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Strategies & Market Trends : January Effect 2003 -- Ignore unavailable to you. Want to Upgrade?

To: RockyBalboa who wrote (543)	6/10/2003 2:24:27 PM
From: RockyBalboa	Respond to of 666

Eric Fry in New York... - The stock market stumbled yesterday...If only stocks would go up each and every day, investing would be easy and EVERY American would be rich. But, alas, life is not so egalitarian. Stocks sometimes fall, and stock market profits, like so many of life's most delicious delights, are sometimes fleeting...especially during bear market rallies. Like the euphoria of young love or the hot fudge on a sundae, the capital gains of bear market rallies tend to melt away as quickly as they appear. Yesterday, the Dow slipped 83 points to 8,980, while the Nasdaq faded 1.4% to 1,603. - Freddie Mac, the government-coddled mortgage lender, "bummed out" investors yesterday with the disclosure that it has been "smoothing" its earnings - a.k.a. "massaging the numbers." The stock tumbled a breathtaking 17% on the news. - The company forced chairman and chief executive, Leland Brendsel, to resign, along with Freddie Mac's chief financial officer and its chief operating officer. It seems that one or more of these fellows may have been smoothing the company's earnings. To smooth earnings, companies use various quasi-legal accounting techniques to "stockpile" earnings in good times in order to apply those earnings to future quarters when business conditions deteriorate. The object is to produce the sort of "consistently growing" earnings that Wall Street analysts crave. - Smoothing, therefore, is the corporate equivalent of blood-doping - a company "extracts" its actual earnings, tweaks them a bit and then re-injects them into the income statement as flawless, consistently growing numbers...and Wall Street loves it! - In the real world, of course, earnings that grow consistently year after year are as rare a poor Republican...or a flawless diamond, which is why some investors eagerly pay a rich valuation for any company that purports to produce such a financial rarity. Coca-cola and Starbucks are examples of companies that have actually managed this rare feat. Freddie Mac, apparently, is not. Which is why investors slashed away 17% of the company's market capitalization on a single day, as soon as its "consistent-earnings" fraud came to light. - Smoothing earnings is but one of Wall Street's many "open secrets." (The community of professional short-sellers has been aware of - and critical of - the practice for years). Many well-known companies engage in this practice to some extent. But the line between accounting creativity and criminality is not exactly black and white. - Freddie Mac, however, seems to have crossed the line. The company promises to restate prior financial results to reflect the correct information. Which "correct information" might now be forthcoming, we wonder? - Meanwhile, out in the real world - far, far away from Wall Street - more Americans fell behind on their credit card payments in April than a year ago, according to Moody's Investors Services. - Moody's delinquency index on credit card payments 30 days past due rose to 5.25% in April from 5.04% a year earlier, but down a bit from March's 5.44%. But hold the applause...April's rate of charge-offs - the annualized rate that issuers write off card accounts as uncollectable - rose to its highest level in than a year, up a whopping 47% from last year. - "My country 'tis of debt," the Seattle Times quips, referring to the new calculation of the nation's debt load reported here last week. The real national debt totes to a hefty $43 trillion, and NOT the piddling $3.8 trillion shown in our official documents. The mind-numbing $43 trillion number includes all the formal debt of the U.S. Treasury, along with all the government promises to provide retirement income and medical care. - When Kent Smetters, one of the economists responsible for calculating the government's massive all-in-all debt, testified before the House Subcommittee on the Constitution of the United States, he stated matter-of-factly, "The government reports that the national debt in 2003 was about $3.8 trillion in the form of government 'debt held by the public.' But that number ignores massive imbalances in Medicare and Social Security programs and the government's other programs. When the liabilities associated with those programs are taken into account, the nation's fiscal policy is currently off-balance by over $43.4 trillion in present value, a number that is not reported in standard budget documents." - Hmmm...it might be little tricky to sweep that elephant under the carpet.

To: RockyBalboa who wrote (543)	6/11/2003 2:22:38 AM
From: Londo	Respond to of 666

Yeah, I agree - FRE is too big to be taken down.. right now. I just wonder when the next LTCM blow-up is going to be, and which company it's going to be. It'll probably be some obscure insurance outfit, but if it provides reinsurance services to another one, and another, etc etc.. when the chain gets going, it'll be truly unstoppable. Greenspan can only lower rates and buy so many treasury bonds before everything goes to hell when he has no room to move. Come to think about it, I think it's amazing that Japan and the Yen hasn't collapsed yet.