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Why I Just Shorted IBM
IBM stock has spiked up Friday, yesterday and today because the Company released Q4 and full year earnings which “beat” the Street estimates – by design and by the heavy application of GAAP earnings management.
But here’s the facts: 1) Revenues year over year for the full year dropped 5.9%; quarter over quarter they dropped 1.3% ; this was the 5th year in a row of annual declines and the 19th quarter in a row of year over year quarterly declines; 2) gross and operating margins continue to shrink; pre-tax earnings (this is important) plunged, literally plunged, 22.7% for 2016 vs. 2015; 3) long term debt increased 3.5% year over year – it was 43.4% of revenues in at the end of 2016 vs. 40.8% of revenues at the end of 2015; 4) cash generated by operations (from the statement of cash flows) plunged 49.3% in Q4 2016 vs. Q4 2015 – it dropped 2.3% for the full year (see below for significance); 5) despite the heavy application fo GAAP management, net income dropped 10% in 2016, with a small quarter over quarter net income gain of 1%, which would have been a decline if IBM had not applied subjective GAAP manipulations.
With regard to IBM’s liberal application of GAAP earnings management techniques, the Company arbitrarily applied a 9.6% “effective” tax rate in Q4 2016 vs. the 12.5% utilized in Q4 2015. The Company claimed a 3.6% GAAP tax rate for 2016 vs. 16.2% in 2015. Manipulating the “effective” GAAP tax rate is the very first lesson taught in any high quality forensics accounting class. I give IBM an A+ for its maneuvers in this regard. But the “devil in the details” and fact that the cash generated from operations plunged 49% quarter over quarter should raise a huge red flag for any financial analyst (Wall Street pimps of course will turn a blind eye to that glaring financial “tumor”).
The stock popped today on IBM’s announcement that hit would hire 25,000 people in the U.S. in an obvious maneuver to avoid the stock-deadly “Trump tweet.” However, the Company has continued to maintain on analyst conference calls that the hiring is part of its normal operations and should not be differentiated from its cost-cutting layoff plans. But the hedge fund algos only care about the 25k hiring headlines.
Interestingly, IBM heavily promoted the success of its cloud business and artificial intelligence business, the revenues from which increased 13% in 2016. But this business can not be very profitable, otherwise IBM’s gross, operating and pre-tax net margins would not have dropped. This achievement is less than dubious.
Additionally, 20% of IBM’s revenues are derived from its global business services unit. As Trump escalates the trade war with the rest of the world, specifically China/Asia, this unit’s revenues, which dropped 4.1% quarter over quarter, will get hit even harder.
IBM is an American corporate dinosaur that is dying a slow, painful death from terminal business cancer. The Company has done well to survive this long. Amazon and Oracle have ignited a pricing war in the cloud space that will eat IBM’s cloud business alive. The cloud business is quickly become a highly commoditized product with no limit to capacity constraints and almost zero pricing power or real product differentiation. It’s quite similar to the fiber optic business that soared then crashed and burned last decade.
IBM’s current legacy, like most large corporations – US corporate debt has tripled since 2006 and is at record levels – is issuing debt to buy-back shares and skimp on payments into its pension in order to generate GAAP net income. It’s an American tragedy in the making. The stock market is historically overvalued now and is set up for a big sell-off, which I believe will occur this year. While the Dow and SPX have been flirting with record all-time highs, IBM sits 18.6% below its all-time high reached in 2013. It was IBM’s turn to be used as prop for today’s Dow rally, as IBM has been one of biggest contributors to today’s Dow gains. As I’ve shown above, there has been zero fundamental factors behind IBM’s stock move over the last three days.
This is the type of analysis that accompanies my weekly Short Seller’s Journal. If you would like to try it, you can subscribe using this link: Short Seller’s Journal subscription. I provide my own market analysis in which I remove “alternative facts” from the weekly economic reports. I also provide short-sell ideas, including suggestions for using options.
“We Won, You Lost – Get Over It”
The full quote from Obama when he was confirmed the new President was, “Elections have consequences. We won, you lost. Get over it.” The Democrats hiding out in their safe spaces and seeking solace in self-pity and despair should heed their figurehead’s words instead of acting like spoiled babies. It’s as if they advocate democracy as long as it’s “democracy” on their terms.
Obama supporters refuse to let go of the “hope and change” slogans Obama delivered in his 2008 election campaign without actually examining the substance, of lack thereof, behind Obama’s empty platitudes. Perhaps they can’t let go of their adulation of his presidency because they are still waiting for that “hope and change” to be delivered. That’s not say that Trump will deliver anything he promises either.
Upon query of about the nature of the “good” that Obama accomplished, they all resort quickly to “Obamacare.” They point to the coverage provided to those with “pre-existing” conditions and to the insurance coverage extended to those who were previously unable to afford health insurance.
But they fail to acknowledge the hundreds of thousands who dropped their coverage because they can no longer afford the premiums. Those folks, by the way, never show up in the reports about the 20 million 14 million that now get free or mostly free coverage.
In truth, Obamacare was collapsing under its own weight. It does not need a new President to repeal it. Let the market destroy Obama’s Frankenstein. The U.S. ranks 37th on the World Health Organization’s ranking of quality of healthcare by country. And yet, the U.S. by far has the most expensive healthcare in the world.
Obamacare essentially redistributed the deck chairs on the Titantic, shifting the burden of paying for scandalously expensive medical procedures from the person afflicted to society as a whole. As for the indigent with no coverage, I’m sure the taxpayers would have been fine extending free coverage to that demographic. What’s that, “no way?” Well, the burden of paying for that healthcare coverage was shifted to the middle class, who saw its premiums and deductibles to soar, forcing many to drop coverage or resort to a policy with a 5-figure deductible that functions basically as “disaster” insurance.
The biggest beneficiaries of Obamacare were Big Pharma and Big Corporate Hospital. Those two special interests, by the way, are the primary reason that healthcare is egregiously, if not prohibitively, expensive in the U.S. Thanks Barack.
There’s plenty of other Obama promises for which his followers have been left unfilled. He not only did not clean up Wall Street and DC, they became an even deadlier terminal cancer to society under Obama’s watch. As for the economy and the stock market, given that Obama presided over the doubling of the amount of U.S. Government Treasury debt – from $10 trillion to $20 trillion, or more than $1.2 trillion per year, a monkey could have sat in the Oval Office and taken credit for the dubious economic “recovery” and the re-inflation of the stock market bubble, which is now the most overvalued stock market in history.
In today’s episode of the Shadow of Truth, we take a look at what we might be able to expect from Trump and the myths of Obama’s presidency:
The Air Is Releasing From The Hope Bubble
The post-election run-up in stocks was fueled purely by “hope and change” energy. Now that Trump has assumed the mantle, reality will hit like an icy shower. The non-“alternative facts” about the economy continue to show contraction in real economic activity. The retail sales report for December was an utter disaster, especially if you strip out gasoline and autos.
The price of gasoline rose in December, which raised the nominal level of gasoline sales but inflation-adjusted is another matter. With autos, as it turns out based on measurable dealer inventories, a large portion of the auto “sales” were deliveries to dealers financed by “floor financing programs” and not actual sales to end-users.
I found a curious chart and commentary in today’s “Daily Shot.” I love this report because the author wears rose-colored glasses and puts a positive spin on any and all U.S. data. Today he had this graph:
This was presented as a positive. But let’s review the facts. It took $4 trillion in money printing – over $2 trillion of which went directly into the mortgage market – a few trillion in Government subsidies to the housing market including the bail-out of Fannie Mae and Freddie Mac, the artificial imposition of record low interest rates and the re-stimulation of the subprime mortgage market in the form of Government-backed FHA and VHA mortgages in order to move the single-family home turnover rate back up to the “long run average.” Think about that for a moment: it took several trillion dollars of direct housing market stimulus to move the needle on the home turnover rate up just a couple percentage points to its “long run average.”
But what happens now? Now that interest rates are rising, the printed money has worked its way through the system and mortgage default, delinquency and foreclosure rates are beginning rise again, what will happen to the line on that graph? Of course, it will head south – quickly and likely below the low it hit in 2010 – unless the Fed re-ups its money printing and the Government throws even more subsidies behind housing. But all that is going to do is put people into homes who otherwise can’t afford them.
The Philly Fed business outlook index hit a 2-year high, however, the prices paid sub-index drove a large part of this at it soared to its highest level since Feb 2012. In addition, the “expectations” for prices received dropped. This would imply that gross and profit margins are expected to drop. In addition, the average workweek sub-index dropped.
Now, there’s two big caveats with this reports, and of course the mainstream media and even ZH did not bother to peruse the entire report from the Philly Fed website but SSJ did bother. First, the survey used to construct the index measures primarily future expectations. There’s clearly a high degree of “hope” associated with the Trump stock market rally. I expect a big reversal of this sentiment over the next three months. Second, the Philly Fed incorporated “new seasonal adjustment factors” into the report. This was disclosed in the actual report for January. As with all seasonal adjustment calculations, the Philly Fed does not disclose its methodology for calculating the adjustments but they are likely designed to overestimate seasonal factors and therefore overestimate the index level calculations. – From the latest Short Seller’s Journal
In the latest Short Seller’s Journal, I take apart the latest economic hopium-infused economic reports and provide several short-sell ideas to take advantage of facts, which will eventually emerge and take stocks lower. The “air” leaking out of the Trump bubble and it will translate into many profit-making trades in the stock market from shorting stocks or buying puts. The SSJ is a weekly report dedicated to helping subscribers make money on the historically overvalued stock market. You can subscribe using this link: Short Seller’s Journal. It’s monthly with no minimum time commitment.
Dave Kranzler provides excellent and indepth research in making his case to go long or short with options to play if you choose. I look forward to getting his mining journal and short sellers journal in my inbox which include new ideas as well as updates on
previous ideas as market conditions change. I agree with his overall outlook on the market as my gut tells me something is wrong and since I’m not a market analyst I rely on Dave’s
experience to help me decipher what is really happening though his journals as well as his articles and interviews which are easily found on youtube. Thanks Dave for all you do and the personal attention and dedication to your subscribers. – subscriber “Keith”
IBD Reports Clinton Foundation Is Closing Down
When you are not in a position to wield power and broker deals for the wealthy individuals, corporate entities and foreign Governments who stuff money into your bank account, the money flow stops. I just stops.
The first reports about the Clintons’ pay for play piggy-bank were that the Clinton Global Initiative would be shut down. Now it’s being reported by Investor’s Business Daily that the entire Clinton Foundation will be laid to rest.
One would think that maybe Hillary and Bill + concubines could ride off into the sunset and maybe fade from public view? Not so fast. It remains to be seen if the Trump Government will go after the Clintons. And Obama paved the way for that to happen when he strolled out of the White House for the last time – after commuting more prison sentences than the 12 Presidents before him combined – without extending a “blanket” pardon to Hillary.
Now let’s see if Trump will actually listen to the voice of the people: Americans aren’t willing to forgive and forget. Earlier this month, the IBD/TIPP Poll asked Americans whether they would like President Obama to pardon Hillary for any crimes she may have committed as secretary of state, including the illegal use of an unsecured homebrew email server. Of those queried, 57% said no. So if public sentiment is any guide, the Clintons’ problems may just be beginning. – IBD
The list of crimes and breach of ethics by both Clintons is seemingly endless. But it was 
Hillary’s brash, overt corruption as Secretary of State that was over-the-top. It was as if she was flaunting the fact that no one would challenge the legality of her behavior.
I said all along that hubris is the Achilles’ Heel of corrupt tyrants and that hubris would eventually nail Hillary. Now it remains to be seen if Trump will follow through on his threats to go after Hillary. My cynical side is telling to not hold my breath. But the death fo the Clinton Foundation is, to be sure, more proof that the conspiracy theories about the Clintons is in fact “conspiracy truth.”
Essential Commodities: Gold, Silver And Popcorn
JBGJ regards Indians buying less gold as cash crunch bites primarily as evidence that FOBs (Friends of Bloomberg) are not in gold. If India’s domestic gold market was as weak as presented there would be a significant discount to the world price…In reality the Government has struck a shattering blow at the trust Indians have in holding wealth in any form accessible to the Authorities. When things finally unglue, India’s propensity to hold gold will probably be found to have risen – John Brimelow’s Gold Jottings report – LINK.
Yesterday’s sell-off in gold occurred after the Comex floor had closed for the day. The period of time between when the Comex closes – 1:30 p.m. EST – and the CME’s Globex computer system trading closes for about an hour – 5 p.m. EST – is one of the least liquid trading periods of the 23 hour, 5-day trading week. It makes that period of time susceptible to manipulative price take-downs.
As it so happens, likely not coincidentally, Janet Yellen began speaking about monetary 
policy at 2 p.m. EST. She stated that the Fed expects a few interest rate hikes per year until 2019. Geez, that would take the Fed funds rate up to maybe 2%? Of course, helped along the by the bullion banks, the hedge fund trading algos grabbed the soundbytes spewing forth from Yellen and concomitantly sold paper gold and bought dollars. The dollar spiked up and gold was taken down to $1200. It traded below $1200 overnight on the “fumes” of yesterday.
Gold, silver and the mining stocks have had a nice move from late December to now. They will not go straight up. Technically the sector was set up to be susceptible to trading activity related to Fed soundbyte propaganda like yesterday. This is yet another buying opportunity. Buy a little every month when the price gets taken down in the paper market. According to the Indian data presented by Brimelow, India is a huge buyer of gold below $1200. China is a steady buyer regardless of the price.
The Trump presidency will usher in a period in which Orwell’s prophecies will shift into overdrive. Popular mistrust of anything and everything Government will accelerate and Big Government’s attempt to counter-act this movement will take place in the form of intensified propaganda and a further reduction in civil rights. Along with this influx of political and media chaos will be an increasing distrust of fiat paper “fake” currency, which means the public will likely buy even more gold and silver than it did in 2016. Note: the U.S. mint sold a record amount of gold eagles in 2016.
In today’s episode of the Shadow of Truth, we continue our discussion of the precious metals sector, including some analysis of the gold / silver ratio:
Fight Big Pharma By Taking Control Of Your Health
In his latest commentary, James Kunstler observes that, “The public at large is restive, eager to get on with the job of deconstructing the matrix of racketeering that adds up to the immiserating culture we live in, a society where health insurance company presidents make $40 million a year while ordinary people lose their homes because a $5,000-deductible health insurance policy doesn’t cover the cost of treating a routine tonsillectomy” (LINK).
The “restive” public “at large” describes the rebirth of populism. Outside of Wall Street, there’s no bigger racketeering entity than the healthcare industry. Obamacare made it worse. The U.S. BY FAR has the most expensive healthcare in the world and yet, according to the World Health Organization, the U.S. ranks 37th globally in quality of healthcare. Number 1 in cost, number 37 in quality. That “slippage” is caused by racketeering. And make no mistake, Congress is well-paid by the industry to abide by the industry’s rules.
The system needs to be burned to the ground and re-built, including getting rid of the American Medical Association. Very unlikely to happen. but the way to fight back is to find ways to improve your health without asking the corrupt healthcare system for help. For example, some people find that lab-tested CBD oil products have a positive effect on their health and wellness.
Ultimately, finding alternative ways to combat your ailments can make a huge difference to your health. Do you ever check wholesale prices of things like CBD so you can get them from the supplier for example, this not only gives you access to an alternative, natural remedy that fights a number of health issues, but also helps you to save money. If back pain is stopping you from getting to sleep, before turning to sleeping pills or other sleeping aids, you might first find it useful to try purchasing a new mattress to determine whether your old mattress could be contributing to your lack of sleep or back pain. Correspondingly, if you are tempted to buy a new mattress to tackle your back pain, you can Read more on Bestmattress-brand.org.
Moreover, just remember that, as with anything health-related, if you are considering turning to alternative approaches to managing your ailments, then it is crucial that you do as much research as possible first.
Anyway, my colleague Rory Hall of The Daily Coin has written a well-researched article which explains low-cost ways treat physical ailments and fight back against Big Pharma. I have personal experience with some of the “health cocktails” he presents and can attest personally that they work. “10,000x More Effective Than Chemotherapy, Reduces Joint Pain, 100x More Effective Than Antibiotics and So Much More…” You can read the entire article here: The Journey To Better Health.
Momentum Traders Shift To Gold And Silver
“All the reasons being advanced for gold’s rise this week were fully in place at the November 8th election. Perhaps the subsequent slump will eventually be seen as an aberration.” – John Brimelow from JB’s Gold Jottings Report – Contact link
The dollar went nearly parabolic after the election, along with the Dow and the S&P 500. The move was not supported by fundamental factors in any respect. Rather, it was momentum-chasing game fueled by the empty promise of “hope.” While “hope” is a valid emotion for those who believe in life after death, “hope” in the absence of valid fundamental factors can quickly turn into fear – the fear of losing money.
Bank of America released a survey of Wall Street “professionals” in which the respondents stated that the “long U.S. dollar” trade is by far the most overcrowded trade. The dollar index has already retreated about 3.5% since the first of the year. If the index breaks below 100, the current exodus from the long dollar trade could quickly turn into a stamped toward the exit.
On the flip-side of this is gold, which has rallied nearly 6% since late December, and silver, which has rallied 7.8% since its end of December low. The fundamental factors driving gold vs. the dollar would be the continued surge in U.S. Treasury debt issuance; which has doubled in size over the last eight years, contracting economic activity notwithstanding the plethora of fake economic reports; a rapidly expanding Government spending deficit; and a rapidly expanding trade deficit.
The quick-fix band-aid for Trump will be to implement a policy that attempts to push the dollar lower. He tweeted as much earlier today. The spike-up in gold is being attributed to that tweet.
But not so fast, fake news adherents. 50% of gold’s move occurred on Monday, while the U.S. was closed in observance of MLK’s birthday and well before the Trump tweet. Mining stocks in Canada moved up sharply yesterday. This tells us that there are other factors behind the move in gold besides the expectation that the dollar is going to sell-off.
One of the Fed Governors, Lael Brainard, gave a speech today in which she somewhat back-pedaled from the Fed threat of four rate hikes during 2017. We knew this was coming. Gold will begin to anticipate an “easing” of the Fed’s stance on monetary policy, likely to occur at the next meeting, especially in light of the December’s retail sales / consumer spending disaster.
As the dollar falls below the 100 level on the dollar index, hedge fund algos will shift from buying dollars and selling paper gold to dumping dollars and piling back into paper gold. But that’s just for starters. The Modi cash removal initiative has failed to put the brakes on Indian gold imports and China and Russia continue to inhale vast quantities of physical gold. This will help infuse “substance” into the hedge fund-driven paper gold/silver trade.
On today’s episode of the Shadow of Truth, we chat about the factors that will drive gold, silver and the mining stocks higher this year, possibly in a move that will be bigger and longer than the move in 2016:
“Gold Is Money – And Nothing Else”
– JP Morgan on December 18, 1912 in testimony to Congress
Crush The Street’s Kenneth Ameduri invited to discuss why I believe the current stock market is the most overvalued in history. We also chatted about the movement by western Governments to a digital currency system and, of course, the precious metals market. It’s my view that the pullback in the precious metals sector that began in late July was over by the end of December. I also believe that there’s good probability that the next move in the sector will be more powerful than the 2016 move.
You can listen to our conversation here:
If you want to have access to my proprietary precious metals market analysis and junior 
mining stock ideas you can subscribe to the Mining Journal with this link: MSJ Subscription Link. The subscription is email-based and new subscribers get all of the back-issues. The next issue will be published Thursday this week and I have an extraordinarily intriguing high risk / high return, 10-bagger potential stock idea.
Gold! The Next Big Move Is Starting
The HUI index has bounced 21% since December 15th. It’s important to keep in mind that the precious metals sector tends to be very volatile. Yes, it’s pulled back 43% from its August 4th high of 284, but at that point it had been up 184% from January 19th low close. This type of volatility is characteristic of the sector and 40% pullbacks after triple-digit moves up have been not uncommon occurrences over the last 15 years.
Obviously the miners will not move higher unless the expectation of the market is that gold
and silver will move higher. The gold/silver ratio hit 84 in early 2016 and dropped down to 64 by July. It bounced back to 74 right before Thanksgiving. Currently the GSR is 71 and is forming a beautiful downtrend formation (click to enlarge):
Just to clarify, a falling GSR is one of the signatures of a powerful bull market move in the
entire sector. In 2008 the GSR hit 100 and by early 2011 it had hit the low 30’s. We’d like to
see this ratio go below that 64 reading sooner or later to extend the downturn pattern.
Another catalyst that will help drive the sector higher is the bond market. The metals have
been correlated with long term bond prices this year. That’s not to say that the sell-off since August was caused by higher interest rates per se, but the correlation has been present. In our opinion, the Fed is boxed in still and can’t raise rates anymore this year despite its threat to implement 4 rate hikes this. We saw how a similar threat played out in 2016. Once the market fully understands that short term rates are not going to be pushed higher by the Central Banks, there will be a torrid rally in bond prices that will help fuel an extended move higher in the metals. This will also be accompanied by decline in the dollar.
Shanghai is extremely busy. Just a brief summary of the fundamental factors affecting the
physical market in the east. Despite all of the misinformation about India’s gold market being freely disseminated by the western media, the demand for gold in India has picked up considerably. It appears Modi’s move to reduce cash in that economy has stimulated demand for gold. No shock there. HOWEVER, and this is where it could get very interesting, India’s trade ministry has proposed a cut in the gold import duty to 6% from 10%. That’s not to say it’s a done deal, but India’s Budget announcement is scheduled for February 1st, which is when we’ll find out if the import duty will be cut. This would trigger huge demand for gold imports.
In today’s episode of the Shadow of Truth, we discuss the factors that we believe are “brewing” to drive the next leg of the gold bull market:
Trump Dump Coming To The Stock Market
The stock market shot up like a Roman candle for idiotic reasons after the election. The candle may have reached its apex when the Dow hit 19,999.67 last week. As I stated in my Short Seller’s Journal, I was “stunned that bank traders were unable to push the index up to the holy grail number of 20,000. Of course, in and of itself, the “Dow 20k” watch was moronic. Thirty stocks do not an economic system make. Sorry Fox, CNBC, Bloomberg, CNN etc.
I also stated in my Short Seller’s Journal, in the issue two weeks ago, and long before Zerohedge posted the comment from some guy named DeMark who predicted the Dow would never hit 20k, that 20k might not happen. In fact, I titled the issue, “Is Dow 20,000 Now Out Of Reach?”
The “Dow 20,000” financial media promotion has bordered on vulgar. Fox Business (which I keep on mute at all times) kept a “Dow 20,000 watch” banner at the bottom of its broadcast during the entire trading day for the last 2 weeks of 2016. It disappeared last week. In the context of the entire stock market and the U.S. economy, it’s meaningless for the Dow to hit 20k other than as a powerful propaganda tool.
The housing market is one of the most important segments of the economy. The DJ Home Construction Index is down 9.7% today from its 52-week high in July. Retail spending may be even more critical to generating GDP than housing. The XRT retail ETF is down 9% from hits 52-week on December 8th. This stock index has literally tanked during a period of time that is supposed to be the best seasonal period of the year for retail sales. There’s a serious message there. THAT’S where the rubber meets the road – not from meaningless platitudes and soundbytes from a President-elect.
Essentially Trump promised on election night to spend trillions and cut taxes deeply and to pay for those based on borrowing trillions. These are policy proposals that are destined to fail from the moment the words left Trump’s mouth. But the stock market went nuts to the upside, culminating in what I would argue – based on using “apples to apples” accounting comparisons – the most overvalued U.S. stock market in history. Perhaps in the modern era only the Weimar German and Zimbabwe stock markets were more overvalued. Stay tuned because I am very confident that the Fed is not done printing trillions.
This is not the kind of stock chart in which I would want to be invested:
Yes of course this stock market could break up or down. But since Christmas, every attempted assault on 20k has been rejected. And the Dow opens higher every morning only to sell off every afternoon into the close. Monday was a perfect example.
Today (Tuesday, January 11) it looked the Dow was going to make another assault on 20k. But during Trump’s highly anticipated press conference, the Dow sold down hard from 19,970 to 19,840. That is a preview of what is likely coming in the months ahead, as the U.S. economic fundamentals continue deteriorate, notwithstanding the barrage of economic fake news coming from the Government and certain industry pimp associations.
If you like the analysis laid out above, you can get similar commentary with even more in-depth analysis and research by subscribing to my Short Seller’s Journal. I also present at least two short sell ideas along with ideas for using options.
I am a subscriber to both of your journals. I just want to say “WOW” to this post on your site. Thank you for all your work. As a financial professional of 28 years’ experience, I can tell you why there is no churn in your journal subscriptions. Your work is extremely sound and well done even in a massively
manipulated environment. – subscriber “Kevin”