Nothing reported, either economically or politically, seems to connect with reality. The reality of which I speak is of the look around you and the look it up variety. The reported cause never seems to line up with the reported effect. Most often, they are two completely unrelated events that are formed by the masters of spin into an unintelligible & intentionally misleading corollary.
Let give you a simple example using a recent event on the Dow Jones.
An investment newsletter to which I subscribe reported that on Monday, the Federal Reserve Bank of Dallas released its latest manufacturing survey. This wasn't old, stale data; this survey was conducted in mid-July. And the results were bloody awful, with the headline index plunging to -21 from -4 a month earlier. That was the worst showing in a year.
Yet the Dow Jones Industrial Average jumped 101 points.?
Now that jump was rationalized by reports that many companies were reporting good earning, example; FedEx boosted its 2010 earnings target and Harley Davison showed excellent earnings. But wait a minute: If you know anyone living in South Eastern PA, you know that Harley’s sales are in the tank. But they also have laid off over 1500 bodies in recent months – no wonder they have good numbers, at least for the nonce. As for FedEx, they can boost their projected earning all the want, but I ask; how many cuts have they made and from what direction are those consigned loads travelling? West to East, or East to West?
Or how about what happened a few days earlier? The ECRI ( The Economic Cycle Research Institute’s US weekly leading index) released its latest index report, and the results were dismal once again ... and I mean beaucoup ugly- slumping to -10.5 percent. I am told that is the worst reading going all the way back to May 2009. Every single time this indicator has slipped into double-digit negative territory, a recession has followed. Every single time.
Yet that Friday, the Dow kited another102 points. The reported rational? Honeywell and Verizon topped earnings targets, while companies such as Ford talked about a brighter 2011. Big DEAL. What did Honeywell & Verizon adjust or cut to eek out some earnings and “ brighter” isn’t any indices I would hang my hat upon, although I say good for Ford for surviving without the bailout.
You can get the disconnected spun bull on from CNBC all day long. Pundits claim investors are ignoring the bad economic news because things are about to turn, and because company comments should outweigh macroeconomic data.
Prosperity is just around the corner. There is light at the end of tunnel.
Companies, politicians, bureaucrats, real estate hustlers and those who tout them for a living, Can't — or Don't Want to , See the Train Bearing Down on Them!
If you were to climb into a time machine and go back to late 1999 and early 2000, you'd hear corporate executives waxing extremely bullish about their prospects. The heads of Cisco, Intel, Amazon.com, and many others saw nothing but rainbows and blue skies ahead. This continued even as all the leading economic indicators of the day began to slump.
What about a more recent example — say, in real estate or mortgage lending? You should go back and read the transcripts from 2005 or 2006. These guys were falling all over themselves talking about the new paradigm in housing ... the surging sales ... the soaring prices.
They continued to spout happy talk even as the underlying, empirical economic data and leading indicators began to roll over. Result: Yet another pasting for anyone who listened to the supposedly clued-in execs.
It's hard not to conclude that the corporate & political classes of America are full of liars, cheats, and charlatans. And in SOME instances, that's exactly the case. But more is going on here ...
For starters, corporate execs, especially the Real Estate Hustlers extrapolate too much from current trends. If sales are improving, say, because of the biggest government bailouts and stimulus packages in the history of the world, they tend to view the trend as sustainable. That forms the basis of their forward projections. If sales fell sharply and they cut production (and payroll!) but were able to sustain current sales levels from already paid for stock inventory and with much reduced labor outlay – in these times of the “Great Disconnect” – that calls for a great earning report. The Harley Davidson spin is a fine example.
These are the lessons of Enron, Tyco, and WorldCom. Why haven’t we learned them?
But that tendency is precisely the most dangerous at turning points in the underlying economy!
Here's something else to consider: CEOs depend on positive market perceptions of their prospects. That's because most of these guys have thousands and thousands of company shares in their portfolios.
If a corporate CEO came on the phone during a conference call and said: "You know what guys? Business stinks, and it's getting worse. Better sell your stock ... fast!" what do you think would happen?
The stock would tank, and his or her personal wealth would evaporate. So of course most CEOs are going to talk a big game just like any politician or Real Estate Hustler
The U.S. economy is stuck in the mire. But overseas economies ... particularly in Asia ... are doing better. Multinational companies that have exposure to those healthier regions are temporarily able to offset their lousy U.S. operations with foreign strength. That was definitely the case with FedEx, to cite just one example.
But we need to Cut through The BS !
When I survey the economic landscape, I see:
• Consumer confidence falling to multi-month lows,
• Regional manufacturing indices falling off a cliff,
• Banks lending less money, and mortgage and consumer credit plunging, and
• Durable goods orders falling, and job creation completely MIA.
• Real estate sales at a standstill & values cratering –again!
• And a government hell bent on destroying wealth.
And against that, I hear plenty of optimistic comments from corporate execs/ politicians, /bureaucrats / reporters/pundits and real estate hustlers who stand to benefit by talking up their prospects.
They just don't match up to reality.
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