Grinsanity

• *GREENSPAN SAYS EQUITY STIMULUS IS HELPING TO DRIVE ECONOMY
• *GREENSPAN SAYS EQUITY STIMULUS IS UNDERESTIMATED
• *GREENSPAN SAYS EQUITY IS COLLATERAL OF FINANCIAL SYSTEM

- Alan Greenspan on CNBC (sourced from zerohedge)

I guess all you can do is let Greenspan's remarks put a grin on your face.  The source of the grin being the knowledge that Greenspan is now nothing more than a senile old man who will go down in history as the one who started the fiat monetary inflation (printing) of our system that will ultimately be its demise.

Let's consider for a moment what exactly it would mean if "equity," meaning the stock market, were truly the "collateral" of the financial system.  "Collateral" is something of perceived value that a borrower puts up to secure a loan.  Gold is now being used as the collateral of necessity for interbank lending purposes in Europe.  Why?  Because lenders do not trust anything else that's allowed to be used for that purpose.  In an opaque, tenuous form the U.S. Government's "full faith and credit" is being used as "collateral" to back its catastrophically enormous debt issuance and the money being printed up to fund that debt.  "Home equity" was the collateral source of the housing market bubble and collapse.

GAAP Accrual Accounting Methodology Is At The Root Of Financial Fraud

Let's think about this in terms of using an individual stock as "collateral" by taking a quick peak at Amazon.com (AMZN).  I have maintained for over a decade that AMZN takes fraudulent advantage of GAAP accounting gray areas - i.e. stretches them beyond the "grey" area of legality - in order to generate GAAP income.  As we know ad nauseum, this wouldn't be the first case in which the SEC and FINRA look the other way. Without going into technical details that would put you to sleep unless you love hard core accounting, in effect AMZN is a giant ponzi scheme which relies on the ability to grow sales every quarter in order to generate enough cash to cover last quarter's expenses.

The perfect example of this process starting to sputter and fail is AMZN's latest quarterly report.  In that, AMZN used non-cash gimmicks to generate almost 70% of its reported net income (equity method of income from investments).  It also sustained a $3 billion drawdown in its cash balances in order to pay off its bulging accounts payable account.  It's sales margins were almost negligible because AMZN subsidized the cost of everthing it ships (fulfillment) in order to generate sales.

At any rate, here's a look at AMZN's value as equity "collateral:"  It has a market cap of $104 billion; a p/e ratio of 191 - note: the true p/e ratio calculated by stripping away accounting games is likely at 4-5 times higher;  book value is $7.2 billion BUT nearly 50% of this is comprised of the intangibles of deferred tax assets and goodwill;  strip away intangibles and tangible book value is $3.8 billion, leaving a market cap to book value ratio of 27x.  One note of caveat, the tangible book value assumes a prima facie acceptance of AMZN's fixed assets, listed at $4.6 billion.  No doubt the market value of AMZN's fixed assets is likely lower.

So there you have it.  A good example of equity "collateral" according to Greenspan is a stock that trades at a near infinite multiple of true earnings and an absurd multiple of book value (most banks trade at a book value multiple of 1 or less).  Please indicate to me if you would lend your money against AMZN (if so, I may want to borrow some money from you lol).

Don't get me wrong, I love AMZN's service.  If I don't need something immediately, I can shop on AMZN and get a better price on almost anything than at any competing store in Denver.  Not only that, the price includes shipping in most cases.  It's great for the consumer.  But AMZN is one of the "poster child" stocks that represents the extreme liquidity and fraud bubble that now permeates every aspect of Wall Street and DC.  Eventually AMZN will collapse.

So looking behind the words that came out of Greenspan's mouth on CNBC - aka Bubblevision - we can see the true absurdity of the [Money Printing] Maestro's comments.  It's actually quite poignant to see the incredible intellectual decay of the author of "Gold and Economic Freedom" (1966) LINK  into a senile old babbling apologist for the monetary policies destroying this country.  In a way, the path of degeneration from the 1966 Greenspan to the 2012 Greenspan is emblematic of the path of decline of the United States...