, actually beating consensus of $1.45, and only 7% lower than a year ago. Hardly terrible... until one looks at the detail and finds the "oldest accounting gimmick in the book": adjusting the tax rate.

While Alcoa did have the usual justifications for the collapse in its Q3 sales and EPS, blaming what else but China, the real culprit is none of that. Because, as regular readers know too well, with Alcoa it is all about the Non-GAAP addbacks.... and the problem here is that while in previous quarters Alcoa's "restructuring" charges were vast, usually eclipsing the actual GAAP earnings number, in Q3 they tumbled to "only" $66 million - the lowest since March 2013.

The markets are beginning to show just how tall and flimsy this house of cards built on QE quicksand has grown. Entrepreneurs and ideas thrive in that type of environment. Exactly what we so desperately need. Yet, instead, all we have is this crony styled, unicorn imagined monstrosity of all that’s unholy to true business principles. "Markets right themselves with pain... That’s Capitalism. Back room manipulation to avoid that pain only increases the severity of it down the road."

Remember when Hewlett-Packard announced it would fire 58,000 in February just so the company could spend even more billions on stock buybacks to make its shareholders filthier rich? Alas, since then things have gone south not only for HPQ stock but also for the company's buybacks activity and so Meg Whitman clearly needed to spend even more on buybacks. But where to get the money? Wait, here's an idea: lets fire another 30,000!

The U.S. economic system is slipping into dystopia and the Government/Fed is doing everything it can to try and prevent the process. The two most obvious signs of this are the perpetual market interventions by the PPT to prevent a stock market dump and the relentless propaganda flowing through the mainstream media which originates from the policy-implementing elitists (business and political). Both efforts are insidious attempts to force control over our system... and as it heads toward "Lord of the Flies." we will see and experience the truly dark side of humanity.

The US economy was not “decoupled” in the slightest during the expansion of the great global monetary boom that has now crested. Nor will it uncouple during the deflationary bust that must necessarily ensue. The ultimate worldwide hit to US exports is evident in the 20% drop in shipments to Brazil, and that’s just for starters because its economic depression is just getting underway. Likewise, the panicked flight of hot dollars from Brazil now besetting the global financial markets is only indicative of the turmoil to come as the massive “dollar short” unwinds on a global basis. So this is not a retest. We are in the midst of an unprecedented global deflation. A real live bear market is once again at hand.

Even the rich are starting to feel the pinch, at least according to the favorite jeweler of the upwardly mobile middle-to-upper class (especially in China and Japan), Tiffany & Co., which earlier today reported Q2 EPS of $0.86, below the $0.91 expected, with GAAP EPS of $0.81 some 16% below the $0.96 record last year. Like other retailers, TIF was quick to blame the surging dollar (which isn't going anywhere if the Fed indeed proceeds with a rate hike),  blaming it for lowering the value of the Tiffany’s sales overseas, where the company gets most of its revenue. Currency fluctuations also have kept tourists from making purchases at U.S. stores, dealing a second blow to revenue.

Blink and you missed it. With stocks surging back to green and CNBC celebrating, one could be forgiven (were on a goldfish) for believing everything is truly awesome again. However, as Deutsche Bank details, there are ten good reasons why this is far from over...

The robo machines pushed their snouts through 2100 on the S&P index again yesterday. This was the 13th time since, well, February 13th that this line has been re-penetrated from below. But don’t call it an omen of bad luck; its more like monetary rigor mortis. The bull market is dead, but the robo-machines and talking heads of bubble vision just don’t know it yet.

Over the weekend, when looking carefully at Tesla's cash burn, pardon cash inferno we said that at "the current cash burn rate, TSLA can only fund just two more quarters of cash burn at which point, and most likely well before it, the company will have to aggressively raise new capital." It wasn't 1-2 quarters. It was barely 3 days. Moments ago TSLA announced that, just as we expected, it would dilute its shareholder by just under 2% by issuing $500 million in equity.

With the usual two year delay, others such as Reuters, are starting to notice that under the Tesla hood there are nothing but cockroaches. And now that the growth "story" has taken a back seat following the latest guidance cut in deliveries, fears that the company will have to dilute shareholders to keep the "story" afloat, are rapidly emerging. Case in point, Reuters calculation of a fact that was known to most observers but certainly not to retail enthusiasts who "bought the stock just because others bought the stock", i.e., that Tesla loses about $4000 on ever car it makes.

The cracks in the facade are starting to show... as we warned yesterday, it is different this time...