Frank Veneroso on bubble in focusing on operating profits

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

Jason Trennert sees new highs in the S&P500 in 12 months

It wouldn't surprise me, candidly, to see the market hit a new high sometime in the next 12 months. Corporate profits, as measured from the GDP accounts, are actually past the prior peak. I would say the quality of the earnings is much better than it was when we were at the previous peak because a third of those earnings just came from one sector, which was financials. I think the Fed, personally, is going to remain a lot easier, longer than people are expecting. I think the whole idea that central banks, particularly the Fed, has made the decision that it won't tolerate deflation makes the asset allocation decisions a lot easier.

Now that you kind of know that inflation, or sticking the landing, are the two most likely outcomes, the equity allocation decision is just beginning. In my view, that is the greatest single catalyst. Hedge funds have already moved a lot of assets towards equities but long-only funds, retail investors, pensions and endowments are just starting to move the turrets toward equities and equity investments. That tends to happen over a very long period of time, it doesn't happen over a two or three month period, which is all we've seen in terms of flows into equity funds.

~Jason Trennert, managing partner, Strategas Research, Consuelo Mack Wealthtrack, April 22, 2011

Jim Rogers on remembering the context of earnings season comparisons

I think some of it is expectation management as you put it out, but remember what the comparisons were, we are talking about the second quarter of 2009, when the world essentially was coming to an end. Remember, at the end of 2008, beginning of 2009 we all thought the world had ended. The markets hit bottom in March 2009, well those were the comparisons we were up against. So things are actually better then people were expecting, but they should have looked back to see what the comparisons were and remember, the governments were spending huge amounts of money and that money has been flowing into the system in the last couple of quarters. Worry about next year, don`t worry about the second quarter now, that's history.

~ Jim Rogers, investor, CNBC interview, July 27th, 2010

Herb Greenberg endorses Thornton O'Glove's classic "Quality of Earnings"

If you haven't heard of [Thornton] Oglove, who recently turned 75, that is understandable. He retired from the investment industry in 1990, but not without leaving his mark in the form of a book, "Quality of Earnings: The Investor's Guide to How Much Money a Company Is Really Making." He wrote the book after years of co-authoring the monthly Quality of Earnings Report with Bob Olstein, who now runs Olstein Funds.

The book, which still sells several hundred copies a year, is considered by many to be a bible of forensic accounting. It is "among my favorite investment books," wrote Motley Fool's Tom Gardner in a preface to a 44-page interview he did several years ago with Oglove. Donn Vickrey, a former accounting professor and co-founder of Gradient Analytics, used Oglove's work as a motivation for his graduate dissertation.

"He has a wonderful sense of the history of Wall Street," says Hewitt Heiserman, of earningspower.com and author of "It's Earnings that Count." "He's seen the good times and the bad."

~ Herb Greenberg, "Thornton Oglove on investing," MarketWatch, April 20, 2008