For those of you who have been with me for some time, you know that I have been screaming from the rooftops about how Non-GAAP reporting results in very bad behavior by management, analysts and the press as the Pro-Forma reporting is actually fiction and even Warren Buffett wrote about it in his latest Annual Letter to Shareholders as his biggest concern.
"Wall Street analysts often play their part in this charade, too, parroting the phony, compensation-ignoring ‘earnings' figures fed them by managements," Buffett said. "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." ~ Warren Buffett
Thus I am happy that the SEC will finally address this corruption. Friedrich is already GAAP ready, so you will actually see what a company is actually doing on Main Street when you use any of our Friedrich Datafiles as it is "AS IS" reporting.
The markets have come back in the last couple of weeks as the following game is being played by management and by Hedge Funds taking advantage of the following phenomenon:
There is such a thing on Wall Street called a "black out period" where for 5 weeks during earnings season companies and management can not buy their stock back, so the crash of January was caused by this black out. Well when the black out was lifted CEO's went hand over fist to buy back stock borrowing at extreme levels to do so. This forced the shorters to cover and the rest is history as even oil shorters covered as well and that is why oil has rocketed as well.
So for about 20 weeks of the year companies can not buy back their stock and for 32 weeks they can. This of course causes the wild market swings that we saw this year as in January there was the black out going on and thus there was no backstop to stop the selling. Then when the black out stopped in February every CEO and their mother went and bought their stocks borrowing insane levels of money and putting each firms balance sheets in serious trouble. The reason Friedrich can not find anything to buy is because the debt on Main Street is insane and the price on Wall Street are so overvalued as no one does any research anymore and people are just buying and selling without any clue what they are doing.
With the Federal Reserve bank lying to us that Main Street is doing great a few months back, Friedrich knew they were lying as he sees what results each company is reporting on Main Street and was not believing a word of it. Well just this week the Federal Reserve came out and said that the economy was not doing as well as they previously thought so they did not raise rates. Now when someone tells you that things are bad, do you rush out and buy stocks or do you logically hold off and use caution? Well Hedge Funds took the "bad news as good news" and bought anything that was not tied down. Unfortunately this bad behavior is starting to catch up with the Hedge Fund industry as 979 Hedge funds closed operations in 2015 and 864 closed in 2014. This is all because these Hedge Fund portfolio managers basically do zero analysis as a group and just take massive risks with their clients money. Bill Ackman who is the poster boy for terrible analysis and high risk is down -26.4% this year on top of the -20.5% that he lost in 2015. When his main holding VRX fell -56% in one day earlier in the week, he lost -$764 million of his clients money in just one day! So as you can see Hedge Funds are closing down as their clients are losing tons of money due to their doing little if any analysis and being totally reckless with their clients assets. In just two years 1,843 Hedge Funds closed down operations and those were flat years. Imagine what will happen when the trap door opens and the markets finally get hit?
As for the government the numbers by the Fed are cooked as well, and this is mainly because of Obamacare, as many people can not work more than 29 hours at one job otherwise the business owner will need to pay into the system. For example if I were to decide to go work 5 jobs at 8 hours a week in each, I would be counted five times in the governments jobs report. So those forced to work two to three jobs so their employers don't pay Obamacare tax are the reason the unemployment rate is only 5%. So as you can see with everyone cooking the books at extreme levels you can see that this will end badly one day. But investors have no clue what they were doing because you would imagine with Donald Trump and Hillary Clinton looking like they will compete against each other for the Presidency, both are going to cause massive changes to the international business environment by using tariffs and going after the drug industry. But instead of being concerned about all this and selling stocks investors are just piling in because their neighbor is and thus we have HERD MENTALITY!
DISCLAIMER: This analysis is not advice to buy or sell this or any stock; it is just pointing out an objective observation of unique patterns that developed from our research. Factual material is obtained from sources believed to be reliable, but the poster is not responsible for any errors or omissions, or for the results of actions taken based on information contained herein. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice.