08 June 2015

Lying Figures

It's long been a premise of these endeavors that financial quants really don't do meaningful quant. Leave that to the real scientists. Financial quants dig for cracks in the regulatory environment to legally cheat the system. Sometimes, like Li, they dress up their subterfuge in a pretty pink dress, but the aim is the same: cheat one's way to wealth. It's easy to get rich if one avoids the rules. Some on the right wing bray about free markets and Adam Smith (presumably, the real one), but a level competitive landscape means that income and wealth distributions are flat, since no one has power to control markets.

So, it is with a heavy heart that I take this missive to refer gentle reader to the latest reportage of chicanery.
An analysis of results from 500 major companies by The Associated Press, based on data provided by S&P Capital IQ, a research firm, found that the gap between the "adjusted" profits that analysts cite and bottom-line earnings figures that companies are legally obliged to report, or net income, has widened dramatically over the past five years.

As has been mentioned before, if one-time charges keep showing up in each quarterly, might it be that corporation management is intent on siphoning off moolah to places it ought not be going?

Boston Scientific says the numbers allow investors to see the company "through the eyes of management" because they are the same ones its executives use in making decisions.
I wonder? Does that mean each shareholder should get the same options gifts that CxOs get? I mean, if shareholders are supposed to look at some numbers in the same way as management, shouldn't they get the same numbers in their pay envelopes? I guess not. Sheep are for shearing, not for marrying one's daughter.

Note: this bit of sleight of hand is different from the lack of new organic growth which is driving down interest rates and thus driving up asset prices. If The Masters of The World continue to refuse to make physical investment, i.e. expand real production, they earn no real return. In other words, they're creating the world of 0% interest rate. Opportunity cost is always a race to the bottom; alternatives need only be a whisker's width higher, and will keep that difference as the lowest return collapses. There's simply no reason to pay more. "You don't want my 1%? Fine, stuff your moolah in your mattress! Or find a more lucrative use of your moolah! What? You can't think of one??? Again, take it or leave it!!!"

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