Michael,
It's official! Even Greenspin says earnings are overstated:
New technologies and the bull market they've helped create
are leading to overstated earnings by causing problems with
accounting for stock options and corporate contributions to
pension funds, Greenspan said.
``It is thus incumbent on us to improve our understanding of
the process by which projections of future earnings are
translated into asset market value,' he said in today's speech.
When fair value for stock options is not charged against
income and options which fall out of the money are repriced, it
serves to ``understate ongoing labor compensation,' he said.
According to Fed staff calculations, that's overstated growth in
reported profits by one to two percentage points annually for the
past five years.
Profits have also been artificially augmented because rising
stock prices have reduced the amount companies have to contribute
to pension plans, he said.
``These upward adjustments in reported earnings, of course,
are a consequence of rising stock prices, and hence, may not be
of the same dimension in the future,' Greenspan said.
/Kit |
