Friday, August 14, 2009

At Least We Have Plenty of Ice

The number crunchers that decipher corporate earnings reports are coming up with some disturbing information. US corporate earnings statements have set a new record for exclustions from earnings to cover write-downs. These are from a combination of bad financial instruments from years of debt driven activity and the long term costs that will come from the meat cleaver approach used on their operations to generate a current profit. Past experience has shown that these numbers can accurately predict future earnings and the outlook is bleak. They’ve swept the ice off the deck and rearranged the chairs and it’s business as usual. Please ignore klaxon and the rats diving overboard.

As for the iceberg; inflation was zero for July and consumer prices are down 2% from last year, this is the biggest deflation since 1950. In a debt based economy deflation is the really big ice below the surface carving a hole into your hull. It drags down everything since it means that you will have too little cash flow in the pipeline to cover debt payments. This translates into a credit freeze up and more sacrifices of capital to cover operating costs followed by layoffs and liquidation of assets resulting in a further reduced cash flow and so on. As the ship sinks deeper, the water comes in faster and then the pumps start to fail....

Pump flailures, or rather Bank collapses; the largest bank failure this year occured today in Alabama costing the taxpayers close to 3 billion. The FDIC also seized a small bank in PA, but they are starting unusually early tonight, so we’ll have to see how many they annouce today. Would you like more ice for your drink? We just got some in.


Ocean said...

Let's dance as the band plays on the deck... what else is there really left to do???