According to Rassmussen Reports, 75% of Americans support auditing the Federal Reserve. In contrast, only 9% of adults surveyed were against the idea of a FED audit. In the face of all this support, Fed Chairman Ben Bernanke is continuing to push back against the Federal Reserve Transparency Act, that would give the Comptroller General – the head of the Government Accountability Office – the power to audit the central bank.
Economist Dean Baker, who’s been a vocal critic of the Fed, recently commented:
“The country now has almost 25 million people who are unemployed or underemployed as a result of the Fed’s disastrous policies. Millions of people are losing their homes and tens of millions are losing their life savings. The country is likely to lose more than $6 trillion in output ($20,000 per person) due to the Fed’s inept job performance.”
The Federal Reserve Transparency Act MUST pass in order for our economy to recover for the long term. Contact your representative TODAY to show your support for the bill!
Examination of the advanced report for real GDP growth for second quarter 2009, which shows a -1.0% growth rate, reveals that the only area of growth in economic activity was in government expenditures… no other sector grew at all…unless we count the .1% growth in the service sector. But you really can’t count that service sector growth since it probably resulted from government spending too! So, this is cause for celebration? Right, like we can build a sustainable growth economy on government expenditures financed by government debt…
Econompicdata.com points out that with the BEA’s new revisions to the entire GDP database, the -1.0% should be viewed really as -2.3% —apples to apples…
In a nutshell, forget about the 1% Real GDP figure. There were massive revisions to old GDP prints. Looking at nominal data below, old figures were revised down 1.3% on a cumulative basis from Q2 2007 through last quarter. Thus, rather than a 1% decline from Q1, the new data point is closer to a 2.3% decline from the previously unrevised Q1 09 number.
|Real GDP elements- % Change From Preceding Period|
|[Quarters seasonally adjusted at annual rates]|
|———————————–||I 09||II 09|
|Gross domestic product (GDP)…||-6.4||-1.0|
|Personal consumption expenditures…||0.6||-1.2|
|Gross private domestic investment…|
|Equipment and software……..||-36.4||-9.0|
|Change in private inventories….. …..||…..|
|Net exports of goods and services… ….. …..|
|Government consumption expenditures|
|and gross investment……………||-2.6||5.6|
|State and local……………….||-1.5||2.4|
There is some evidence that analysts can see through earnings smoothing that companies employ to reduce the volatility of reported earnings (see here and here, for example). But what about analyst efforts to make company earnings look smoother, or even better, than they actually were? David Pauly’s opinion piece on Bloomberg today reminds us of the vested interest that security analysts have in not just perpetuating earnings lies, but creating them. Sure, the analysts argue, they are just “smoothing” the earnings for things that don’t happen all the time. But what they are really doing is choosing to ignore items they failed to include in their previously released esimates of the companies’ earnings – so they won’t look so stupid. Since, its difficult (but not impossible) for companies to cook the books and still stay with GAAP, the analysts are effectively doing it for them:
…Stock analysts continue to promote corporate earnings lies, insisting that net income isn’t really what investors need to know.
Instead, their earnings estimates ignore often huge expenditures that can’t help but affect a company’s health.
In analystspeak, Intel Corp. wasn’t hit with a $1.45 billion fine from the European Union in the second quarter for anticompetitive practices.
…Google, according to generally accepted accounting principles, earned $1.48 billion, or $4.66 a share, in the period. Not enough for Wall Street, which prefers to say the company earned $5.36 a share, leaving out the cost of stock options..
So, if GAAP accounting doesn’t give enough earnings to hype more trading, analysts simply restate the companies numbers according to GAAS…General Analyst Accomodation Shenannigans. Then the financial media dutifully reports what the analysts want America to hear.
The DOL reports for the week ending July 25 unemployment claims rose by a seasonally adjusted 25,000 from the prior week. On a non seasonally adjusted basis, claims declined by about 78,000. The decline in unadjusted claims can, of course, be from people going on to extended EUC unemployment coverage rather than the “first line of defense”, normal federal program – as opposed to those people finding a job…
States reported 2,656,879 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending July 11, an increase of 24,518 from the prior week.
So called “top-down” earnings estimates for the S&P 500 are made by brokers and economists, who look at the S&P in aggregate and estimate the index as if it were a single “firm”. Whereas the “bottom-up” estimates are made by security analysts who estimate the earnings of the individual firms in the S&P, then add them up to estimate the total earnings of the index. Richard Ripp compares top-down to bottom-up estimates and concludes that top-down estimates have proven to be more accurate over time.
Macro Man has a great post in which he compares two versions of top-down estimates for 2010 earnings for the S&P and one bottom-up estimate.
Looking at 2010 earnings estimates yield an incredibly broad range of forecasts. If you believe the crack-smoking bottom-up guys who strip out everything that could be construed as a “loss”, you get a resounding $74 pr share. Not bad!
Taking the same approach (stripping out the quarterly “one offs”), but from a top-down framework, yields a substantially less rosy result: earnings of just $46 per share. And actually counting all the turds for what they are on a top-down basis yields 2010 EPS of just $37 per share.
Here’s his chart (click it to enlarge) that shows various multiples applied to each of these three earnings estimates (the $74 bottom-up, the $46 top-down, and the “as the analysts think earnings will be reported” $37 top-down):
Note that even the most generous multiples applied to the “as reported” estimates still indicates the market is overvalued at present levels. If analysts are underestimating earnings by say 15% and we adjust their “middle of the road” $46 estimate upward by that 15%, then we get a “corrected” estimate of about $53. Even then, only if we then apply a multiple of 20X to them do we get a value comparable to the present market level. You be the judge – what’s a “fair” multiple for S&P earnings in 2010? Is it 20X? BTW, Jeremy Granthum’s current estimate of fair value for the S&P is 880.
TPC has been keeping tabs on the insider buying and selling,(see for example, here and here), noting that insider buying is more important information than insider selling. Now, Mark Hulbert at Market Watch is highlighting the fact that corporate insiders are more bearish than at any time in nearly two years:
Corporate insiders are a company’s officers, directors and largest shareholders. They are required to report to the SEC whenever they buy or sell shares of their companies, and various research firms collect and analyze those transactions.
One is the Vickers Weekly Insider Report, published by Argus Research. In their latest issue, received Monday afternoon, Vickers reported that the ratio of insider selling to insider buying last week was 4.16-to-1, the highest the ratio has been since October 2007.
I don’t need to remind you that the 2002-2007 bull market topped out that month.
The bottom line? Insiders are not always right. And even when they are right, they often are early.
Even so, it’s difficult to sugar-coat the recent increase in the pace of their selling…
The power to create money rests with Congress. But Congress farmed out (abdicated) its responsibility to a third party – private banks – in return for kick-backs in the form of campaign contributions. Washington’s blog has some good thoughts on this. For example:
And in 1933, Congressman Wright Patman asked Congress the following rhetorical question:
“Why is it necessary to have Government ownership and operation of banks? Let us go back to the Constitution of the United States and follow it … The Constitution of the United States says that Congress shall coin money and regulate its value. That does not mean … that the Congress of the United States, composed of the duly elected representatives of the people, have a right to farm out the great privilege to the banking system, until today a few powerful bankers control the issuance and distribution of money – something that the Constitution of the United States says Congress shall do.”But FDR did not heed the insights of McFadden or Patman. He kept the status quo of the Federal Reserve acting as the “central bank”, even though the Fed caused the Depression.
He also maintained the Fed’s power of creating money and credit, and charging the government interest on that money, even though that was contrary to the intention of the Founding Fathers and the Constitution. See this, this and this.
If we can get the FED audited, we can make the average American understand this scam and FORCE the government to properly exercise its responsibility to create money WITHOUT delegating it to a special interest.
dshort.com has a good piece showing the PE ratio based on as-reported earnings and actual prices. Here’s their chart. It doesn’t look cheap to us – what do you think? If the PE ratio falls by half, then reported earnings have to double for the stock market level to not fall further.
As TPC points out, using actual reported earnings is the only way to keep emotion out of the analysis.
The Grand Rapids Press reports on a Ron Paul visit:
Former Republican presidential candidate Ron Paul has a frank prescription for the health care plan making its way through Congress: Scrap it.
“I think it’s monstrous,” Paul said.
“I don’t think it will improve medical care in this country. I think it’s very, very costly and we don’t have any money. And they don’t have any way of paying for it.”
Elsewhere, Congressman Paul has touted his own health care proposal:
Universal Healthcare never quite works out the way the people are led to believe before implementing it. Citizens in countries with nationalized healthcare never would have accepted this system had they known upfront about the rationing of care and the long lines.
As bureaucrats take over medicine, costs go up and quality goes down because doctors spend more and more of their time on paperwork and less time helping patients. As costs skyrocket, as they always do when inefficient bureaucrats take the reins, government will need to confiscate more and more money from an already foundering economy to somehow pay the bills. As we have seen many times, the more money and power that government has, the more power it will abuse. The frightening aspect of all this is that cutting costs, which they will inevitably do, could very well mean denying vital services. And since participation will be mandatory, no legal alternatives will be available.
The government will be paying the bills, forcing doctors and hospitals to dance more and more to the government’s tune. Having to subject our health to this bureaucratic insanity and mismanagement is possibly the biggest danger we face. The great irony is that in turning the good of healthcare into a right, your life and liberty are put in jeopardy.
Instead of further removing healthcare from the market, we should return to a true free market in healthcare, one that empowers individuals, not bureaucrats, with control of healthcare dollars. My bill HR 1495 the Comprehensive Healthcare Reform Act provides tax credits and medical savings accounts designed to do just that.
Congressman Paul also said he believes the Republican party needs to return to its core principles:
“They are going to have to earn that trust back. They should be more concerned about personal liberties. They shouldn’t be the great defenders of government secrecy and torture…”
“The young people aren’t supporting Republicans. The worst group for the Republicans is (age) 15 to 25. If they can’t appeal to that group, what kind of future is there for the party?”
The truth is the Republican party has no core principles. Their “principles” are as transitory as the Democratic party’s. The Republican party needs to be given the coup de grace and a new party without the Big government and special interest baggage formed.
For our readers who read Harry Dent’s book, here is a video he made on May 28 to update it. In December 2008, Dent called the bottom of the market at about 7400, so he underestimated. He may be overestimating the high for this summer…