Misinterpretations; Perspective on Life: Best of Kass

NEW YORK (TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

Among the posts this past week were entries about what's really behind the numbers and missing the rally.

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Misinterpretations
Originally published on Friday, July 19 at 1:51 p.m. EDT.

"You can fool most of the people all the time on Wall Street." -- Bill King, The King Report

It is remarkable to me how misinterpreted some earnings reports are by the business media and other observers.

Case in point is IBM ( IBM), which I have shorted.

IBM's top-line growth has been horrible for years.

This data is taken directly from IBM's own earnings report on its website. (Hat tip Bill King of The King Report)

First, the headline, then the key numbers:

IBM REPORTS 2013 SECOND-QUARTER RESULTS

EXCLUDING $1 BILLION SECOND-QUARTER WORKFORCE REBALANCING CHARGE

GAAP results
  • Diluted EPS: $2.91, down 13%
  • Net income: $3.2 billion, down 17%

Pretax income decreased 20% to $4.1 billion and pretax margin of 16.6% was down 3.4 points compared with the prior-year period.

Later on, the company discloses that free cash flow was $2.7 billion, down about $1.0 billion from the prior year excluding Global Financing receivables.

The reported tax rate dropped year on year, assisting EPS -- but the company would never, ever call the increased earnings resulting from that a "one-time" gain that should be excluded from earnings. But to be consistent, it should do exactly that ...

At the time of original publication, Kass was short IBM.


I Am Mad at Myself
Originally published on Thursday, July 18 at 1:20 p.m. EDT.

I wrote this earlier:

"Don't give up, don't ever give up. There were some very emotional moments last night in the ESPY awards program. The show truly had some shining moments. Particularly poignant was the story about the Hoyt family, as well as Robin Roberts' journey."

I am pissed off at myself for missing the rally in the stock market over the last few months.

And I am mad at myself for disappointing a number of subscribers as my strategy has been poor.

I have been in the growth-slowing camp (which occurred) but it coincided with the valuations-growing camp (something I didn't expect). I was of the wrong-footed view that a policy dependent domestic economy deserved lower price-to-earnings multiples.

But it is very important to compartmentalize one's emotions by detaching yourself somewhat from your mistakes, taking a deep breath and by recognizing the game is long.

Otherwise you will NEVER succeed.

It helps to have a perspective on life. I sure know this after beating cancer late last year.

If you need a reality hit in an effort to put life's journey back into perspective, just watch this video, which was screened last night at the ESPYs on the Hoyt family from Boston.

If you don't cry you are not human.

And here is Robin Roberts' acceptance of the Arthur Ashe Award last evening.

Keep your perspective.


New York and Philly
Originally published on Thursday, July 18 at 10:19 a.m. EDT.

Following the better-than-expected July New York manufacturing survey released a few days ago, the Philly region also saw activity better than forecast.

The Philly survey came in at 19.8, well above expectations of 8.0, up from 12.5 in June and the best since March 2011. Most of the internal components improved from June.

While new orders fell to 10.2 from 16.6, it comes well off -7.9 in May. Backlogs remained negative at -1.8, but that is up six points from June. Shipments rose by 10 points and the employment component went positive for the first time in four months at 7.7 vs. -5.4 in June. The average workweek also improved. Inventories continued to decline, falling 15 pts m/m. Likely due to rising energy prices, prices paid remained elevated at 21.50, though down 1 point from June. Prices received receded, but after jumping in the month prior. Also of note, the overall business activity six-month outlook rose to 44.9 from 33.7, the best since March 2011.

Bottom line, after basically flat lining from March through June as seen with the national ISM figures, the New York and Philly regions are pointing to a better manufacturing outlook in July. This could be due to some reversion to the mean after what will likely be a soft Q2 and also signs that Europe, while not improving, has stopped getting worse, for now.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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