Bubble

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It isn’t just the deviation of asset prices from corporate profitability which is skewed, but also reported earnings per share. As I have discussed previously, the operating and reported earnings per share are heavily manipulated by accounting gimmicks, share buybacks, and cost suppression. To wit: 

“It should come as no surprise that companies manipulate bottom line earnings to win the quarterly ‘beat the estimate’ game. By utilizing ‘cookie-jar’ reserves, heavy use of accruals, and other accounting instruments they can mold earnings to expectations. 

‘The tricks are well-known: A difficult quarter can be made easier by releasing reserves set aside for a rainy day or recognizing revenues before sales are made, while a good quarter is often the time to hide a big ‘restructuring charge’ that would otherwise stand out like a sore thumb. 

What is more surprising though is CFOs’ belief that these practices leave a significant mark on companies’ reported profits and losses. When asked about the magnitude of the earnings misrepresentation, the study’s respondents said it was around 10% of earnings per share.’“

DYI: 

Stocks remain with sky high valuations.  A mild recession will bring down valuations by 50% along with their prices.  At these levels it is a horrible time to purchase common stocks as returns over the next 10 to 12 years will be sub atomically low and after all expenses will be negative.  So hold onto your cash and precious metals until valuations improve for stocks and bonds.  The Great Wait Continues…

 DYI