The market looks only at the operating profits fiction. Last April in preparing a power point for a Ford Foundation Levy Institute conference I asked an assistant to go to the Bloomberg and get me the data on S&P operating profits and S&P reported GAAP profits. She came back and told me she could only find one series. I berated her and told her to contact the Help Desk. She came back and told me the Help Desk could only find one series. I got on the phone with the Help Desk. She was right; they had no notion of S&P GAAP profits. I sent them the data from the S&P web site. They were perplexed. Eventually all six Bloomberg technicians were on the phone with me saying they would find the GAAP series. Two months later they called me and said Bloomberg does not have on its pages the GAAP series.
The message from this story is not that Bloomberg was somehow deficient. It is that years and years had passed and none of the endless Bloomberg subscribers – basically the whole world of market professionals – ever called and drew this to their attention, as I had.
So, operating profits are a fiction, and literally everyone in today’s financial markets ignore generally accepted accounting principles and live and breathe this fiction.
As long as that is the market’s convention its participants can engage in another absurd and dangerous bubble. But some how, some way, reality will eventually surface – as it always does – and such market foolishness will end badly – as it always does.
~ Frank Veneroso, "More on the Unreality of U.S. Corporate Profits," RCM, January 21, 2014