bizzXceleration: Performance, Value and Profit

The power of naive questions. One of the basic beliefs behind this blog is that the same basic psychological issues confront us both as individuals and in our organizational lives. In other words, the same hangups that drag down one person can drag down an organization. We see this all the time in the way, for example, that fear undermines the confidence of both individuals and companies. For a person, we call it a “mindset”; for a company, it’s a “culture”; but the outcome is the same — paralysis. With that in mind, I’d like to kick off a discussion of one of my favorite hangup-busting tools: the naive question.

Now Tim's bottomline is that you can dig beneath the surface so let's do that by asking what's beneath the surface. Well:

1. Buffett's offer was actually to gurantee the municipal bonds covered by the insurers leaving them with the screwball stuff and taking away their only income source. Which would mean their deaths as viable companies.
2. It turns out that GM's earnings surprise of +$.08/share was closer to -$.58/share when you take away the $1.5B North American loss that was offset by claiming a $1.6B tax credit. BTW it was Phil Le Beau of CNBC who reported this (vidclips below) and it wasn't picked up by any other news source we can find ! Earned his pay on this one, he did.
   
3. Retail sales rise was in autos and energy related stuff - in other words when you take out the inflation factor real sales are, again, likely to have gone down. But, also again, everybody looked at the headline even though it was clearly based on nominal numbers.

READINGS

Buffett Plan Saves Muni Market, Dooms Ambac, MBIA Yesterday, Buffett, whose Berkshire Hathaway Inc. entered the field late last year, told CNBC that he had offered to take all the municipal-bond business, some $800 billion worth, off the three major, imperiled financial guarantors' hands. The firms -- MBIA Inc., Ambac Financial Group Inc. and FGIC Corp. -- would have to pay Berkshire Hathaway billions of dollars to take over their municipal bond risk. They would be left with the stuff that got them into trouble in the first place: mortgage-backed securities, collateralized debt obligations, credit default swaps and all the rest of it. In other words, the insurers would give up all their future, in the form of the unearned premiums they have yet to draw down on the municipal bonds they have insured, and be left with all their bad, recent past.

GM Earnings: When The Good News Is NOT So Good When is a positive earnings surprise actually a a doozy of a loss? When it's General Motors fourth quarter earnings. Confused? You aren't alone. Let me explain. GM reported adjusted fourth quarter earnings of $46 million dollars or 8 cents a share. On the surface that's a huge upside surprise over the street estimate of GM losing 54 cents a share. But GM's upside surprise includes a tax benefit of $1.6 billion dollars. It's the kind of surprise almost no one outside of the company could have predicted. By my calculations, if you strip out that tax benefit GM posts an adjusted loss of $2.77 a share. Want more confusion? GM says it's not accurate to look at the benefit as a straight earnings per share benefit, so it would be incorrect to say the company lost more than $1.5 billion in the 4th quarter. So what do you make of all this? Clearly the 4th quarter was a rough one for GM, with the company losing $1.1 billion in North America--largely because of weaker sales in the U.S. GM Chairman and CEO told me this morning that he believes GM is on track to eventually get back to profitability in North America. When? He can't say. After the 4th quarter, GM is still spinning its wheels trying to get its business here in the U.S. back on track.

• GMs Record-Breaking Loss General Motors is reporting a nearly $39 billion loss for 2007 -- the largest loss ever for an automaker. GMs Road to Recovery

Retail Sales Show Inflation, Not Growth Not for price changes means that these are nominal -- not inflation adjusted -- numbers. Hence, with Gasoline station sales up 23%, and non-store retailers (home oil delivery) up 10.6%, the surprise gains were all energy/inflation related.

Where the lows are  Investors need to practice discipline over conviction in this tricky market. And, watch out for the January lows. Four primary metrics shape the tape. When viewed in isolation, they're inherently flawed. When assimilated properly, they serve as legs under the trading table that balance an approach. Last week we discussed whether or current juncture was akin to 1998 or 2001. That destination remains to be seen but the journey is where the path to profitability resides. It is in that vein that we scribe today's vibe. News is always best at the top and worst at the bottom. Given the decline in the market from the October highs, we must now ascertain how much bad news is reflected at current levels. I would offer that a shallow, transitory recession is priced into the market but further credit comeuppance is not. As of Friday's close, with 73% of the S&P 500 having reported, Bloomberg projects that overall earnings will be down almost 19% from the year-ago period. Some will argue that a litany of write-downs in the financial sector skewed the data, but it's a flawed argument. Every investment professional I know is watching the January lows for signs of a double bottom. As with any charts, it'll work until it doesn't. Hence the fatal flaw. If the retest scenario plays out, it could pave the way for a trading rally. The broader picture continues to warrant caution, however, as lower highs remains in place. In short, we've got room to run in the context of a bear market bounce but until proven otherwise, that's all it will be. There is a massive disconnect between what the credit markets are saying and what the stock market is hearing. Either the former will stabilize or the latter will follow the debt unwind lower. While spates of near-term capitulation have littered the landscape over the course of this slippery slope, conventional wisdom is clinging to the notion that the credit crunch and, by extension, the equity malaise is transitory.