The Shadow of Truth presents a “Market Update” in which we discuss the extreme fraud and deception that has engulfed the stock market – see below for our audio discussion:
The governments in my view, with their agents the Federal Reserve and other central banks and with the treasury department, they will do anything not to let asset prices go down…If the stock markets go down, I’m convinced all the central banks will buy stocks. All of them. – Mark Faber on CNBC
The S&P 500 has clawed back nearly 80% of its 250 plunge that occurred at the beginning of 2016. The pervasive “muscle reaction” of mainstream investors is to behave as if the nascent bear market in stocks is already over and we’re headed to 30k on the Dow. This tendency is epitomized by Cramer’s latest “c’mon on back in, the water is fine and stocks are cheap” declaration about a week ago. This graphic below exemplifies the current mainstream financial media narrative (sourced from Twitter with SoT edits) click to enlarge image:
This graph shows the number of stocks in the Russell 2000 index which have gained 50% for more in the last month of trading since October. As you can see, up until the current bear market dead-cat bounce, the market is “hot” when 20-30 stocks move up 50% in a month. In the current market nearly 80 stocks have moved up in the last month. This graph shows the omnipresent footprints of both the Plunge Protection Team and HFT trading. It’s gotten to the point at which every time the stock market seems ready to sell-off hard, some sort of “invisible hand” comes in and scoops up stocks, driving the market back up.
The other highly fraudulent aspect of this market is the way earnings are reported. Companies now report GAAP and “non-GAAP” earnings. The difference between the two presentation methods can be summed up as, “somewhat fake earnings” and “mostly fake earnings.”
In 2015, 20 of the 30 companies in the Dow Jones Industrial index reported non-GAAP earnings. For 18 of these 20, non-GAAP EPS was higher than GAAP. On average, non-GAAP earnings were 31% higher than GAAP for these 20 companies. In 2014, non-GAAP was 12% higher than GAAP for the non-GAAP reporting companies (FACTSET.COM) This illustrates the degree to which companies are now going to disguise and/or fabricate their earnings.
As if to throw gasoline of the fire of fraud and deception which has engulfed our financial system, most large corporations are now borrowing money in order to buy back their shares. This benefits no one except the insiders who receive huge stock-laden compensation packages and then turnaround and sell their stock into the company’s buyback program. At its root, this is nothing more than a massive transfer of wealth from shareholders to insiders. Why not just ask the shareholders to get out their checkbooks and send insiders a personal check instead?
Here’s an idea for reform, which of course will never happen: prohibit insiders from selling shares whenever a company has a shareholder buyback program in place. But don’t hold your breath waiting for that to happen….