@GSElevator – An online IQ test should just be one question: Would you be willing to spend twenty minutes taking an online IQ test.
1. Quote Of The Week / 2. Google's New Robot / 3. Mind The GAAP / 4. Interesting Links / 5. Joke Of The Week
1. QUOTE OF THE WEEK
PIMCO Adviser Sees ‘The Trade of a Decade’ in Emerging Markets:
“…the so-called Shiller P/E Ratio, a measure of valuation based on cyclically adjusted price-to-earnings ratio, fell to 10 in January. There have been only six times when the measure has dipped below 10 over the past 25 years. In the following five years, the stocks rallied an average 188 percent.”
2. GOOGLE’S NEW ROBOT
Boston Dynamics, the robotics subsidiary of Alphabet, released a video today (Feb. 23) showing off a new version of its human-shaped Atlas robot. The new model appears to be lighter, quieter and more nimble than its predecessor, and to show off its abilities, Boston Dynamics decided to torment the robot that just seems to want to help out.
In the video, Atlas is first seen next to its robot siblings at Boston Dynamics’ headquarters. It’s smaller and more streamlined than the last version of Atlas that was widely used at DARPA Robotics Challenge last summer, at a very human sized 175cm and 80 kg. The life-like robot is shown walking out of the company’s office, braving the Massachusetts winter for a stroll through the woods. Almost as if drunk, Atlas never falls over, but comes really close a few times.
Its creators mercilessly mess with it later in the video, knocking Atlas to the ground from behind. Atlas takes a moment as it lays face down on the ground and then quickly jerks up and gets back on its feet without unassisted. This is the most lifelike robot I have seen to date.
3. MIND THE GAAP
There’s a big difference between companies’ advertised performance in 2015 and how they actually did. FactSet estimates companies in the S&P 500 earned 0.4% more per share in 2015 than the year before. That marks the weakest growth since 2009. But this is based on so-called pro forma figures, results provided by companies that exclude certain items such as restructuring charges or stock-based compensation. Look to results reported under generally accepted accounting principles and S&P earnings per share fell by 12.7% - the sharpest decline since 2008.
Companies ostensibly provide pro forma figures to better reflect the underlying tenor of their operations. They may, for example, exclude the cost of laying off workers on grounds this won’t recur. There are instances when ignoring items like that which are required under GAAP can make sense. But companies have had a history of treating the ordinary as extraordinary when business conditions worsen. That pro forma figure flatters returns by excluding from equity things like goodwill. This is why skeptics tend to call pro forma figures EBBS, or earnings before bad stuff.
Outside of 2008, the only other times the GAAP gap was as wide as last year was in 2001 and 2002 when companies wrote off billions of dollars worth of dot-com bubble-era investments. Investor’s memories have since waned as pro forma reporting has again gained prominence in recent years, especially the case in tech and biotech.
In 2015 energy companies registered some of the biggest differences between GAAP and pro forma earnings. In total, S&P 500 energy companies had an estimated GAAP loss of $48 billion. That stands in stark contrast to the $45 billion of income they reported on a pro forma basis.
However energy companies weren’t the only ones writing off the bad stuff last year. Health-care and materials companies registered big differences. Materials companies reported $13 billion in GAAP earnings compared with $30 billion in pro forma earnings. And health-care companies earned $104 billion under GAAP versus $157 billion pro forma.
And then there was tech: Under GAAP, S&P 500 tech companies earned an estimated $176 billion in 2015, $42 billion less than their pro forma earnings of $218 billion. Some of that difference reflected many tech companies’ long-standing practice of excluding stock-based compensation from pro forma results. But the 19% gap between the two earnings measures was nearly double the difference in 2014, a reflection of the many other items that got excluded in a tough year—such as restructuring costs and business write-downs.
Overall S&P 500 earnings under GAAP came to $787 billion last year, S&P Dow Jones Indices estimates. That is $256 billion less than the pro forma estimate of $1.04 trillion.
4. INTERESTING LINKS
Meet Atlas the humanoid robot [WSJ]; Another conversation with Mohamed A. El-Erian [Advisor Perspectives]; The ‘red flags’ keeping you from raising money [Business Insider]; A website tracking falling start-up valuations [Downround Tracker]; Progress on Clean Energy [Gates Notes]; The problem with phone calls [The Atlantic]; Be a superboss [hbr]; Drone racing is taking off [WSJ].
5. JOKE OF THE WEEK
