Accounting for Taxes

The image below is from Qualcomm's release a few days ago:


Take note of the LAST bullet point. That's right. Check out that tax rate.

One of the Most Important Posts I've Ever Made.

As DB would say, "Presented Without Comment":

MF on JC

Stop Saying Morgan Stanley Had a "Disappointing" Quarter

Jeffery Harte, an analyst at Sandler O’Neill & Partners LP, commented in a Bloomberg article (below) that, “What stands out to me isn’t so much that Goldman had a blow-out quarter, it’s that Morgan Stanley had a disappointing quarter".

Disappointing? Revenue was down because they reduced risk in difficult markets. That's not "disappointing", it's prudent. While Goldman was able to step risk up and yield phenomenal trading results, it just as easily could have gone the other way. When it comes to prop trading, it's nice to shoot for the stars when that's your only focus. But when you have the government breathing down your neck about risk taking, YOU HAVE ACCEPTED TAX-PAYER MONEY, and the capital markets in which you trade are FAR from normal, reducing VaR not only seems prudent, but should have been a requirement for recipients of TARP funds. If you're going to take risk, don't do it on my dime.

Bloomgberg Article

Tech acting funny

Much is moving in the tech sector.

IBM almost acquired Sun Microsystems, but backed out. Oracle went in immediately after and sealed the deal.

IBM posted bad results, missing analyst estimates. Considering IBM wasnt posting bad results when the financial industry starting going nuclear, this shouldnt have bode well for other tech counters. But...

Google beat estimates .(amazing considering their reliance on advertising)
Apple beat estimates.
EBay beat estimates. (also amazing)

More reports are coming due, but consider that Apple's products fall firmly into the expensive and luxury good categories.

Also consider that both Google and EBay rely heavily on individuals clicking on their ads and closing auction deals respectively. Once again, the connection to discretionary spending is obvious.

Isn't the country in recession?

Why Bank of America's Numbers Were TERRIBLE

Net Income was $4.2B:


That's right, out of 4.2 billion in net income, 4.1 billion can be attributed to one-time events. Even worse, $2.2 billion of that is from the collapse in MER's debt, which allows BAC to book a gain (yes, I realize this is absurd).

Next, we have our favorite "we pre-released results to show you how great we're doing, but we really hope you don't look at the actual numbers" company, Wells Fargo. Stay tuned.

Bear Markets Alike: The 1970's and Today

It's a scary thought that the Dow is down 22% from where it was a decade ago and would have to rise 74% to reach its peak in Oct '07.  This article shares the views of long-time investors who see similarities between today's slump and that of the 1970's .  After reading the article, it may become surprisingly apparent how well our country has handled the current economic crisis and not allowed it ruin Wall Street all together.

Flashbacks of the 1970s for Stock-Market Vets

A Good Time to Get Into The SKF?

The ProShares UltraShort Financials ETF has fallen 59% in the past 3 months. Is this a good time to enter into this ETF? A key reason why this seems logical is the upcoming bank "stress tests." These tests, which will presumably test financial institutions' solvency, may create some selling in financials if poor results do appear. Furthermore, as the transparency (or lack thereof) of these tests have been highlighted of late, investors may get shaky and decide to start taking out profits from the recent financial rally. If traded properly (with appropriate hedges), such a play could make a nice return...

Have we seen the Bottom in the Economy?

Retail sales came out worse than expected today, bringing into question how the 2nd quarter of the year will turn out. Purchases fell 1.1%, with only pharmacies and grocery stores posting a gain. After a five week rally, this type of data shows that we may still have some time before the economy turns for good. Some analysts blamed the extremely large job losses in recent months as the cause of the consumer's inability to quickly bounce back, perhaps indicating the worst of the recession has yet to be seen.

At the same time, Bernanke and Obama have spoken in favor of the long term outlook for the economy. In either case, after the strong market we have seen in recent weeks, a short-market position or at least a partial hedge seems very appropriate.



http://www.bloomberg.com/apps/news?pid=20601103&sid=a_vFy3PVrCB4&refer=news

Sign of Life for PE Industry?

A couple of interesting acquisitions/acquisition rumors have caught my eye lately. First off, Barclays has finalized its deal to sell its iShares unit to CVC Capital Partners for $4.4 billion. This is a pretty decent-sized transaction for the PE industry and is being financed mostly by Barclays. The other bidders in this deal: Bain Capital, Hellman & Friedman, and Goldman Sachs. That's an impressive lineup.

As if this isn't enough, Verizon is also receiving a bid for its mobile-phone operations from the Blackstone Group, and a joint bid for the same unit from KKR/Carlysle Group. Could the purchase of established assets be the latest trend for PE firms? Such a situation seems like a win-win for all: PE firms finally put their capital to work and try to fulfill their reputation of having strong business acumen, and firms who receive bids get a good chunk of change to (1) buy-back stock, (2) increase dividends, (3) pay off debt, or (4) make acquisitions in turn.

Listen to the man who Broke the British Pound

George Soros, man of controversy.

Forex bets that made him rich-er overnight made the Bank of England look like a bunch of amateurs. Similar bets (although unproven) have been said to play a critical role in destabilizing asian markets in their crisis of 1997.

Whatever your view of him; irresponsible global citizen or brilliant trader, greedy and heartless capitalist or (again) brilliant trader,no one amasses 11 billion dollars without having a certain amount of talent, smarts and raw nerve.

So... moral of the story.

He says its a bear market rally, citing the lack of any traction in the economy with regards to growth as the primary reason. Sound logic, by any means. Accounting rules have been changed to the benefit of banks. It doesnt mean theyre profitable and out of the woods. It means they will spend a longer time deluding themselves.

Listen to the man.

Unemployment continues to drop

US unemployment numbers jumped again in March to a 8.5% jobless rate. Despite this negative news, the market was still able to close in positive territory. However, I question the sustainability of the rally if unemployment numbers continue to drop. In the metro Detroit area, the continuing struggles of the big 3 and the waves upon waves of layoffs has completely destroyed high-end home prices. For example, the real-estate market in Oakland County is in a freeze, as the only houses that are actually sold are those that have cut the price to way below market level. With unemployment not seeing any stability, as various economists project the jobless rate could drop to as low as 10 to 10.5%, this rally may very well fall short. The equity market will indeed recover before signs of bottom in unemployment, but we are not even at that stage yet.

Mark-To-Market

Today, the FASB announced a change in accounting regulations that will allow banks to value their "toxic" assets by an "orderly" transaction policy, basically trying to mitigate the effects of excessive write-downs caused by inactive markets. In the short term, this should be very positive for the market as the change came in time to hit Q1 earnings. Longterm, however, it reduces the clearity of valuing the assets which many believe may prolong the process of delevering that has already occurred for the past year.


A summary of the changes can be found here:

http://www.reuters.com/article/ousiv/idUKTRE5314PX20090402