Tuesday, May 1, 2012

May Day Mayday: Stocks Retreat into Close

All is not well on Wall Street.

Even though stocks continue climbing - the Dow made a four-year intra-day high in today's session - there's an underlying theme that profits and revenue aren't as good as they should be.

But, hey, the vast majority of those companies trading publicly on the exchanges - Groupon excluded - are making money, after all, so why the worry?

In a word, revenue. While second quarter profits were solid on an EPS basis, revenue beats were less frequent and minor, meaning companies have little room for error and even less inclination to hire new employees. Most public companies are running on fumes; in the private sector of small to medium businesses, those fumes have died out. Small business, the lifeblood of the economy, and, to some extent, to the larger public companies, are struggling just to hang on. Excessive regulation and taxation have small businesses on their knees, so to speak, begging for relief.

There's simply too much uncertainty for entrepreneurs to feel confident about starting new ventures or expanding existing ones. If growth is a bottom-up strategy, the federal government, with help from pencil-necked bureaucrats at the state and local levels, hasn't done a thing to assist small business or business creation. It could be assumed that they are impeding progress instead of promoting it.

This being a presidential election year, congress is not expected to make any dramatic legislative decisions, which will only exacerbate the current condition of loathsomeness, uncertainty and apathy, and that's the good news. What's troubling are the massive deficits being piled up second by second at the federal level and the coming debt ceiling debate (yes, you read that right; we're going to exceed our borrowing limit just a year after the debacle which cost the US its AAA credit rating last August.

At the current run-rate, the debt ceiling will be breached just in time for excessive and long-winded campaign speeches touting frugality, responsibility and discretion, all qualities the current occupants of our highest public offices have failed to achieve or even comprehend.

Thus it is that Wall Street is becoming a little nervous about the inability of government to do just about anything positive in a negatively-charged, partisan environment. Big business has gotten all the perks it needs, but still comes asking, with suitcases of campaign contributions, for more, and they're afraid they won't get enough to tide them over until a new regime takes hold in the nation's capitol. That's why stocks continue to make moves of trepidation, advancing slightly before taking back. Small business and individuals, meanwhile, have taken matters a step further: into black markets and a flourishing underground economy based entirely in cash, with disdain for taxes, laws and regulations.

A recent Bloomberg/BusinessWeek article pegged the US underground economy at a laughable nine percent, while quoting the black markets of other countries at levels as high as 47%. All of this erodes the government's ability to collect revenue, but not to spend, making their position all the more untenable and indefensible. The mega-corporations may survive under such conditions, but even the most honest of small businesspersons cannot long resist stiffing Uncle Sam to feed daughter Sally.

Wall Street, as much as it has become a mirage of the economic condition, is actually more resplendent as an amusement park, twisted mirror image reflection of the society underpinning its shattered facade.

Dow 13,279.32, +65.69 (0.50%)
NASDAQ 3,050.44, +4.08 (0.13%)
S&P 500 1,405.82, +7.91 (0.57%)
NYSE Composite 8,164.04, +44.97 (0.55%)
NASDAQ Volume 1,855,537,125
NYSE Volume 3,789,438,750
Combined NYSE & NASDAQ Advance - Decline: 3183-2336
Combined NYSE & NASDAQ New highs - New lows: 340-31
WTI crude oil: 106.16, +1.29
Gold: 1,662.40, -1.80
Silver: 30.93, -0.09

No comments: