THE GREAT CORPORATE EARNINGS FRAUD

“What are the odds that people will make smart decisions about money if they don’t need to make smart decisions–if they can get rich making dumb decisions? The incentives on Wall Street were all wrong; they’re still all wrong.” Michael Lewis, The Big Short: Inside the Doomsday Machine

Corporate earnings reports for the fourth quarter are pretty much in the books. The deception, falsification, accounting manipulation, and propaganda utilized by mega-corporations and their compliant corporate media mouthpieces has been outrageously blatant. It reeks of desperation as the Wall Street shysters attempt to extract the last dollar from their muppet clients before this house of cards collapses.

The CEOs of these mega-corporations accelerated their debt financed stock buybacks in 2015 as stock prices reached all-time highs and are currently so overvalued, they will deliver 0% returns over the next decade. This disgraceful act of pure greed by the Ivy League educated leaders of corporate America to boost their own stock based compensation is reckless and absurd.

It is proof education at our most prestigious universities has produced avaricious MBAs following financial models and each other like lemmings going over the cliff. Proof of their foolishness is self evident after perusing the chart below. These intellectual giants evidently never learned the basic rule of buying low and selling high in order to make a profitable trade.

The previous all-time high in stock buybacks occurred in 2008 at the previous peak. That brilliant strategy led to 50% shareholder losses in a matter of months. No Board of Directors fired any CEO for these disastrous strategic blunders. These cowardly ego maniacs didn’t buy back any stock in 2009 and 2010 when they could have made a killing with valuations at decade lows. After the stock market recovered by 100%, these stooges then began borrowing and buying. It has now reached another all-time high crescendo.

Dividends and stock buybacks in 2015 topped $1 trillion for the first time according to S&P Capital IQ Global Markets Intelligence. As CEOs have borrowed billions to buyback their inflated overvalued stock, they have put the long-term sustainability of their firms at extreme risk.

When a dead retailer walking like Macy’s, which is seeing it’s sales fall and profits crater by 30%, announces a $1.5 billion stock buyback when it already is weighed down with $7 billion in debt, you realize the men running these companies have no common sense or concern for the long-term viability of their companies. They’ll get a golden parachute no matter how badly they screw the pooch.

The stock buyback scheme by corporate CEOs is just one of the devious methods used to cover-up the dramatic downturn in corporate profits. These titans of industry, their Wall Street heroin dealers, and their corporate propaganda outlets need cover while they abscond with more of the nations wealth, before pulling the rug out from beneath the American people once again.

The 2008 Wall Street created financial crisis will look like a walk in the park compared to what’s coming down the pike now. We now have a bond bubble, stock bubble, housing bubble, commercial real estate bubble and central banker confidence bubble all poised to pop simultaneously. The negative interest rate and banning of cash schemes will be dead on arrival, driving a stake into the heart of the Fed vampire.

“Oh, what a tangled web we weave…when first we practice to deceive.” ― Walter Scott

It’s become perfectly clear to me over the last few weeks the deception, misdirection, spin, and outright accounting fraud being used to hide the horrific financial results of S&P 500 companies has been orchestrated by the corporations, Wall Street “analysts” and the likes of cheerleaders like CNBC.

When “dead retailer walking” J.C. Penney reported their fourth quarter results last week the stock immediately soared 15%. The Wall Street propaganda machine was declaring turnaround complete. Modest positive comp store sales after five years of double digit declines were proof J.C. Penney was back. I went to the company press release and no matter how hard I searched, they never mentioned their Net Income. They blathered on about EBITDA and adjusted earnings per share, but not a peep about the actual GAAP Net Income.

Once I was able to access their Income Statement I realized why. Their completed turnaround resulted in a $131 million 4th quarter loss, almost $100 million higher than last year’s loss. They finished their turnaround year with a loss of more than a half BILLION dollars. This company will be on the retail scrap heap of history in a couple years, but the Wall Street fleecing machine tells its muppet clients to buy, buy, buy. And the lemmings do as they are told.

The other blatant manipulation and spin is headline after headline stating one company after another beat expectations. What you are not told is expectations at the beginning of the quarter were 20% higher than they were on the day they reported. The highly paid 30 year old MBA “analyst lemmings” are told by the companies to reduce earnings expectations as the quarter progresses.

Sometimes they pre-announce earnings will fall by 20% to $0.45 per share, then three weeks later announce actual results of $0.46 per share, therefore beating expectations. This game is getting long in the tooth. Corporate revenues have been falling for a number of quarters, and they have run out of accounting reserves to make the numbers. So they move on to plan C.

If you can’t make the numbers work, just fake the numbers and call them “adjusted”. So when a corporate CEO opens 50 retail stores that turn out to be dogs and is eventually forced to close the stores and fire 10,000 employees, they just call those one time charges and ignore the $50 million loss when reporting the results. Heads the CEO wins, tails the shareholders lose. Wall Street reports a beat, and the clueless investors believe the lies. It’s all fun and games until the next financial crisis hits, recession sweeps across the land, and the fraud, deception, and lies are revealed.

Even the billionaire oligarch crony capitalist Warren Buffett addressed this despicably flagrant flaunting of basic accounting principles to mislead shareholders in his annual letter last week:

It has become common for managers to tell their owners to ignore certain expense items that are all too real. “Stock-based compensation” is the most egregious example. The very name says it all: “compensation.” If compensation isn’t an expense, what is it? And, if real and recurring expenses don’t belong in the calculation of earnings, where in the world do they belong?

Wall Street analysts often play their part in this charade, too, parroting the phony, compensation-ignoring “earnings” figures fed them by managements. Maybe the offending analysts don’t know any better. Or maybe they fear losing “access” to management. Or maybe they are cynical, telling themselves that since everyone else is playing the game, why shouldn’t they go along with it. Whatever their reasoning, these analysts are guilty of propagating misleading numbers that can deceive investors…. When CEOs or investment bankers tout pre-depreciation figures such as EBITDA as a valuation guide, watch their noses lengthen while they speak.

Buffett’s words are borne out in the chart below. Based on fake reported earnings per share, the profits of the S&P 500 mega-corporations were essentially flat between 2014 and 2015. Using real GAAP results, earnings per share plunged by 12.7%, the largest decline since the memorable year of 2008. Despite persistent inquiry it is virtually impossible for a Wall Street outsider to gain access to the actual GAAP net income numbers for all S&P 500 companies. With almost $500 billion of shares bought back in 2015, the true decline in earnings is closer to 15%.

The increasing desperation of corporate CEOs is clear, as accounting gimmicks and attempts to manipulate earnings in 2015 has resulted in the 2nd largest discrepancy between reported results and GAAP results in history, only surpassed in 2008. The gaping 25% fissure between fantasy and reality means the S&P 500 PE ratio is actually 21.2 and not the falsified 16.5 propagated by Wall Street and their CNBC mouthpieces. True S&P 500 earnings are the lowest since 2010. Corporate profits only decline at this rate in the midst of recessions.

With approximately $270 billion of “one time” add-backs to income used to deceive the public, the true valuation of the median S&P 500 stock is now the highest in history – higher than 1929, 2000, and 2007. Wall Street’s latest con game, with the active participation of corporate CEO co-conspirators, is a last ditch effort to fend off the inevitable stock market crash. It didn’t work in 2008 and it won’t work now. All economic indicators are flashing red for recession. Stocks are poised for a 40% decline faster than you can say Wall Street criminal banks.

The most infuriating aspect of this shameless ruse by corporate America and the Wall Street cabal is their complete lack of conscience or acknowledgment of misdeeds that destroyed the financial system in 2008. The American people bailed these sociopaths out, have borne the brunt of the QE and ZIRP save a banker programs, and are poised to get screwed again when financial collapse part two hits in the near future.

The establishment is aghast that Donald Trump is storming towards the presidency. They are blind to the fact their unconcealed felonious actions rise to the level of treason in the eyes of average hard working Americans. The fabric of this country is being torn asunder by a contemptible class of corporate fascists, ego maniacal bankers, shadowy billionaires, and media titans. They have reaped billions of profits since 2009 as the Fed and politicians in D.C. rolled out “solutions” designed to enrich them. They are confident their failures will be shifted to the American people again. The American people may have a different opinion this time. Pitchforks and torches are being readied.

“Success was individual achievement; failure was a social problem.” Michael Lewis, The Big Short: Inside the Doomsday Machine

 

 

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Rose
Rose

“Someday I hope all those little companies will network together. That their employees and customers will unite and do business with EACH OTHER instead of serving the needs of BigGovernmentCorp.org.”

THIS. Absolutely this. ^^^^

Hubs and I are in the process of redoing our upstairs bathroom. The toilet leaked (cracked floor flange), and then as long as the toilet was out, we might as well change the floor, and then as long as we were changing the floor, we might as well rip out the vanity first and replace it with a custom cabinet (built ourselves)…you know how it goes. Every single one of you guys with a wife know how it goes 😉

We’re looking for supplies, and the big box doors sell total crap (they’re OK for screws and nails I guess but their actual building supplies leave a lot to be desired). So we are going to a local lumberyard for the wood, and a different indy guy for the countertop material, and still another for the flooring…if only all of them could be under one roof! It would actually be a big box worth shopping at. As indy guys, they were hard to find, mostly by word of mouth, so most people don’t even know they are out there. And the total kicker, they are almost on par price wise with the big boxes, even though their stuff is world’s better.

That’s only just one little example. There are countless other mom and pops out there, chugging along in the shadows. If only there was a way to bring their products together in a user friendly format. It would give the big boxes a run for their money.

For while I toyed with the idea of some sort of searchable online directory of indy retailers and producers, but A. there isn’t a feasible way to vet them for quality B. finding them for inclusion is a Herculean task for just one town, much less a large region or even nationally, and C. they are still geographically scattered and running to ten different businesses instead of one central location is a PITA that most people don’t have the time or inclination to undertake. Even if you can find them, using them is inconvenient.

A new format needs to be created that allows them to retain their independence (because therein lies their quality) but brings them together in a user friendly fashion. Theme strip malls, maybe, one for home improvement, one for clothing, one for specialty foods…who knows? It’s a definite problem, and there is a solution out there to it. Just not sure what that might be yet.

Unfriendly
Unfriendly

In other words, what I think G. A. O. Is trying to say is this. Buy gold. Buy silver. Keep some hard cash on hand in small bills. Buy some pre 1965 quarters & dimes. Get a high efficiency fireplace and some firewood to heat your digs. Spend your money on chainsaws as opposed to mutual funds. Get some work boots and work gloves don’t be afraid to get your hands dirty in order to survive. Or – am I reading too much into it? Who knows…

Pirate Jo
Pirate Jo

@Unfriendly,

I agree, but it is too late for me. I’m late 40’s now. Frankly, I hated accounting in college. My mom was a bible-beating Jehovah’s Witness who wanted me to get married as soon as it was legal (to another Jay-ho, of course) and spend my time going door-to-door to proselytize. I wasn’t supposed to even HAVE a job, let alone a career. I just wasn’t brought up that way.

I stumbled my way into accounting because I had no guidance and it seemed at the time like a way for me to get a decent job. I got by with a C+ average. I didn’t pursue the CPA route, because I couldn’t stand to take any more accounting classes than I was already taking. I like the financial analysis stuff, but I hate working for big corporations. I would like to do the books for small businesses, but there are so few of them left, and those jobs seem mostly to be taken by family members. I chose wrongly.

But you are right. My current manager is 16 years younger than I am, did the whole CPA firm thing, and now he is my manager. (And keeps all the interesting work for himself, while he delegates the grunt work, I notice.) HIS boss is a former frat-brat, golf-playing, Mens Wearhouse dude, same stripe, slightly older cat.

I just don’t fit in. I should have gone into another line of work. I didn’t like those “CPA clones” when I was in college, despise them now, and would be a lot happier if I wasn’t where I am. But if you want to change careers? Look what’s happening to those young people with no experience – I’d be in the same boat as they are, which is to say, I’d be back living with my nutty Jay-ho mom. (Who just won’t die.)

Hope that explains things!

Rose
Rose

Unfriendly: thanks for the kind words:)

It is awesome to find a site like TBP where you can have meaningful conversations about things of interest, isn’t it? Like an oasis of reality in a desert of fools.

ottomatik

We are surrounded by wanton criminality.

Pirate Jo
Pirate Jo

Rose and Unfriendly,

Aside from Teresa and Hope@ZeroKelvin, I didn’t know there WERE any other women here! I haven’t seen Teresa and Hope in ages.

We had a nice Millennial girl here for a while, but everyone nuked her. (Stephanie).

Isn’t there a website for “Women who want to talk about old white fart male things, but without the old white fart males?” My Google results turn up nothing.

Unfriendly
Unfriendly

PJ – Just be very clear. I’m a dude. I wouldn’t worry about Stephanie. From what I’ve seen here she seems to be bulletproof.

Maggie is also cool. You go girls. Talk amongst yourselves and leave the “old white fart male things” to us.

Nobody does it better. We got this….

Pirate Jo
Pirate Jo

Unfriendly, here I was about to give you a hug and rest my chin on your grandmotherly bosom. Well, good on ya, for not being a drag queen. At least you admit to being a dude!

I still miss Stephanie.

Any thoughts on Yelp Girl?

My thoughts: Yes, she’s a twat. But so are all those assholes piling on to give her a bad time. She’s a liar about many things, and they are self-righteous smug twerps. Basically, it makes me hate everybody.

Sometimes I only love dogs, and maybe five people that I know.

What did you teach, at UNI? Do you agree that Iowa is one of the only sane places left? I hope nobody else finds out about this place. I don’t want them to come here!

Unfriendly
Unfriendly

Iowa is, indeed, a very sane place in the rural
areas. The Indians used to call it the “beautiful land”.

I taught Industrial Psychology & Business / Marketing classes.

Gotta go for now. Til next time…

Rose
Rose

I think Yelp girl should have offered up a workable solution instead of just whining. She did have a valid point about cost of living. Yes, she was stupid to take the job given her circumstances, yes she wasted her limited money on foolish things, but the fact does remain that the company is inaccessible to young talent with small bankrolls. I think that this is actually a detriment to the company (although the loss of yelp girl wasn’t, there is no room for whiners in a business, only for problem solvers)

Maybe it would be in Yelp’s interest to offer some sort of dorm option for newbies. It would vastly increase their labor pool options. Right now they are largely limited to trust fund babies who can afford to live the cost of living while they work for peanuts. This most likely creates an echo chamber of ideas if everyone working there comes from a similar background.

Offering a low cost, no frills dorm-ish type crashpad to low rung employees would open things up to anyone with talent, bringing new perspectives on board that might add relevancy in previously underdeveloped population segments. For example, a trust fund baby from NYC has no idea how to appeal to or develop products for a midwestern farmer type, but a creative but cashstrapped farm kid fresh out of university does. Rent him a cheapo dorm room as part of his comp package and he might give you a million dollar idea.

starfcker
starfcker
Rise Up

Stephanie Shepard (aka, “Clammy”) started her own blog a while back…

http://thoughtcatalog.com/stephanie-shepard/

http://0.gravatar.com/avatar/38a5f0c06996c6d9d044e33f698557b3?s=200&d=identicon&r=g

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