Thursday, January 19, 2012

Morning Post 01/19/12 (SPX)

You gotta separate what's real from what's false and then place your bets on what's not real. That is the sad reality of investing today. Want proof? Let's look at two reports on BAC from this morning and see what the MSM, Wall St. and the central planners want you to hear and see and then lets look at what's really behind those stellar earnings.

The MSM, all is well, nothing to worry about, throw your money in the pot so you can retire rich and we can make massive fees off of you while you actually go poor view - From CNBC, Bank of America Rebounds to Post Profit; Shares Surge - US Business News - CNBC, "Bank of America matched profit expectations and exceeded revenue estimates for quarterly earnings, sending shares that had been trading below $5 just a month ago spiking higher in premarket trading." and add, "In particular, BofA said it made $2 billion in the fourth quarter by selling its stake in a Chinese bank and selling debt. That offset losses and higher legal expenses in its mortgage business."

Now let's pull back the curtain and reveal the Wizard - From Zero Hedge, Bank Of America Beats EPS Estimates, Misses Net Of One Time Items, Reports Could Be Underaccrued By Up To $5 Billion | ZeroHedge. "So far so good. But a quick skim through the presentation (attached below), indicates that the $0.18 number may be grossly inflated. Because when one excludes the various selected one time items highlighted in the quarter, which are as follows: Gain on sale of CCB shares - $2.9; Gains on exchanges of trust preferred securities - $1.2; Gains on sales of debt securities - $1.2; Representations and warranties provision - ($0.3); DVA on trading liabilities- ($0.5); Goodwill impairment - ($0.6); Fair value adjustment on structured liabilities - ($0.8); Mortgage-related litigation expense ($1.5), all of which it appears are part of the pretax number, the final EPS comes in at a much less impressive $1.3 billion pre tax, which at the company's indicated tax rate, would have been $1.0 billion after tax, or $0.10 EPS, a notable miss."

Amazing stuff right there how those accounting trick work. Wonderful FASB rules were basically removed at the bottom of the market in '08 to allow companies to improve their balance sheets to give the illusion that there is more health than there actually is. Of course they have not reinstated those rules now that the recession has been over since 2009.

Let's take a look behind the jobs numbers now - the Farce first - Jobless Claims Plunge; Home Starts Slump; CPI Flat - US Business News - CNBC. "The Labor Department says weekly applications fell 50,000, the biggest drop in the seasonally adjusted figure in more than six years. The four-week average, which smooths out fluctuations, dropped to 379,000. That's the second-lowest such figure in more than three years."

And now the reality behind the numbers - Economic Data Flood Summary: Claims, Housing Noisy, CPI May Return "Disinflation" Talk At FOMC Meeting | ZeroHedge. "Initial claims drop from revised 402K (as expected) in last week, to 352K this week, 50K swing in one week, on expectations of 384K. All in the seasonal adjustment, which tries to compensate for the 124K drop in Non Seasonally Adjusted claims. Fired bankers and everyone else no longer registers to the B(L)S." Add to that, "Decline likely “function of seasonal distortion,” likely “exaggerates strength in the labor market,” says BBG economist Joseph Brusuelas".

You all know my thoughts on the data manipulation BS that we see every week. Man is this all gonna hurt when reality bites back. The lies that will be exposed will be absolutely astounding. Remember I used to beat up China for being a farce and not being able to believe any numbers that came out of that counter? Well we have sunk to their levels (forced to by the Fed and its loose monetary policy and a government that regulated nothing that fueled the real estate bubble) and anything you get out of our government or its "subsidiaries" data wise is not worth the paper it is printed on.

Europe is just fine as well. They will be throwing  $600 billion or some other ridiculous number at the problem and all is well. Where the hell all of this money keeps coming from is still a mystery. What will all this "additional" money cost us when it is all said and done? What will the expense be associated with the never ending debt accumulation be? What will be the catalyst to reverse this process? Where are the jobs coming from that will provide the taxes to pay for all of this? Be prepared people. As I said last night, the piling of more debt on debt to solve a debt problem does not work. They will give the "illusion" that all is well and that we're recovering and that all is fine when in reality the core supports are eroding under the water line where you can not see the worst.

One chart this morning -

Minis 4hr - See the rising yellow channel that kept up in the game all the way up (that and the FOMC Chart) is now giving way and that support is becoming resistance. The new green rising wedge appears to be promising thus far but is till in the experimental stage. It is a likely formation to occur as the overbought markets appear to be trying to rollover here. For much more detail on the market's condition please see yesterday's morning post which charts just about everything you could want to see.

As for now (as has been all year basically) you have to play the rise into the FOMC meeting next week. It appears the powers that be have all the spotlights on them and can do not wrong at this moment. That can change at any moment. We all know a turn is coming, so as I have preached patience, I will continue to do so.

GL and GB!

I'll add another chart and some speculation - All of this simply AWESOME news and the markets have only popped 5 points? Anyone smell a rat? A sell the news event? The markets should be soaring. Remember good news is bad news - why? Cause that takes us further away from additional QE. Why do the markets soar and really pop on bad news? Two reasons A) the Fed is supporting it overnight behind the scenes in the low volume period where it is easiest to do so and B) Bad news brings the promise of more QE.

I'll be watching the yellow channel and the green wedge.

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