Posted on 02/13/2009 8:28:21 AM PST by publius321
China's Accounting: The Next Debacle?
Speaking of China, I’m going to tell you now, long before all the media experts tell you that - THEY – “told you so first”. China is a ticking ACCOUNTING time bomb. You think we’ve had accounting scandals, wait till you get a load of China.
Within the next few months to a year, sagacious media “experts” will be telling you
(Excerpt) Read more at tableofwisdom.com ...
bttt
Europe will unfold first. Siemens is the tip of the iceberg. When only 10% of your population works full time you can only hide it for so long.
Is this guy legit or is he related to Brother Theodore?
If it all really hits the fan, and if China's accounting is shown to be a house of cards, and if China has purchased 10 bazillion dollars of our debt ...
Would it help us (financially) if we just told China to go take a hike, and said we weren't recognizing that debt anymore?
I can see a downside to it. But the upside might be better than the downside. So, there's my crazy stupid question: could we benefit/get away with blowing up China on an economic basis? You can now slap me and I'll crawl away and shut up.
I’d sell ALL my Wal-Mart stock before I pulled that trigger. After that, though... the upside might be bigger than the downside.
the author of this piece is the freeper who posted it, he’s been blogpimping on FR for months.
And you’ll have to make your own judgement call.
I don’t know that we want to provoke anything with a country that could, conceivably, field an army larger than the population of the US.
Being they were buying up our debt, it is hardly likely they were in worse shape than us.
Of course with half their water being polluted, most all of their baby girls being aborted over one boy and the most recent development of this world wide recession/depression, of course China is going to heck like everyone else.
Sovereign debt and credit will not be recognized during civil wars if there isn’t a interntaionally and USA recognized government.
However, the debt interest payments are supposed to be placed in escrow, more so for the credit rating of the US government than for the future funding of the new batch of tyrants that take the helm of whatever would come about in China after civil war or whatever scenario of civil breakdown you choose to hypothesize.
Since the Fed issues new debt to pay the interest on current debt, the Fed could theoretically delay issuance of new debt for the Chinese interest on Treasuries and other US debt, saving the US some new issuance interest payments otherwise used for the old issuance interest payments.
/hope that was made sense...
I understand your attitude towards me. One thing I can’t stand is listening to the politicians and the hindsight journalists who tell us how the big 3 got into this mess. These people on CNBC and Fox Business are “posers”. They may have great legs or nice hair but WHY should we value their opinions? Where is their ACTIONABLE market intelligence from years ago where they sounded the alarms, saving investors from losing their shirts on these stocks?
For those who asks the question – WHY - WHY should I value YOUR opinion? Here’s my track record with links. They are all favorable; however, I was wrong on a couple. I was passionately long Krispt Kreme, which was a dud. My other mistake was being short Amazon. I actually made 30% by closing out my short position but the premise of WHY I was short was not so accurate. Without further ado....
“The Decade of…”
By MrArbitrage
AUGUST 9th, 2001
http://boards.fool.com/Message.asp?mid=15536676&sort=postdate
“ If the 1980’s were the “decade of greed” I can’t imagine what that would make the 1990’s. Don’t get me wrong; I am as capitalist as they come but when I reflect back on the 1990’s, in all candor I come to the conclusion that that was the decade where we sold our souls as a nation. It doesn’t get anymore selfish then that.
Looking back, I see how we got so caught up in our greed, to such a prodigious extent, that ANYTHING, no matter how immoral it was, we were willing to defend the INDEFENSIBLE, all in the name of THE ECONOMY-STUPID. The small few who were outraged, were treated as if they were the ones who had character flaws. They were treated with disdain for implying that Character counted or had ANY place in our government. All that mattered was our back pockets.
Personally, I believe in divine providence. Many people, even those who don’t believe in God, believe that there is some kind of “cosmic justice” or karma or whatever. I see the ramifications of our decisions coming back to us. I believe that this country will reap what we have sown and it will be manifested in our ECONOMY.
Is that a bad thing? Sometimes we NEED a wake up call to get back in line, to put things into perspective. Sometimes we have to fall hard - in order to recover. Sometimes SUFFERING builds great character. Look how far we have fallen as a nation. Try to compare the character of the baby boom generation forward to those who suffered the great depression. There is NO worthy comparison.
Whatever it takes to get the attention of this once great nation, whatever it takes to restore our souls, I think is a good thing.”
- MrArbitrage AUGUST 9TH, 2001 7:00pm http://boards.fool.com/Message.asp?mid=15536676&sort=postdate
GM is so strapped in debt that it wouldn’t even put a dent in it. (GM’s sale of Echo Star) It’s SCARY how much debt they have. Looking at the balance sheet, one would think they were a damned utility, not a car maker. – MrArbitrage 8/7/2001 http://boards.fool.com/Message.asp?mid=15523185
“It is amazing to me how short sighted analysts and many investors are. What about 2002? Does anyone think that the price ought to bare some correlation to more than 1 quarter worth of “projected” sales? These are cars people, CARS. Should the stock price reflect DECLINING market share and declining profit margins?
How much blind faith are you going to invest into the notion that some CFO can read into the minds of the average consumer and into the future in order to accurately predict what is going to happen to the auto market next year and the year after that? If they have that kind of talent, they certainly are wasting it working for auto companies when they could easily rule the WORLD by amassing great fortunes trading their own stock portfolios. Perhaps if they have such infallible abilities to predict the future, THEY should be Wall Street analysts.” – MrArbitrage 8/22/01 http://boards.fool.com/Message.asp?mid=15611414
“Would someone who is bullish on the auto sector kindly give me a compelling reason why I should be willing to pay over three times the long term average earnings multiple for GM, F or DCX while: Jobs are being slashed aggressively, sales are slowing, the dollar is strong and making it hard to compete with the Japanese who subsequently make a superior car and are gaining market share, profit margins are disappearing, the companies are lending money to people who are not credit worthy (according to reliable sources) and they themselves are loaded with debt?
I want to know what I am missing here. I want to hear some substance. Instead of “Ford is a great company” or GM is a great company” tell me why it should be selling for this high price. Go back over the past 20 years and look at how frequently these auto stocks traded between 4-8 times earnings. Go back to the most recent recession and look how GM lost money in the years 1990, 1991, 1992 consecutively and how Ford lost money in 1991 and 1992 (Chrysler most likely did as well however I am having difficulty finding independent data for them because of the takeover). Given the highly cyclical nature of the auto business and the very undesirable factors currently working against them, tell me why I should be a buyer at THIS PRICE. Give me compelling reason why they should be anywhere but bellow their 52 wk lows at this time.
To quote Gordon Gekko (from the movie Wall Street) :) “Tell me something I don’t know”. I’m not trying to be arrogant; I just don’t see the correlation between price and value here.
The most substance I’ve been able to elicit at the GM board lately is “There can be no doubt that GM is a $90 dollar stock” or
“gas has come down a few cents a gallon, making SUV’s more attractive”. Well, the Japanese are moving in on that business too and I’m sure they will improve upon it as usual. – MrArbitrage 8/28/2001 http://boards.fool.com/Message.asp?mid=15648594
Other problems include the fact that they are giving the things away in order to move inventory. Just last week on the way to my office I heard a radio commercial by a local dealer proclaiming that Detroit is in trouble and need you to bail them out... “too much inventory...” We all know the dubious tactics of auto-dealers but this is one I haven’t heard in years and this dealer was actually saying the manufacturers are in trouble. There could be an element of truth to that based upon the expansion of ZERO percent financing.
The way that cars have been selling the past few years, it simply can’t go on forever. We’re not talking pancakes here. People only need so many cars. Anyone who believes the optimistic pabulum of the manufacturers is very naive. Are they as good and OPTIMISTIC at projecting future auto sales as they are at projecting future returns on their pension plans?.
The last major concern I have is that they are making too many sub-par loans to people who are much more likely to default, especially in this economy as people get their pink slips. It’s much harder to make a car payment on a car with an unemployment check. They make these loans to “undesirables” in my opinion, in order to delay the inevitable. The pressure is strong to keep moving cars, especially with the heat on them regarding possible pension shortfalls.
I think this will be the next big controversy. I can see the useless blowhards at CNBC a year from now doing another special on this one. Remember, you heard it here first. - MrArbitrage 1/8/2003 “The Worst is Yet to Come”
Levin should be ousted for falling prey to this speculative bubble, and if anything, TWX should make a hostile bid for AOL. Popularity and a high subscriber rate is not comparable to the intrinsic value contained within TWX.
History will prove that this speculative period was one in which even the elite threw in the proverbial towel and abandoned common sense, as was the case in 17th century Holland with the “tulip bulb craze”, as was the case with the vending machine craze in the 1960’s...
http://boards.fool.com/Message.asp?mid=13855131 (actual post link)
The aforementioned post was written at the pinnacle of Levin’s popularity. TWO YEARS LATER Fortune Magazine “breaks the story”.
The headlines on CBSMarketwatch read: AOL’s Fortune: Levin was forced out NEW YORK (CBS.MW) - Though Chief Executive Gerald Levin has repeatedly denied that he is leaving the top post at AOL Time Warner for anything other than voluntary reasons, the company’s own Fortune magazine now says otherwise.
Magazine quotes board member Fay Vincent
By David B. Wilkerson, CBS.MarketWatch.com
Last Update: 7:57 PM ET Jan. 24, 2002
http://cbs.marketwatch.com/news/story.asp?guid=%7BF5CEC693%2...
On AOL: 4/30/01 Because the visions of grandeur can propel the stock to such unbelievable new heights in the short term regardless of the direction of shareholder equity and it’s rate of increase or decrease, I can’t predict the top in the stock; however, I believe that the high p/e and p/b ratios are not a sacred part of Americas culture and will not be held up by mere tradition, I will venture to predict, contrary to popular religion, that AOL/TW will probably be trading at a more “media like” earnings and asset multiple. I also think AOL will find itself over extended, indebted and in the red within a couple of quarters as growth slows, profit margins get squeezed and debt increases .
That’s exactly what happened. AOL at this time was the most popular stock in America and surpassed AT&T as the most widely held stock in America.
(4/30/01 continued)I don’t revise my projection because a herd is willing to follow each other in bidding up a stock to lofty heights. That doesn’t last in the long term. The only SUPPORT this stock has is psychological. True support, based on assets and earnings will be found in the $20.00 level. I think this stock price will collapse like a
Ponzi-scheme. I can take a little ridicule now. The beauty of this is that this is archived. I will be vindicated.
AOL stock price on 4/30/01: Closing Price: $50.5
4/30/01 I was very bullish on AOL, beginning in about 1996. I like the company. My opinion is based on valuation and the slow down in new subscribers and computer buyers. The explosion has to slow down eventually and I believe that time has come. I also believe that AOL is operating like those boiler room, bucket shops that constantly pump the willing public full of “irrational exuberance” via press releases,
meanwhile they are getting their favored clients (in this case themselves)out of the stock... I think that the behavior of the execs only supports my theory.
http://boards.fool.com/Message.asp?mid=14872368 (actual post link)
HEADLINES - TWO YEARS LATER:
CBS.MarketWatch.com
April 14, 2003
Suit charges AOL execs with fraud According to the suit, the merger triggered early vesting of $1.7 billion in stock for five top executives, including former CEO Gerald Levin. In the five months following the merger’s close, the suit alleges, the executives sold off $550 million in stock, while at the same time spending $1.3 billion to
repurchase 30.2 million shares on the open market.
The repurchase “[used] corporate money to prop up the stock’s value so they could benefit personally and shield themselves from a stock collapse,” the suit said.
- By David B. Wilkerson, CBSmarketwatch
http://cbs.marketwatch.com/news/story.asp?guid={D50A32D6-237...
On Intel Valuation 2/20/2002
http://boards.fool.com/Message.asp?mid=16766125
Being short is certainly frustrating... As with AOL, it took about 7 months for it to reach my price range of the low $20’s... It is frustrating when you know that something is going to happen, but can’t exactly pinpoint the when. The duration of credulity is difficult to quantify. I think no man knows the hour or the day, but the season is most certainly upon us... Many will find it hard to believe, but I will once again be bullish - when prices justify being so... Those who are living by the sword are going to die by that sword because they are not going to be content to take their short term profits and run. If they do run, that will perhaps cause the correction.
If they don’t run, it will implode upon them. It’s a paradox.
INTC Stock price on 2/20.02: Closing Price: $31.44
MrArbitrage on Intel 1/16/02
TO THE POLLYANALYSTS (Intel analysis)
http://boards.fool.com/Message.asp?mid=16476018
Letter to the Analysts:
It’s a tragedy that people still listen to you charlatans. Do earnings mean anything to you?
Does market cap mean anything to you?
When a company like Intel has its earnings drop 80% and it is still priced not for perfection as some like to say, but rather for stupidity, what do you do? You stick to your guns in order to save face and declare it a strong buy! It is typical of human nature to
mitigate as you do in order to save face; however, it is disgraceful when your saving face is at the expense of millions of people. With INTC currently near its 52 week high and a market cap of about $240 BILLION DOLLARS, Intel will need to reach a market cap of about $1 trillion dollars in order to live up to the premium by which it now trades.
If Intel’s near term future was so rosy, they would be increasing capital spending - not decreasing it. They should also be pumping up R&D spending because they are going to need to open new industries if they are going to reach the new highs from here which you predict. The actions of Intel don’t seem to match the zeal priced into the stock, after all, as I have been challenged over the past several months for propounding the notion that the nature and history of technology is attrition in profits and margins despite the improvement of technology, the contention was that Intel would spend money fervently in order to create new markets. That was the justification I was given for such an extraordinary premium for diminutive earnings.
It will be absolutely necessary for Intel to re-invent itself to warrant this price because during their glory years, most people didn’t yet own computers so naturally sales would be quite strong. It was the same way with automobiles, radios, televisions, VCR’s etc.
The Calculator business was once a highly profitable growth industry. Now that so many people already own computers, there needs to be a pretty damn compelling quantum leap in technology for most people to keep that extraordinary growth rate of the 1990’s going.
There is no such incentive at this time. Unfortunately, Intel is priced at the 50% EPS growth rate at this time while growth rates have actually been receding by the double digits! The price doesn’t make sense.
I’m not saying that Intel is a bad company. There is nothing wrong with Intel. There is something wrong with Intel’s price. I might add that it is through no fault of their own, unless Arthur Andersen is doing their accounting. The current egregious error in Intel’s price in my opinion is directly attributable to the charlatanism of the Wall Street analysts coupled with the excessive credulity of the investors and fund managers. I believe we have a castle in the air my friends. Remember $240 BILLION Dollars is allot of money, even in this day and age. In order to be willing to pay $240 bills for this company, one has to believe that Intel is heading to at least a half of a trillion dollars in market cap while jobs continue to be obliterated...
As I predicted in December, the new wave of cuts are coming after the major new cuts in automotive firings. We are in recession. Unemployment is going to the double digits and there is no compelling technology out there to start a massive wave of upgrades in tech spending.
So, all of you pseudo-analysts out there, sit back and have another hit of the old “peace pipe”.
INTC stock price on 1/16/02: Closing Price: $33.71
1/28/02 PRICE WAR (Intel analysis)
http://boards.fool.com/Message.asp?mid=16567786
“Intel is a cyclical”. That’s the common justification I get after I point out Intel’s extraordinary earnings multiple. Well, it looks like Intel is following the business model of the auto “cyclicals”. It doesn’t look very auspicious for Intel and AMD to find themselves in a aggressive pricing war. Although, it looks quite auspicious for
consumers.
That shouldn’t be a surprise. The consumer always wins out in the technological evolution. Competition heats up, Tech gets cheaper and quality actually gets better.
When a cyclical gets a favorable cycle, they need to get the profits while they can because the well will dry up again. That’s why you call it a cyclical. When you find your company in a war with another chip maker, you can slash prices and retain market share for little profit or you can keep profit margins and lose market share. That’s fine, but you are in a “catch 22” situation.
Intel will continue to be a great company. The question is how do you justify a multiple of almost 200 times EPS when your profits are going backwards by double digits while your cycle is supposedly turning favorable?
This is the same deal that is going down with the automotives. Hell yes they are selling cars like hotcakes, but at what cost?
INTC Stock Price on 1/28/02 Closing Price: $33.92
8/9/2001 MrArbitrage on GM
Since this is an auto board, I’ll ask you a question in auto-sales language.
What’s it going to take for me to put you into reality today?
With the automotive sector, GM, F & DCX trading at over 4 times their historical AVERAGE multiples to earnings, what gives?
The world economy is collapsing before us. Job cuts are being announced at RECORD LEVELS. Profit margins are diminishing due to incentive wars and the strong U.S. dollar hasn’t helped.
Now, we are finding that the one glimmer of false-hope that investors were holding onto, consumer spending, is now falling off as well. Just about every retailer except for Wall-mart and K-mart is now losing sales. Is this REALLY a catalyst that will prompt consumers to run out and buy a new car that they don’t need? Is this REALLY a prudent
time to pay quadruple the average multiple to EPS for these companies that will probably showing red for the next few years?
What ever these people are on, it must be good. Is this what happens to a society on Prozac?
GM Stock price on 8/9/2001: Closing Price: $62.65
“the author of this piece is the freeper who posted it, he’s been blogpimping on FR for months.
And you’ll have to make your own judgement call.” - JerseyHighlander (2009)
*****************************************************
Here we are a few years later. In my column (linked on original post) I didn’t predict this; I -promised- it.
This is just the beginning. It will be widespread.
“HONG KONG (MarketWatch) — Moody’s Investors Service on Tuesday identified “red flags” involving accounting, governance and other issues at several Chinese companies, with the report sparking a record share-price drop in one company mentioned and big declines in several others.”
http://www.marketwatch.com/story/moodys-warns-on-china-firms-hitting-shares-2011-07-12
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.