Phony Earnings Reports Abound - Mike Swanson (06/08/2015)

This is from a story today from the AP:

"Companies are tilting the results," says fund manager Tom Brown of Second Curve Capital, "and the analysts are buying it."

An analysis of results from 500 major companies by The Associated Press, based on data provided by S&P Capital IQ, a research firm, found that the gap between the "adjusted" profits that analysts cite and bottom-line earnings figures that companies are legally obliged to report, or net income, has widened dramatically over the past five years.

At one of every five companies, these "adjusted" profits were higher than net income by 50 percent or more. Many more companies are in that category now than there were five years ago. And some companies that seem profitable on an adjusted basis are actually losing money.

For full story go here.

The story suggests that bubble bulls buying into the stock market are being fooled by fake news.

I would answer that by saying that they are not being fooled at all, because very few bubble bulls in the market look at earnings at all or care about them.

Very rarely do you hear someone bullish on a stock tell you anything about the earnings.

People are not buying on that.

They are buying in the simple belief that the stock market will go up forever.

For them investing is a religion and they believe that the stock market will never fall again.

If bubble bulls cared about earnings they would then care about the price they pay for them.

But look at this:

Here’s a somewhat scary statistic for those meant to know about these things. After a six-year bull market, the typical stock in America’s S&P 500 shares index is valued on a multiple of more than 18 times estimated forward earnings. This is not just expensive by historic standards, but super-expensive. In fact, according to analysis by Goldman Sachs, it ranks as in the top 98th percentile of historic valuations since 1976, or in other words one of the highest in nearly 40 years. It scarcely needs saying that these peaks tend to signal the top of the cycle, with some kind of bear market or crash just around the corner.

But hold on a moment, you might say; we’ve barely recovered from the last downturn. It surely cannot already be time for another? Regrettably it can. Most business cycles last little more than seven years, and if anything they tend to be getting even shorter. The US economy contracted in the first quarter and has shown few signs of significant recovery since.

Full story here.

Bubble bulls are not investors - they are gamblers - and no one will stop them from making this final gamble.

They know stocks are overvalued, but they do not care.

They know that there is no economic recovery, but they do not care.

What they are betting on is the hope that stocks will have one final big bubble run and make a repeat of the hyper top they saw in the first quarter of 2000.

But that was a once in a lifetime event.

The market did not top like that in 2007 or in all previous bull markets tops they witnessed except that one they saw in 2000.

But they believe it will happen, because they want it to.

And they believe it will happen, because they are playing on margin, so they need it to.

But it won't.

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