Both Citigroup Inc. and Merrill Lynch & Co. reported billions of dollars in first-quarter losses last week. But the Wall Street Journal reports that the write-downs might have been larger by $2.3 billion for Citi and $3.1 billion for Merrill if not for the wonders of perfectly legal, modern-day accounting.
Or shall we just call it smoke and mirrors?
Instead of showing up on the bottom line, these billion-dollar charges went to what the Wall Street Journal reporter calls a "special bucket in shareholders' equity called 'other comprehensive income.'"
The Elliott Wave Financial Forecast dispenses with smoke and mirrors and gives you straight forecasts and charts that will clear the air. Find out more about the April 2008 Elliott Wave Financial Forecast.
Maybe that's something like the bucket list from the recent movie with Morgan Freeman and Jack Nicholson as two old guys who have just found out they have less than a year to live. One of them remembers a college professor who gave his class an assignment to write up a list of the things they wanted to do before they kicked the bucket, aka the "bucket list."
Could be that the bucket list for all good CFOs includes finding a place to hide their companies' large losses before they die.
Here's how it works on the Street right now: Companies can classify their securities one of three ways: (1) holding them until they mature; (2) considering them to be available for sale and, (3) actively trading them. If a company chooses the second option (available for sale), then their value goes up or down based on market prices, but the loss (or gain) doesn't hit the bottom line until the company decides that the value isn't likely to change anymore.
With smoke and mirrors like this, who can tell what the earnings of the big Wall Street investment banks really are? For a clear picture of their stock prices, though, all one has to do is look at this chart:
Our analysts forecast one year ago that the highly leveraged debt game was about to end for Wall Street investment banks and the hedge funds they finance. Here's how Steve Hochberg and Pete Kendall describe their forecast in the most recent Elliott Wave Financial Forecast.
"The April 2007 issue of The Elliott Wave Financial Forecast also observed a debt structure that 'is past the point of no return. Debt issuers are now in an unprecedented position of throwing horrendous loans after really bad loans to keep borrowers afloat. All it takes is for one lender to fold and the race for the exits will be on.' In June, The Elliott Wave Financial Forecast said the race was in fact 'on' when Merrill Lynch put the brakes on a Wall Street effort to sweep losses in two Bear Stearns mortgage funds under the rug. The top line of the chart shows the best estimate of the damage to date, a 55% plunge in the Hedge Fund Enablers Index. The Elliott Wave Financial Forecast created the index last May from the shares of the eight largest investment banks based on their backing of the hedge fund industry and 'fearless approach to leverage.'"
-- From April 2008 Elliott Wave Financial Forecast
It's best not to depend on earnings reports – particularly once you realize the kind of smoke and mirrors that keep the true losses from being reported now. Let our analysis show you the kinds of charts that clear the air.
The Elliott Wave Financial Forecast dispenses with smoke and mirrors and gives you straight forecasts and charts that will clear the air. Find out more about the April 2008 Elliott Wave Financial Forecast.