But now, every day the markets look for signs of reassurance – most of them provided by the clearly fabricated news on the number of UK deaths that dramatically understate what is happening that is issued by our government each day – and try to edge back upwards.

Yep, lying to us, lying I tell ‘ee!

There is also this terrible misunderstanding:

Instead, assets have been (in the main) valued at their market worth under ‘mark-to-market’ rules.

Something is valued at what it’s worth. This is pretty cool, not a bad idea.

One is that balance sheets no longer represent the activities of a company, as such: they represent the company’s relative worth in the market as a whole.

We should be valuing a company at something other than what it’s worth?

Because we do not value what a company does any more, which is what historical cost accounting did,

But marking to market is to value the company at what it does. That’s what the market value is. The holistic valuation of what’s inside that legal wrapper called the corporation.

fundamental asset revaluation will happen in the post-coronavirus world,

Quite possibly true. And it will be the change in the market values of those assets which will guide us to that change in valuation, won’t it? What other system are we going to use?

The Fat Controller tells us perhaps?

19 thoughts on “Conspiracy!”

  1. fabricated news on the number of UK deaths that dramatically understate what is happening

    Jesus, that belief requires a special level of stupid.

    Four levels of coronavirus measure:
    1. Number of people who have it
    2. Number of people who have been diagnosed
    3. Number of people who have died with it
    4. Number of people who have died from it

    The government/medias published mortality numbers are all looking at 3 as a proportion of 2 rather than the actually accurate measure of 4 as a proportion of 1. Which clearly OVERemphasises the mortality risk of coronavirus (higher numerator, lower denominator) as well as OVERemphasising the number of people dying due to it (3 > 4). Anyone with a passing knowledge of maths or stats should recognise this – one would hope that an accountant-turned-“economist” has some familiarity with these subjects. But clearly that is too much to ask.

    Incidentally the push now to look for non-hospital deaths of people who may have coronavirus as well (whilst not ramping up testing for non-hospital non-deaths) is also a transparent push to over-egg the mortality rate yet further.

  2. “One is that balance sheets no longer represent the activities of a company, as such: they represent the company’s relative worth in the market as a whole.

    That’s complete and utter bollocks!

    The company’s worth is what someone will pay for it, normally a function of anticipated discounted cash flows (with lots of proxies – such as multiples of EBITDA or PBT etc). It’s got nothing to do with what its balance sheet carries as net assets, whether prepared under an historic cost basis or using current value methods (unless it’s an investment company of some kind, then there is a stronger correlation.)

    And he knows that (yes, he really does), hence, have I read what he said incorrectly (or is it a selective quote, I can’t be arsed to go and look)?

  3. He’s surely getting more stupid. In what universe does historic cost accounting value a company’s activities? It only serves as such a measure if there is no inflation, if asset prices don’t change, if money retains its value etc. Given recent FX fluctuations, oil price changes and property price rises, to give just 3 examples, historic cost bears little relation to the economic environment any company with overseas activities faces. Exxon’s value is markedly different if we value its inventories at historic rather than replacement cost or realisable value

  4. In these Covid-19 times, it’s all about the trajectory.

    Murphy’s present trajectory is closely tracking David Icke’s historical path to enlightenment.

  5. Brilliant by Mal – I liked that explanation of what’s going on.
    Shame it was on the wrong thread.

  6. He is missing the point by focussing on company shares in listed markets. Their prices is a function of risk and uncertainty as much as anything else. The point being the company MAY still be worth what we thought but it MAY not. The greater the uncertainty the greater the haircut that participants in the market demand and the lower the market price, relative to book.

    We have an interesting problem right now. Marking “to market” the price of stuff that has no market, even in normal times. Level 3 assets might use the credit ratings of proxies as inputs. Those ratings haven’t been updated (yet) but we know they will be. What value to place on the asset? Shame the COVID financial crisis had to start just before a disclosable quarter end.

  7. There’s a very good (non-technical) paper on CoVid death data in the UK from the Oxford Centre for Evidence-Based Medicine here. Top takeaway: the NHS daily deaths actually include deaths from up to a month ago (each death being counted only once, of course). They’re a useful as away of tracking trends, but not as a means of knowing how many people died on a particular date.

  8. Dennis, CPA to the Gods

    One is that balance sheets no longer represent the activities of a company, as such: they represent the company’s relative worth in the market as a whole.

    Wrong on both counts. This from a Chartered Accountant no less.

    Because we do not value what a company does any more, which is what historical cost accounting did,

    Wrong again. This from a Chartered Accountant no less.

  9. Complete descent into solipsist insanity. Never mind the market’s assessment of worth, he cannot imagine anyone valuing anything at any other value than what his spudliness has decreed. But for his total lack of charisma, he would be the 21st century Jim Jones.

  10. Dennis, Mental Health Amateur

    Under the rules of International Financial Reporting Standard accounting introduced by the International Accounting Standards Board at the behest of the European Union in 2005 assets on balance sheets ceased to be valued at their cost to a company, less any necessary provisions for their write down in value because of use or because prudence demanded it when there were real doubts as to actual worth. Instead, assets have been (in the main) valued at their market worth under ‘mark-to-market’ rules. So, land and buildings have been revalued. And goodwill can stay on the balance sheet without any necessary time limit. There has been a rapid growth in the ownership of assets of inherently uncertain value e.g. derivatives, intellectual proportty and financial products. In many cases there is no market for these products: they are valued by models instead. Debts are meanwhile stated at market worth, as are liabilities, which ash sometimes created the most bizarre accounting outcomes. And most especially, so too are pension fund liabilities accounted for in this way.

    At the same time as this has been happening there is clear evidence that companies have been paying out their earnings as fast as they can. This is the issue I am looking at with Prof Adam Leaver at the University of Sheffield right now.

    So there are two phenomena going on. One is that balance sheets no longer represent the activities of a company, as such: they represent the company’s relative worth in the market as a whole. This means that what was once an indication of the internal strength of an entity has now become a reflection of markets in general. And second, companies have used the opportunities that rising market worth in asset valuations has provided to pay out maximum dividend payments. And at the same time, this process is exacerbated by its reflection in the valuation of their pension liabilities, which are inherently an indication of overall market values of equity, properties and debt, because that is what such funds own: they are possessors of nothing of real substance at all in almost any circumstance.

    There is, then, no such thing as a well-capitalised balance sheet now: there is only a balance sheet that has been well positioned relative to the market. And there is an automatic transmission mechanism of uncertainty onto every balance sheet, and that is mark-to-market accounting. If that accounting does not undermine the integrity of a comapny’s accoutning in itself it will via its pension fund: there is no escaping.

    Because we do not value what a company does any more, which is what historical cost accounting did, but instead simply treat the quoted company as an exercise in financialisation largely unrelated to the underlying activity that it actually delivers in its day-to-day operations, we have ended up in a situation where companies are not valued in themselves but as part of a system as a whole. We are, then, not only incapable of telling which companies are well capitalised, because there is no way of knowing on the basis of the accounting data now currently in anyone’s possession, we may have no way of putting this right within the current accounting framework.

    The result is that we are not just in a little financial trouble: we are in deep trouble. And at some point markets are going to realise this. The fact that we have created what is, in effect, a giant Ponzi scheme for the benefit of directors who have got rich quick on the basis of inflating their share prices using the mechanisms that International Financial Reporting Standards provided to them under the apparent guise of shareholder value accounting is something we, and markets, are going to have to come to terms with.

    This is so wrong on so many levels – and bizarrely so – that one has to seriously consider the possibility that he’s really gone over the edge. The above, I would argue, is the accounting/economic/financial equivalent of William Macgonagall’s The Tay Bridge Disaster.

    Then again, it could be nothing more than another bit of raving in an attempt to scare up some funding for his Sustainable Cost Accounting scheme. It’s hard to know where the grifting ends and the crazy begins.

  11. Dennis, Odin's Tax Collector

    But for his total lack of charisma, he would be the 21st century Jim Jones.

    More like Alex Jones.

  12. Breaking news from The Great Wen: local, male, youthful vibrant, 18 of them, are having a game of football in the park next to my flat.

    Gawd bless ’em, the living antidote to central planning insanity.

    Can’t wait to see how things develop when Plod turns up. Am almost tempted myself to dob them in, just to see the rozzers being made to pant and sweat when they do rock up.

  13. Plod’s turned up.

    Don’t often see three of them in one place at the same time.

    Except Golders Green High Street this morning, when they were eyeing shoppers and people taking their children for a walk.

  14. So far spud has issued dire predictions of 10,000 a day will die, starvation and Boris only having a 1 in 3 chance of surviving.

    He’s claimed that it’s deliberate government policy to allow large numbers to die and that there’s a cover-up by the government of the true death toll which is vastly higher than the numbers given.

    I wonder if it’s worth asking the universities he works with and BBC whi ask him for his opinion why on earth they are using the services of such a clearly demented conspiracy theorist who is spreading alarm and misinformation?

  15. Lud – Do tell! Who won? And will we read about it in tomorrow’s Great Wen Advertiser? Did Plod help make up the numbers for them?

    Dennis – thanks for posting all, in its full glory. It’s even worse than I imagined from reading Tim’s extracts.

  16. Mr Lud, why did only three plod turn up? If they’d sent four there would have been two full teams and they could have all had a proper game.

  17. Tbh, Mr Womby, part of me expected them to be kitted out with riot shields. Which I think they might need in due course, because there are far more healthy young men who’ll refuse to be cooped up than there are coppers.

    Anyway,our heroes bimbled on to the greensward and the vibrants ambled off via one exit…

    … Re-emerging via another about 40 mins later.

    Vibrants 1

    Plod nil

    For now

    PS, has the sainted Mark Steyn lost the plot on this thing?

  18. Double entry book keeping dictates that even if you are changing the value of something based on some model you still need to put that difference somewhere, it doesn’t just disappear. And I’d very shocked that IFRS didn’t have significant reporting requirements

  19. @Mr Lud

    “eyeing shoppers”

    Police checking shopping baskets not appropriate, says Home Secretary
    Northamptonshire Police Chief Constable Nick Adderley has since backtracked on his comments that officers would marshal supermarkets

    Priti Patel: ‘Police should not be checking your shopping’
    https://youtu.be/B3lg-Nbn68k?t=362

    Priti keeps banging on about Policing with public support and consent, that vanished post 1997 under Blair. Until she gets rid of Stasi like Nick Adderley it won’t return

    .
    ROFL – Good work by a freedom lover

    https://c2n.me/46W7gFp.jpg

    https://c2n.me/46W7oTJ.jpg

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