My Latest Huffington Post Column: 'Wall Street's Gains Equal Main Street's Loss?'

Below is my latest column for the Huffington Post, entitled "Wall Street's Gains Equal Main Street's Loss?":

Stock prices have been on a tear lately, bolstered by quarterly earnings reports that have in many cases outpaced expectations and growing optimism that the worst of the crisis-cum-downturn is behind us.

The S&P 500 index, for instance, is up more than 40 percent since its early-March lows, while the technology-laden Nasdaq Composite has scored a 13 percent gain -- and, through yesterday, a 12-session winning streak -- in the last two weeks alone.

Ordinarily, a bull run like this would be cause for optimism, on the belief that savvy investors see a light at the end of the tunnel. But in the currrent environment, could the good news that is powering share prices be bad news for the economy?

Consider the following recent reports from a cross-section of corporate America:

• Microsoft announced that revenues declined more than 17 percent amid falling global demand for PCs and servers. According to the Financial Times, the world's largest software company "sounded a far more cautious note about the prospects for a recovery in the second half of 2009" and its CFO said 'it's going to be difficult for the rest of the year....We're really still not sure we're out of the woods.'"
• The CFO of UPS, the 100-year old package delivery giant with a presence in 200 countries, warned the company didn't have "any confidence that either demand or activity is going to pick up substantially" in the next several months.
• Diversified manufacturer 3M, with operations in 60 countries, cautioned that it's "still facing a challenging sales environment with no meaningful improvement in demand yet from several major industrial customers," the Wall Street Journal reported. "He added there is a risk that recent upticks in orders could be a 'false dawn' caused by an over-correction in inventory levels earlier this year by 3M's customers rather than a sustainable recovery in demand."
• Texas Instruments, the second largest U.S. chipmaker, said "there's little evidence yet that real growth -- based on an improving market for cell phones, computers and other tech products, instead of inventory corrections -- is on the horizon."
• The CEO of WPP, the world's largest advertising company, was less-than-diplomatic when he noted publicly that he saw "no green shoots", "no yellow shoots" and "no moss" in the global economy.
• The Vice Chairman of General Electric, a company with 14 major lines of business and a presence in more than 100 countries, cautioned that "he isn't seeing an increase in orders even as U.S. economic statistics suggest the world's largest economy may soon shift to a recovery."

In sum, while a growing number of investors seem to believe that Main Street is on the mend, many of corporate America's senior executives -- who are normally not prone towards pessimistic outlooks -- are maintaining that they see no real evidence of a revival where it counts -- on the ground.

In fact, amid an almost single-minded focus on reported earnings results, many of which only appear favorable in comparison to the low-ball, company managed estimates that clueless analysts have come up with, Wall Street hasn't been paying much attention to just how dicey things look at the top of the income statement.

Yet as Karl Denninger of The Market Ticker and others have noted, many of the companies that have "beaten" expectations so far this season -- including several of those listed above and others such as United Technologies, Halliburton, AT&T, and Amazon -- have reported flat or falling revenues, with year-over-year declines in some cases of 30 percent or more.

One reason why so many businesses are apparently benefitting amid softening sales comes down to aggressive cost-cutting. They are slashing jobs, paring wages and benefits, scaling back capital expenditures and valuable R&D, and putting constant pressure on suppliers to reduce prices, forcing each of those in turn to do the same.

While such measures can provide a short-term boost to profits, it is revenues -- money coming in the door -- that keeps businesses growing -- and the economy humming. Morever, even where firms are seeing notable improvements on the bottom line, odds are that few will be looking to boost hiring without seeing solid evidence that sales are also picking up.

Finally, racy bull markets often provide a shot of growth-stoking confidence, encouraging owners and managers to think and act expansively, and investors and lenders to pony up funds that can help turn big plans into profitable opportunities. Not this time, however. The U.S. economy, slammed by the biggest financial crises this century, remains in a vulnerable state, and it is still exposed to numerous potholes and shocks, many of which are just now unfolding.

Among other things, the commercial real estate market is starting to implode, lending conditions are worsening and many credit markets remain frozen, no small number of financial institutions, including commercial lender CIT Group, are close to failing or are utterly dependent on continued public largesse, and, as noted above, employers are shedding jobs, not adding them.

Unfortunately, because stock market investors have decided to ignore reality in favor of false hopes and quick fixes, the euphoria they've spawned may inhibit at least some Americans from taking the steps necessary to cope with the challenging environment that companies like General Electric, Microsoft, UPS, WPP, Texas Instruments, 3M, and others still see around them.

Given all that, you might say that Wall Street's gain is their loss.

Comments

[roger]

If your thinking in terms of to day, in terms of purely economics, your not getting it, economics being but one cog in the wheel of change. What we are witnessing now is the finishing line of what started in the mid 1700. When the first machines where invented, until then everything was hand made, social relations where limited to farming & the family. In the very short span of 260 years all things baring none was transformed and the last 60 years change was made at the speed of light. This wheel of change is now coming to a screeching halt . Expressing and explaining this view of the dialectic of change would take a thousand pages but I hope you get the idea

[MichaelN]

Citibank Clients,

Effectively today, Citibank has decided to discontinue the Multifamily Lending Program across the country until further notice. Any loans currently in the pipeline will be completed as proposed.

Above is an email that Citi sent out to mortgage brokers earlier today. Does this suggest that Citi is anticipating "green shoots?"

I asked "why?" and this is the reply:

Its all about available capital as far as lending in commercial real estate. They are not lending much at all in other areas except home mortgages and maybe some corporate and investment banking deals. Our portfolio makes money. Are losses have increased but better than any other major bank.

This is NOT a "Mickey Mouse" institution and my contact is NOT speaking officially for Citi.

Conclude what you wish.

[David]

There must be some kind of way out of here said the joker to the thief ,there's too much confusion I can't get no relief

[Marion Shaw]

There are some remedial steps which could be taken now which might prevent
the re=emergence of a Madame LaFarge and her blood thirsty revolutionaries.
The oligarchy in this country is already outmatched in numbers and outwitted
in understanding. They dance while the American nation is smouldering in
resentment, struggle and increasing pessimism.

a) Restore the interest rate law which was cast aside by the bankers in 1929
and never addressed again (to my knowledge). It shall be against the law for
any institution or individual to lend money at an interest rate above six percent. This would give the public immediate relief on credit card usury.

b) Abolish the Department of Education in Washington whose sole agenda is to
reconstruct American values and present the appearance of education, while in
fact, they have destroyed the basic methods of successfully teaching children
to read, write and do arithmetic - a solid grounding for high school. The
uiversities have accommadated and produce thousands of pages of basic nonsense
posing as educational roadmaps.

c) Restore patent rights and abolish the government clause, in effect since
World War II, which states that if any company or research group takes federal
dollars, all employees must relinquish their patent rights, including federal
employees. This would restore competition and cut the fangs of the defense
industries and other groups which maintain debilitating monopolies of public
money.

d) Abolish the health care insurance industry and return to the system where
patients pay doctors on a fee for service basis. Eliminate frivolous law suits,
Return to a hospitalization insurance program and nationalize the drug
industry, making drugs available across the board at fair prices. Use the federal employee drug program as a model. I pay twenty five dollars a month
for medications which would cost the average citizen a hundred and fifty a
month.

If we don't do something constructive to eliminate the obvious corruption and
monopoly at the highest levels of government, history promises a solution: and
usually it is costly, bloody, chaotic and ultimately self defeating. But
history does not lie and those who don't know or care much about it, will regret
they danced the night away, while an angry sea was churning at the city gates.

[DDearborn]

As was stated above the current situation is merly the final few pages of a
story started long ago. The music is about to stop and nearly 6 Billion people are suddenly going to realize that about 50 million have stolen all the chairs.

[HSPencer]

In our better previous years in the country, (you pick the time frame), people graduated from high school, males entered the college or military, women(by choice and their own desire) became homemakers and child raisers, the male got a stable job with a large company, and made enough to purchase a good affordable home of about 1200 to 1400 square feet, with an treasonous, yet affordable 30 year fixed mortgage. Picture dad smoking his pipe and mowing the small lawn with a push lawnmower on a sunny Saturday afternoon, as mom in her high heels and tailored dress brought kool-aid and cookies to junior, sally, and dad under the shade tree. Your saying "Oh crap he is talking about the "Fifties"!
Here is why that life was better than today:---It was AFFORDABLE and REASONABLE!
No one was trying their best and failing to pay for a 3000 square foot McMansion that they knew they could not afford. Not too many $60.000 Lexus SUV's and $100,000 Hummers sitting in the driveways awaiting repossession on Monday morning.
Dad's job provided health care that covered all the family and it was a tiny cost out of his salary. The kids rode their bikes and played out late after dark safely, instead of sending vulgar text messages and posting nude picture on the cell phone and internet. On kitchen remodel of the house it was affordable formica countertops instead of stupidly priced "granite" or marble. Mom and Dad's room was just a few square feet bigger than the kids, and if lucky, it had a half-bath, instead of a "half the house sized wasted space cavernous "Maaasta Suite".
The kids and mom were happy, knowing dad could tote the notes for them and they would not be living in tents or under bridges, probably.
Today, the name of the game (is/was) unashamed Greed.
Now to my point. I will stop here, because the previous posters above have already made it well enough for me.

[Omitted Kingdom]

We live in a country where there is loads of BS about income taxes and the IRS, and the Right Wing Noise Machine gets out their noise makers about it, and yet not a word about credit cards or interest rates. The interest rates in credit cards, and their fees and charges, go only to benefit the banks in New York City, not into the general US coffer of the IRS. Effin' stupid.

[Arnold]

So exactly what is the mechanism by which Wall St can gain while Main St declines? Isn't it obvious? They bought the Government.
--
Anyone who complains about the unfairness of it all while not all out ranting about the need for public financing of elections, term limits, etc. is someone who can't even put two and two together.
--
Wall St buys: Congress, the Presidency, Regulators. And so, voila! Things go Wall St way. Does that shock anyone?
TARP bailouts, Goldman Sacks front running the NYSE (with the SEC blessings),
A secretive FED that refuses to divulge how the Trillions on its balance sheet are allocated, Fort Knox, devoid of gold because it was sacrificed in order to suppress open market gold and thus protect the fiat USD and a profligate Government .
--
All this is the result of an American Government hijacked by the financial oligarchy.
--
There's nothing that I can see that suggests these folks are threatened. You can be damn sure they are multi-continent based financially. Surely they have their plan B and plan C already in place. It doesn't really matter if Main Street sinks or explodes because these folks have already taken the steps to ensure the rest of their lives will be lived in luxury no matter what.
--
That's the state of the union.

[Patrick Sullivan]

The merchant princes of the finance world have blocked the development of unlimited heat and electrical energy now for over 100 years.

This period of technological interference by the central bankers is close to ending and a new era of energy developed from over unity machines will end forever the resource base issue that is used as an alibi to foster war and chaos.

The finance class had hoped and intended to prevent a golden age for humanity from ever arriving, but they have failed so far to destroy us with nuclear weapons as they have planned and intended to do; the golden age for humanity may be in its first stages.

As their nuclear weapons go away, so will their torture chambers, police states and prison camps.

PS: We won’t miss any of them.

[Michael Blomquist]

It is insane to have $24 trillion committed to bailing out the financial sector when they were the catalyst of this crisis and continue to provide unconscionable bonuses. No more trickle down.

We should demand that our tax dollars are committed to upholding rule of law instead of bailing out criminals. More money needs to be provided for law enforcement. Mozilo, Paulson, Killinger, Sandler, et. al. should be disgorged and indicted.

Even Judge Napallatano is calling for charges/prosecutions of Paulson, Bernake and Lewis for their role in the B of A and Merrill Lynch deal.

If you have not read the recent SIGTARP report you can find it here.
http://www.michaelblomquist.com/Papers/SIGTARP.pdf

I have bookmarked and highlighted a few interesting excerpts. I have only made it through about 25 of 262 pages so far.

[Marion Shaw]

This is a reply to Arnold. On the surface of your comments, I would be inclined
to agree. But the point I was trying to make is that governments can be
abolished; in the United States by "the people." While the lords of wallstreet
and their foreign counterparts eat cake and sail the high seas on beautifully
crafted yachts and roam the air in private planes, they may be appalled one day
to find themselves escaping the country under cover of an alien immigrant;
as was done so many times in the 20th Century by the powerful and mighty who
fell like dry leaves in the wind when their time was expended. History never
lets tyrants live forever; not even Rome. No doubt many will hole up in
South American hideaways, but the thief is always looking over his shoulder, as the Proverbs say. And they will never rest.

[tim]

Ted Kazinsky,.
Since when did they let you start using the internet?