Food for thought ---
Everybody was excited because things weren't as bad as expected. It wasn't because things were better than expected or because companies beat with huge increases. Instead, companies showed smaller losses than those expected.
Are these reasons really a good reason to rally -- that is, do you want to buy something because losses aren't that bad? Or, do you want to buy something because it is earning a whole lot more than expected?
Now let's compound the problem. Over the last year, how many negative stories have we seen come out of the financial sector compared to positive news stories? Let's compound it even more. How many times has a financial CEO said "things are fine" only to have really bad news hit the wire within a week of the positive statement?
Credit spreads are moderately attractive
1 hour ago
4 comments:
In theory, doing less bad might suggest that the bottom will not be as deep, etc. But the reality is that this mostly reflects a change in attitude by the CEO's. Before when things were going bad, nobody wanted to stand out as a negative in the market. So they were all trying to play as though things were fine.
Well now that it's broadly understood that things are not fine, they are trying to do the usual expectations game of setting the bar low, then stepping over it. My sense is that if you're a CEO at a big financial company right now, your goal is simply to stem the bleeding. Let the other folks fall and hope you do less badly than everybody else.
Come on, Bonddad, sometimes they just plain LIE, a la Hank Paulson.
Surely you don't forget the word "contained."
Masters of the Subtle PR method.
This excerpt from Nouriel Roubini's blog was posted on Calculated Risk. I hope you don't mind me repeating it here:
"Most financial institutions are putting increasing numbers of assets in the illiquid buckets of Level 2 and Level 3 assets. While FASB 157 should prevent manipulation of the valuation of such illiquid assets, forbearance by the SEC, the Fed and other regulators allows a massive amount of fudging. An insider told me that in a major financial institution the approach is as follows now: top management decide in advance what the announced writedowns should be and folks dealing with the toxic/illiquid assets come up with totally ad hoc assumptions to make sure that such illiquid assets are valued consistently with the decided-in-advance amount of writedowns and losses. This is not earnings smoothing; this is active manipulation and falsification of financial results aimed at creating even more obfuscation of the true state of financial institutions. This obfuscation is actively abetted by the SEC, the Fed and all other regulators that are now in forbearance crisis management stage where the objective is to avoid at any cost anything that may trigger a financial meltdown. Thus, most of these earnings reports are not worth the paper they are written off."
Perhaps this is why they are "beating" their estimates. Think about what this means.
In response to kiron, this isn't surprising. What is the market value of something nobody wants? Provided they aren't actually selling those assets, they don't have to find out. So they write them down, rather arbitrarily, hoping that other banks go down before them and they can ride it out.
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