World of David Copperfield

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From Sloper Permabear…..

Welcome to the world of David Copperfield financial reporting. Nothing is real, everything is just an illusion. As Carl Icahn so eloquently said yesterday afternoon, “Many company’s earnings are a ‘mirage,’”. It’s all smoke and mirrors.

A few examples:

Last quarter MSFT beat the street’s EPS and Revenue estimates. Stock went up immediately. Unfortunately this was not the result of increased product sales. Look behind the smoke & mirrors and you find that they moved $700 million from an asset account called deferred revenue to current income.

IBM’s earnings statements for the past 6 quarters have all said approximately the same thing. EPS 1120-davidand Gross Margins met or beat expectations. Sale of their Z-Series mainframes was robust. Top line revenue was a miss. The only way these numbers make sense is that they are discounting the Z-Series price in order to entice their largest customers to upgrade their systems now rather than wait until their business climate improves.

You might also notice that IBM threw a few bucks at each of their 110,000 retirees and told them to go buy their own health insurance at healthcare.gov.

Each quarter the TBTF Banks have consistently beaten all expectations. Now when it comes to deception and illusion these guys make David Copperfield look like an amateur.

If the information at hand doesn’t make them look good, they just ignore it. Like the $200 trillion in derivative exposure, or the $600 Billion – $800 Billion in mortgage loans that are on their books as assets, even though no mortgage payments have been made on them in years. Another interesting item with the TBTF’s is for the past 5 years as their profits have been rising they have been laying off employees by the thousands.

Could it be that they just don’t need a lot of loan officers when the vast majority of their new loans are all going to the same customer, the US Treasury. Who needs employees when you can buy bonds from the Treasury at a discount and sell them to the Fed at a premium?

And now for the true masters of deception and illusion let’s take a look at the US Government, specifically the Consumer Price Index (CPI) and The Non Farm Payroll Report (NFP). Month after month the CPI shows that inflation is less than 2%. This is accurate if you only count those people who live in a cave and scavenge for food in the dumpster behind the restaurant down the hill.

Everyone else knows that a gallon of gasoline that cost $1.89 5 years ago now cost $2.99. A 39 Oz can of coffee now contains only 33 oz of coffee. The can is the same, the price is the same, just less coffee. And just to hit Iggy where it really hurts, a 1 lb. package of bacon only contains 12 oz of meat now.

On November 8, 2013, at 8:30 EST the NFP Report was released showing that the US Economy added 204,000 new jobs during the month of October, 2013. The market spiked up and all the talking heads on TV had massive orgasms because the economy had improved so much. What could possibly be wrong with that picture?

Well for one thing, the month of October, 2013 had 5 Thursdays and on each of those Thursdays at 8:30 AM EST the Jobless Claims report showed that more than 300,000 people had lost their jobs and filed first time claims for unemployment benefits during the previous week. Either all the people filing for unemployment benefits were farmers, or the NFP report is a work of pure fiction created by some bureaucrat in Washington.

Trade well Slopers and be wary of the smoke and mirrors. Always remember that whether you are Bullish or Bearish the algos can take the value of your portfolio down by 10% or more……faster than you can depress the Sell button on your keyboard.

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