Companies Making Money

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This week,
rather than focusing on inflation in the form of prices rising around the
globe, I thought we’d focus a specific form of inflation, namely, that of
inflated earnings.

 

Indeed, with
earnings season fully underway we’ve already seen some stellar results from the
likes of General Electric, JP Morgan, and Citigroup.

 

§  JP
Morgan: All time record earnings of $17.4 billion, earnings growth of 48% from
2009’s results.

 

§  Citigroup:
Annual earnings of $10.6 billion. First full year of positive earnings since
2007.

 

§  GE:
Total earnings of $13.2 billion, an increase of 15% from 2009’s results.

 

These three
companies, despite their supposed differences all have a common theme in their
results. That theme is:

 

Making money by lowering loan loss
reserves.

 

I realize
this sounds like mumbo-jumbo. It is. In plain terms, what this means is that
these companies are writing off the money they’ve kept in the proverbial rainy
day jar to cover any losses that might occur from the loan’s in their lending
portfolios (yes, GE continues to lend money via its financial arm, GE Capital…
the same arm that nearly took the company under in 2008).

 

Let me give
you an example. Let’s say that my rainy day jar contains $10,000 to cover any
unforeseen problems. Now let’s say that one day I decide that I only need
$5,000 to cover unforeseen expenses. Does this random mental calculation mean
I’ve made more money and need to report $5,000 more on my tax return that year?

 

NOPE.

 

However,
this is exactly how GE, JP Morgan, and Citigroup generated their “stellar”
earnings. In JP Morgan’s case, the bank did this with $2 billion, roughly 11%
of its 2010 earnings. This was on par with GE’s gimmicky at $1.4 billion or 10%
of annual profits. In contrast, Citigroup pulled out all the accounting
gimmicky stops, lowering loan loss reserves by $2.2 billion or 20% of 2010 earnings.

 

Put another
way, $1 out of every $5 that Citigroup reported in earnings was non-existent.
And $1 out of every $10 GE and JP Morgan reported was non-existent. Thus, the
message Big Business is sending to the world right now is clear:

 

If
you can’t actually MAKE the money, just MAKE IT UP.

           

I continually hear arguments that stocks are somehow cheap at today’s
levels. Just skimming over the results for JPM, C, and GE, I don’t see how
anyone can claim to have an accurate valuation of ANY of these companies. To
value a company you need some clue as to its earnings potential. All of these
companies are black boxes.

 

This is just another layer of the great financial Ponzi scheme that is
the US stock market. Bogus earnings, fictitious accounting, outright fraud,
insider trading, backroom deals… the whole thing is just one huge house of
cards propped up by one thing and one thing only…

 

The Fed’s liquidity.

 

Take this away and the whole thing comes crashing down. Some
commentators see this situation and claim that the market will never collapse.
I couldn’t disagree more. Liquidity has a price. And that price will ultimately
be the US Dollar.

 

Remember,
the US's Federal debt is now at $13+ trillion. And if you include unfunded
liabilities like social security and Medicare, you're talking about $70+
TRILLION in total debt on the US's balance sheet.



Let's be blunt here: the US will NEVER pay these debts and liabilities off. And
once the financial world finishes pummeling the Euro, we're going to see the US
Dollar and Federal debt markets implode.



I cannot tell you when this will happen. All I can say is that it will
happen. And when it does, inflation hedges across the board will EXPLODE
higher.

Good Investing!

 

Graham
Summers

 

PS. If
you’re getting worried about the future of the stock market and have yet to
take steps to prepare for the Second Round of the Financial Crisis… I highly
suggest you download my FREE Special Report specifying exactly how to prepare
for what’s to come.

 

I call it The Financial Crisis “Round Two” Survival
Kit. And its 17 pages contain a wealth of information about portfolio
protection, which investments to own and how to take out Catastrophe Insurance
on the stock market (this “insurance” paid out triple digit gains in the Autumn
of 2008).

 

Again, this
is all 100% FREE. To pick up your copy today, got to http://www.gainspainscapital.com
and click on FREE REPORTS.

 

PPS. We ALSO
publish a FREE Special Report on Inflation detailing three investments that
have all already SOARED as a result of the Fed’s monetary policy.

You can
access this Report at the link above.

 

 

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Cirtas Systems, a cloud storage hardware company, is announcing today it has raised $22.5 million in a second round of funding and has named tech veteran Gary Messiana as its chief executive.

Small and medium businesses will care about this because it can help them cut costs. Storage systems are getting so complex that they require the architectural expertise of highly specialized people to solve. The amount of data in corporations is exploding so fast that it’s hard to keep up with storage growth needs. By shifting it to the cloud, or Web-based data centers that can be outside of a company’s physical premises, companies can offload the task to others and reduce costs.

Usually, there is a trade-off between the cloud and client-based hardware. The cloud can be slower, but Messiana (pictured below) said in an interview that his company has designed its cloud storage to be as fast as hardware on the customer’s site, mainly by caching frequently used data near the location where it will be accessed. Cirtas uses a hybrid of on-site and cloud storage.

The San Jose, Calif.-based company makes its Bluejet Cloud Storage Controller, a piece of storage equipment that sits in cloud-based data centers. Cirtas deploys Bluejet controllers in a customer’s data center. Bluejet functions just like an on-site storage array, and the technology seamlessly connects to and accelerates the performance of off-site cloud storage services, with fast response to user queries, said Messiana.

The product is aimed at medium and large enterprises and is available now. By tapping the cloud, the company hopes to solve complex security, performance and compatibility issues that stop companies from using cloud storage. One of the big benefits is that enterprises will be able to move their storage from one cloud service firm to another to get better pricing.

Cirtas said it has completed beta tests at more than a dozen enterprise customers across diverse markets. The company ties together techniques for optimizing networks to work with its virtualized storage arrays so that it can deliver what it calls the world’s first cloud-enabled storage system. The company’s first purchase order has come from beta user Robert Half International.

Cirtas said it can securely encrypt all data in transit to and from the cloud, making sure that only authorized users have access to data. If there is a security breach, the Bluejet technology can prevent data from being read or used, as administrators can control who has access. It can also anticipate storage costs and how they fluctuate. And it can manage data for speedy performance.

Cirtas raised money from Shasta Ventures and Bessemer Venture Partners. Existing investors also participating include New Enterprise Associates, Lightspeed Venture Partners, and Amazon.com. The company plans to use the money to expand its infrastructure and accelerate the adoption of its technology.

Amazon is one of the big advocates of cloud computing, which can give businesses more options and better control over how they purchase data storage. Cirtas’s approach to the cloud is tightly aligned with Amazon’s, said Jeff Blackburn, senior vice president of corporate development at Amazon. He said Amazon was most impressed with the ability of Cirtas to migrate large quantities of data into the cloud in a fast, secure, and cost-effective manner.

Beyond Amazon, Cirtas has also secured a strategic alliance with Iron Mountain, which offers archive services. The Cirtas Bluejet product costs $69,995 per appliance. It is available from a variety of industry resellers. The company said it is making free evaluation systems available to customers.

The company was founded in 2008 by Dan Decasper and Allen Samuels. Its team includes veterans of Citrix, DataDomain, NetApp and Riverbed. Cirtas has more than 30 employees. Rivals include storage vendors such as EMC and NetApp, Twinstrata, Nasuni, StorSimple and Panzura.

Messiana replaces Decasper, who will become chief technology officer. To date, the company has raised $32.5 million. Messiana was previously an entrepreneur in residence at Bessemer. Prior to that, he was CEO of Netli and CEO of Dilient Software Systems.

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