The Golden Truth: Capital One's (COF) Earnings Fantasy

Saturday, July 25, 2009

Capital One's (COF) Earnings Fantasy

Capitol One SHOULD HAVE reported a net LOSS of $120 million.

Capital One's stockd higher Friday after the Company released earings which were better than expected. They reported net income of $220 million, not including charges related to paying back TARP. Technically the market should care about those charges but I'll let that one slip by. MORE important, COF created their net income out of thin air by reducing their provision for loan losses. They reduced this accounting charge by $345 million from the amount they used the 1st quarter, DESPITE the fact that their total charge off rate spiked up to 9.3% in the 2nd quarter from 7.3% in the 1st quarter and from 6.07% in the 2nd quarter of 2008. If they had just held their provision for losses flat, they would have reported at net loss of $120 million (they will tell your their managed assets declined, HOWEVER, their charge-off rates more than offset this and their NET assets were basically flat, so strike that b.s. from the record).

The charge-off trend is not COF's friend. If anything, they should have INCREASED the amount they "provision" for loan losses, rather than decrease that amount, especially since they "provision" rate is about 1/2 of the actual charge-off rate. IN FACT, investors should penalize COF for not being a lot more conservative in this area of accounting. They even said in their conference call that they expect higher charge-offs in the future, so why do analysts let them get away with this crap?

In their explanation, Capital One wraps a loosely spun story around their reduction in loan loss provision for Q2. Don't believe it. If anything, analysts should be all over that - but they won't be. In another troubling trend, the default rates across all of their lending at their Chevy Chase bank subsidiary have spiked higher again. Another no-friend trend for COF. These business lines include commericial real estate, auto loans and home mortgages. And everyone knows that the charge-offs in credit cards are accelerating higher.

I would imagine that if I took the time to pour over the 10Q when they file it, I would find that is in much worse financial condition than is presented in their fictitious quarterly earnings report and I could decimate their "higher" Tangible Common Equity calculation, which they proudly strutted to analysts and I'm sure is based on more fantasy.

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Why Gold?

Gold is the world's oldest currency. You exchange your fiat currency (dollars, euros, yen, yuan) into gold as an insurance policy against catastrophic Central Bank and Government policies which serve to destroy the value of fiat currencies and destroy democracy.

Gold can ONLY be considered an investment to the extent that it remains significantly and historically undervalued in relation to the fiat currencies against which its value is measured. Otherwise it remains the world's oldest currency and is completely free from the counterparty risk associated with currency by Government fiat (i.e. fiat currencies rely on a Government's "full faith and credit.")

Quote Of The Month Courtesy of "Jesse"

Unfortunately for Larry Summers, Ben Bernanke, and their friends at the BIS, they have not yet figured out how to print physical gold, silver, and other essential commodities, and the world is reaching the point where it might simply start ignoring the New York based markets with respect to essential commodities such as basic materials, oil, foodstuffs, and the like, as they become increasingly irrelevant, fraudulent, and Orwellian. And then where will the financial engineers be, except with no more excuses and no place to hide?

Here is the link to his entire commentary, well worth a read:

http://jessescrossroadscafe.blogspot.com/2010/07/gold-daily-chart-shock-and-awe-for.html

Great Quote From Jim Rogers On Govt CPI Reporting

JR: I mean, we have inflation now. If you go to the shop, whether it’s groceries, or education or insurance or health care, prices are going up for everything. The government lies about it in the US. Some countries lie, many countries don’t: Australia, China, India and Norway. Many countries don’t lie about it and acknowledge that we have inflation. Others lie about it, the UK and the US, but if you go shopping you know prices are up.

Q: Are you saying that the American Consumer Price Index (CPI) published by the US Bureau of Labor Statistics is a lie?

JR: In my opinion, yes, of course it is. Have you looked at it? They’ve changed their accounting several times in the past few decades. When housing was 20% to 25% of the CPI and housing was going up, they didn’t count it, saying rents weren’t going up, and then when home prices started going down, they counted it. It’s the same with many things. It’s staggering some of the tortuous reasoning that the BLS has used over the past 25 or 30 years. When the price of gasoline goes up, they say it’s not really going up because it’s better gasoline, better quality, therefore you’re getting more for your money. I mean, it’s endless, the stuff that they say and for some reason people sit there, although more and more people are catching on, and accept what the government says.

source: www.clusterstock.com

Quote of the Week

"The primary function of a Central Bank is to engage in the massive transfer of wealth from the middle class to the wealthy elite. The Federal Reserve was set up to do this with the blessing and support of Congress." - Dave in Denver

If you refuse to believe the above, please read "The Creature From Jekyll Island: A Second Look at the Federal Reserve" by G. Edward Griffin and then explain to me why the Senate voted down the Vitter Amendment and Congress refuses to pass a law requiring a full audit of the Fed, even though the Fed is using taxpayer-backed money to bailout Wall Street and Europe.