This quarter should dispel the myth that corporate earnings are tied to reality
Changing the timing of gains and losses is a cinch
The new US tax law is a window into the reality of corporate tax law.
Citigroup today announced a $18.3 billion loss in the fourth quarter, its worst quarter ever (and Citi has had a lot of bad quarters).
So how is the stock doing? It's up nearly 3% in the pre-market because everyone knows the loss is a joke. It's an accounting trick to create losses in the old tax regime so they can move profits into the new, lower-taxed regime. The market is cheering the creativity, if not the brashness of avoiding so much tax.
Excluding the tax switcheroo, the company would have made $1.28 per share compared to $1.19.
This is just the start of the quarter. It looks like GE is playing the same game by taking a $6.2 billion charge related to GE Capital and insurance on long-term care but the market isn't giving the beleaguered company the benefit of the doubt.