iftttwall

 

Investors need to be aware of a significant dynamic emerging in the markets.

 

That dynamic is one of corporations missing revenues estimates while beating earnings estimates.

 

The majority of investors focus on earnings when it comes to valuing the stock market or an individual stock. Indeed, Price to Earnings or P/E ratios might be the single most popular stock valuation metric in the world.

 

However, there is a danger to pricing the market based on earnings alone. Earnings can be massaged in countless ways to beat estimates. You can release loan loss reserves, massage depreciation numbers, implement one time charges or writedowns, reprice bonds, etc.

 

Indeed, a study performed by Duke University found that roughly 20% of publicly traded firms manipulate their earnings to make them appear better than they really are. The folks who were surveyed for this study about this practice were the actual CFOs at the firms themselves.

 

For this reason, when you look at the markets, you need to look at how many companies are beating sales estimates as opposed to simply earnings estimates.

 

Unfortunately the news is not particularly good for this today. As Bloomberg notes, of those companies who have reported results so far in 3Q13, only 38% of S&P 500 companies are beating revenues estimates. This follows just 46% who beat in 2Q13 and only 37% who beat in 1Q13.

 

Bloomberg notes that this is the first time there have been three consecutive quarters of less than 50% of corporations beating revenues estimates going back to 2009.

 

Moreover, taken as a whole, the market is trading at a Price to Sales ration of 1.6. Historically, before we entered the period of Fed-induced serial bubbles, the market has traded at an average of 0.8.

 

So the market is expensive. And the most sensitive economic indicator (sales) are falling and failing to beat estimates.

 

For a FREE Special Report outlining how to protect your portfolio a market collapse, swing by: http://phoenixcapitalmarketing.com/special-reports.html

 

Best

Phoenix Capital Research

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/dP0hCiX-x-o/story01.htm Phoenix Capital Research

 

Investors need to be aware of a significant dynamic emerging in the markets.

 

That dynamic is one of corporations missing revenues estimates while beating earnings estimates.

 

The majority of investors focus on earnings when it comes to valuing the stock market or an individual stock. Indeed, Price to Earnings or P/E ratios might be the single most popular stock valuation metric in the world.

 

However, there is a danger to pricing the market based on earnings alone. Earnings can be massaged in countless ways to beat estimates. You can release loan loss reserves, massage depreciation numbers, implement one time charges or writedowns, reprice bonds, etc.

 

Indeed, a study performed by Duke University found that roughly 20% of publicly traded firms manipulate their earnings to make them appear better than they really are. The folks who were surveyed for this study about this practice were the actual CFOs at the firms themselves.

 

For this reason, when you look at the markets, you need to look at how many companies are beating sales estimates as opposed to simply earnings estimates.

 

Unfortunately the news is not particularly good for this today. As Bloomberg notes, of those companies who have reported results so far in 3Q13, only 38% of S&P 500 companies are beating revenues estimates. This follows just 46% who beat in 2Q13 and only 37% who beat in 1Q13.

 

Bloomberg notes that this is the first time there have been three consecutive quarters of less than 50% of corporations beating revenues estimates going back to 2009.

 

Moreover, taken as a whole, the market is trading at a Price to Sales ration of 1.6. Historically, before we entered the period of Fed-induced serial bubbles, the market has traded at an average of 0.8.

 

So the market is expensive. And the most sensitive economic indicator (sales) are falling and failing to beat estimates.

 

For a FREE Special Report outlining how to protect your portfolio a market collapse, swing by: http://phoenixcapitalmarketing.com/special-reports.html

 

Best

Phoenix Capital Research

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/dP0hCiX-x-o/story01.htm Phoenix Capital Research

Submitted by Lance Roberts of STA Wealth Management,

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/-BOjA8fAwB8/story01.htm Tyler Durden

Having seen his “unconditional surrender or default” strategy work over the debt ceiling, we wonder what ‘ultimatum’ President Obama has up his sleeve to get the Immigration Bill passed…

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/dMQUH1pq89Q/story01.htm Tyler Durden

In a tougher-than-expected proposal, the Fed has decided that “internationally active banks” raise their minimum liquidity standards (more than some expected, it would seem by the reaction in stocks).

• *FED PROPOSAL CALLS FOR BANKS TO HOLD 30 DAYS OF READY ASSETS
• *FED: US BANKS ROUGHLY $200 BILLION SHORT OF PROPOSED LIQUIDITY REQUIREMENT.
• *BERNANKE SAYS LIQUIDITY RULE WILL MAKE FINANCIAL SYSTEM `SAFER’

The Fed seeks comments on this proposal over the next 90 days – which we presume will involve much hand-wringing and jawboning until the shortfall disappears magically with transformed collateral… but for now, it is yet another ‘tightening’ stance in global policy that will impact ‘trading’ banks considerably more than ‘deposit-taking’ banks.

 

 

Via Bloomberg,

Banks would have to hold enough easy-to-sell assets to survive a 30-day credit drought under a rule to be proposed today by the Federal Reserve that may have the greatest effect on banks with big trading operations such as JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS)

 

The demand for 30 days of liquidity is intended to satisfy global Basel III accords for strengthening the financial system. Increasing the banks’ liquid assets is meant to make them less vulnerable in a crisis like the one that struck in 2008.

 

…

 

“It’s always been viewed as something that had more relevance for the trading banks,” said former Fed lawyer William Sweet, adding that it will hit them harder because of their more urgent need for short-term funding. Banks’ broker-dealer units must raise money in the market because they can’t rely on deposits to finance their activities.

 

…

 

“The implementation by the U.S. of the Basel rules have had more rigorous requirements than those implemented elsewhere,”

 

…

 

The liquidity coverage ratio was at the center of an international tussle last year, as some central bankers and regulators warned that a draft version of the standard risked causing a credit crunch, while others urged against a wholesale watering down of the measure.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ZIsmGZ6JqOM/story01.htm Tyler Durden

In a tougher-than-expected proposal, the Fed has decided that “internationally active banks” raise their minimum liquidity standards (more than some expected, it would seem by the reaction in stocks).

• *FED PROPOSAL CALLS FOR BANKS TO HOLD 30 DAYS OF READY ASSETS
• *FED: US BANKS ROUGHLY $200 BILLION SHORT OF PROPOSED LIQUIDITY REQUIREMENT.
• *BERNANKE SAYS LIQUIDITY RULE WILL MAKE FINANCIAL SYSTEM `SAFER’

The Fed seeks comments on this proposal over the next 90 days – which we presume will involve much hand-wringing and jawboning until the shortfall disappears magically with transformed collateral… but for now, it is yet another ‘tightening’ stance in global policy that will impact ‘trading’ banks considerably more than ‘deposit-taking’ banks.

 

 

Via Bloomberg,

Banks would have to hold enough easy-to-sell assets to survive a 30-day credit drought under a rule to be proposed today by the Federal Reserve that may have the greatest effect on banks with big trading operations such as JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS)

 

The demand for 30 days of liquidity is intended to satisfy global Basel III accords for strengthening the financial system. Increasing the banks’ liquid assets is meant to make them less vulnerable in a crisis like the one that struck in 2008.

 

…

 

“It’s always been viewed as something that had more relevance for the trading banks,” said former Fed lawyer William Sweet, adding that it will hit them harder because of their more urgent need for short-term funding. Banks’ broker-dealer units must raise money in the market because they can’t rely on deposits to finance their activities.

 

…

 

“The implementation by the U.S. of the Basel rules have had more rigorous requirements than those implemented elsewhere,”

 

…

 

The liquidity coverage ratio was at the center of an international tussle last year, as some central bankers and regulators warned that a draft version of the standard risked causing a credit crunch, while others urged against a wholesale watering down of the measure.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ZIsmGZ6JqOM/story01.htm Tyler Durden

Because Icahn vs Ackman was so January 2013 (and Ackman was promtply crucified), here comes the great distraction of late-2013: Gross vs Icahn, aka the book-talking titans.

Gross: Icahn should leave #Apple alone & spend more time like Bill Gates. If #Icahn’s so smart, use it to help people not yourself.

— PIMCO (@PIMCO) October 24, 2013

Ladies and gentlemen, place your bets.

And since the enemy of Ackman’s enemy is Ackman’s friend, does this mean that Allianz will now be funding Ackman’s imminent AAPL short?

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/S7-8Q1TE8hM/story01.htm Tyler Durden

It appears that, just like The Hoff, BlackBerry is big in Germany…

 

And then this:

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/0rET8JOhj1g/story01.htm Tyler Durden

This post was first published at Bawerk.net. You may also follow us on @EBawerk

As is clear to all with half a brain the production of un-backed fiat money distorts the economic system. Simply told, when an entity in society is given monopoly to manufacture medium of exchange at its own discretion they will harness this power. Slowly at first, unsure about its effects, but always testing the limits of the privilege bestowed upon them.  

As always, they will overexploit the power. They will manufacture money and give it to the masters that coercively secure the continuation of the power. The masters will obviously spend the money, creating a transaction in which nothing is payment for something. These transactions are by definition unsustainable because they violates Say`s law. We call them “bubbles”

In a free market supply is used to create its own demand. When people spend fiat money they exercise demand without providing supply. Said in other words, spending fiat money is tantamount to capital consumption and makes society poorer.

While the boom that follows money spending feels good, it must inevitably come to an end because the economic system cannot maintain the constellation that was induced by the money printing in the first place. Within the boom lays the seed for the necessary bust.

We have made a metric that sums up fiat money in its purest sense and compared that to the underlying trend growth of nominal GDC.

Our hypothesis is simple: if money growth exceeds the GDC metric a deflationary busts will inevitably come. If authorities refuse to accept reality and print more fiat money at the first sign of bust, they may “save the day” but they will “ruin tomorrow”!

For every action taken there will be an equal and opposite reaction! When the fiat masters go too far they create the set-up for an imminent deflation.

We looked at this relationship and as the chart below show, a boom-bust cycle based on monetary expansion is clearly visible.

  

Source: Federal Reserve of St. Louis (FRED), own calculations

Our main concern is obviously what happens when the equal, but opposite reaction comes as a consequence to the monetary experiment dubbed the “Bernanke-put”.

A secondary concern is indirectly derived from this. Money printing tears the social fabric apart and people react by taking up massive amounts of debt; debt that will never be repaid in currency units of equal purchasing power.

Now, if the equal reaction comes, that will raise the real burden of outstanding debt, which consequently will bankrupt all debtors.

The next chart looks at various sovereigns’ roll-over risk for 2014. The exceptionally large amount of debt taken on since the financial bust in 2008 will forever constitute a massive risk for the issuing country as debt is never repaid, only rolled-over, that is old debt is paid with new debt.

 

Source: Bloomberg, International Monetary Fund (IMF – WEO), own calculations

 

By this it is obvious to us that deflation simply cannot be allowed to happen! Our monetary masters will lose everything if they even flirt with the mere idea! Witness the taper scare this summer!

And since we are getting close to the next cycle low, why even bother try.

 

Source: National Bureau of Economic Research (NBER), Bureau of Labor Statistics (BLS), own calculations

 

Concluding Remarks

We leave the last word to the real Maestro

“There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.”

 

– Ludwig von Mises

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/rnrZcdsnFto/story01.htm Eugen Bohm-Bawerk

While hardly as followed as the other two key US manufacturing indices, the Mfg ISM and the Chicago PMI, the recently introduced Markit PMI, which comes from the same firm that tracks manufacturing data across the rest of the world, shows that in addition to the sliding job picture in September (and soon October), one other aspect of the US economy that took a big hit in October was manufacturing. As Markit just reported, “the U.S. manufacturing sector grew at its weakest pace for a year in October… based on approximately 85% of usual monthly survey replies. The flash PMI index registered 51.1, down from 52.8 in September, and was consistent with only a modest rate of expansion.” Not only was this the lowest headline print in one year, and should the drop continue it would be the worst print since 2009, not only was the New Order index had its weakest number in 6 months, but worst of all, the Output index, plunging from 55.3 to 49.5, had its first contrationary print since 2009!

Headline Mfg PMI:

And the suddenly plunging Output index:

The full data table:

Summarizing the atrocious print is Chris Williamson, Chief Economist at Markit said:

“The flash PMI provides the first insight into how business fared against the backdrop of the government shutdown in October, and suggests that the disruptions and uncertainty caused by the crisis hit companies hard. The survey showed the first fall in manufacturing output since the height of the global financial crisis back in September 2009. We can expect GDP growth to have suffered a set-back in the fourth quarter, but it is too early to estimate the extent of the slowdown. It is impossible to disentangle the impact of the shutdown from other factors that might have been at play during the month, so equally impossible to judge the extent to which business might bounce back in November.

 

“The Fed will be equally unsure of the underlying health of the economy, and will no doubt want to see the economic data stabilise, which could take until the end of the year, before making any firm policy decisions.”

Of course: bullish spin. How else.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/FZSyaunlsX0/story01.htm Tyler Durden