Corporate earnings go cliff-diving By The Mogambo Guru
The news just keeps getting worse, and I note with dismay that the latest
report of initial claims for unemployment are 516,000 - well past the
psychologically-important half-million mark - personal bankruptcies averaged
"4,936 per business day in October" - which is up 8% from September and 34%
more than October 2007 - business sales are down a couple of percent, factory
shipments are down a couple of percent - which may explain why electric power
is down about one percent - and all kinds of stuff are down, except, of course,
the damned government payrolls.
Even retail sales are down 2.8% from September, and down a whopping 4.1% in the
last 12 months. And as bad as that 4%
drop is, Anthony M Cherniawski of The Practical Investor newsletter notes that
it is worse than it appears, as "these prices are not adjusted for price
changes in the past year", and if you look at the year-over-year 4.9% inflation
statistic from the Department of Labor, as he did, then "That means retail
sales, adjusted for inflation, are down 7.6%" in the last 12 months! Gaaahhh!
If people aren't buying stuff, then this may have something to do with what I
saw at Chartoftheday.com. They write, "It has been said that earnings drive the
market. That may be so, but it has been the ongoing financial crisis that has
driven earnings - off a cliff."
And since, when examining my whole life, I can be characterized as "a paranoid,
xenophobic, penny-pinching little tightwad, armed-and-dangerous gold-bug
bastard going off the deep end again", I am particularly attuned to other
things that are "going off a cliff." So I run to the tables in Barron's, and I
see that the earnings of the S&P500 - the 500 biggest corporations in the
country - went down again last week to US$46.10 from $51.37, a drop of about
10%! And $46.10 is a long, long, LONG way down from the $84.92 they made last
year! Earnings have been cut almost in half! Wow!
And looking even more long-term, earnings of the S&P500 are back to where
they were in 2000! Hahaha!
Naturally, being a scared and paranoid-yet-disagreeable little man who grows
more so with every tick of the clock, I was trying to think of something clever
to write that would convey both my Utter Mogambo Contempt (UMC) at anyone who
thought that investing in the stock market over the long term was a good idea,
and my Utter, Utter Mogambo Contempt (UUMC) at anyone who thought that placing
all their retirement eggs in the stock market was a good idea.
This, of course, leads me to how the monstrous Alan Greenspan, while chairman
of the abomination known as the Federal Reserve, irresponsibly created all the
money and credit that allowed such rampant inflation in the prices of assets,
so much so and for so long that it made such "invest for the long-term" idiocy
actually seem possible; and then that naturally leads me to how Greenspan could
not have done it without the despicable educational system graduating students
who rank at the bottom of the world, the despicable news media for their
gullibility and ignorance, and the despicable Congress in general (and Senator
Christopher Dodd and Representative Barney Frank in particular) for being so
stupid, incompetent and worthless as to allow the Federal Reserve to commit
such monetary villainy, which naturally leads me to how even all these
execrable halfwits, together, could not have done it if the damnable Supreme
Court had not bizarrely ruled that FDR was allowed to corrupt the dollar by
substituting a fiat currency instead of the strictures of the Constitution's
Article 1, Section 10 that mandated that only "gold and silver coin" will be
money.
Then, predictably overwhelmed by the enormity of such supreme stupidity and
total failure, I am soon angry and outraged, again yelling, "Damn them! Damn
them all!", shouting out revolutionary slogans and ranting, "To the bunkers!
We're freaking doomed, you morons!"
It was not until later that I learned that Chartoftheday.com also had a comment
about the idea of "investing for the long-term" using these earnings numbers as
a springboard, but which was a lot more calm, more nuanced, and classy, even
though I could feel the marrow congeal in your bones when I read, "Altogether
not a historically high number considering that it is merely 19% greater than
where earnings were back in 1966."
But I suppose it all proves, for the umpteenth time in history, that you cannot
achieve prosperity by printing money, as James Grant, of Grant's Interest Rate
Observer makes perfectly clear in his article at online.wsj.com when he writes,
"partly because there was no external check on monetary expansion, debt grew
much faster than the income with which to service it. Since 1983, debt has
expanded by 8.9% a year, GDP by 5.9%. The disparity in growth rates may not
look like much, but it generated a powerful result over time. Over the 25
years, total debt - private and public, financial and non-financial - has risen
by $45.1 trillion, GDP by only $10.9 trillion."
And now total debt is north of 350% of GDP, the highest ever, and with a
federal government putting us on the hook for another accrued $95 trillion or
so in promised future benefits for which they will cause the necessary money to
be created, then if that is not a Damned Good Reason (DGR) reason to buy gold,
then nothing is! Whee! This investing stuff is easy!
Richard Daughty is general partner and COO for Smith Consultant Group,
serving the financial and medical communities, and the editor of The Mogambo
Guru economic newsletter - an avocational exercise to heap disrespect on those
who desperately deserve it.
(Republished with permission from
The Daily Reckoning. Copyright 2008, The Daily Reckoning.)
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