Howard's End: And Now For The Discouraging Signs
Well, that's it. We can all breathe a sigh of relief because Federal Reserve Chairman Alan Greenspan feels the recession is over and Amazon.com has finally made a profit. But look, there's a pig flying past the window. Maree Howard writes.
The old master said yesterday that he believes there are good indicators that the US recession is over particularly with auto and home appliance sales improving.
Has nobody told Greenspan that you can sell almost anything at cost, or that no interest deals on borrowed finance still costs the company money and will always generate sales. But there ain't no profit! - And the American consumer is even more maxed-out on debt.
Let's look at Amazon.com. The pioneering online bookseller turned a profit and not just one of those "pro forma" or Enron jobs, but an honest-to-goodness profit based on generally accepted accounting principles.
In the company's last quarter, it earned one entire cent per share - and the stockmarket skyrocketed 24% on the news.
But even after being bashed down 90% Amazon's stock is still selling as though the company is worth $3.7billion. That's a lot of money for a company that just produced its first profit - a cent a share - ever. And that was just for the quarter.
Bu wait, what's this....? Over the whole year, the big A recorded a net loss of $567.2 million. And for next year things don't look much better.
Investors must be as brained damaged as consumers. They're paying $12 per share for a company that had never made a profit and is growing sales at a modest 15% annual rate.
Hey, if only a few more companies could report earnings of just one cent a share, the global sharemarkets might really go ballistic.
While the Amazon shareholders broke out the champagne, the shareholders over at KMart broke out their handkerchiefs as the company filed for bankruptcy protection. It's the old familiar story - too much debt and not enough profit.
Kmart is the second S&P 500 member this year to declare bankruptcy - the first being Enron. Look for more "surprises" shortly.
In the debt derby of the US economy, corporations are running neck and neck with consumers. Many are carrying debt burdens that are sizeable enough for them to slash capital spending budgets.
Credit downgrades are now common place with Moody's downgrading almost $1 trillion in debt in 2001. But don't tell that to Greenspan and the V-recovery crowd.
The US economy is so leveraged you simply can't prime the pump every time there's some crisis and just keep the thing going. The leverage in every cycle gets higher and the system gets more dangerous.
Some say that Greenspan's pump-priming and rampant credit expansion is his great success. But it's a strange kind of success because corporate indebtedness has soared out of all proportion to the profit-earning productive capital stock.
And by the time Enron went belly-up its stock price had cratered from $90 to 26 cents a share. Over $66 billion in capital - and almost every single cent invested by 58,920 investors - was wiped out.
And when Argentina announced that it was officially defaulting on its $155 billion, it devastated the assets of hundreds of banks and tens of thousands of investors around the world.
At the same time hundreds of companies with business in Argentina are taking big hits from Argentina's default and the devaluation.
Brazil's debt is over twice as large as Argentina. Columbia's is $38 billion with unemployment close to 17%. Venezula suffers an overvalued currency, a recession and the same potential for a violent uprising.
Then there's Japan, Thailand, Hong Kong, Singapore and the Philippines sinking fast. Europe's a mess, particularly Germany. All are suffering similar ailments to Argentina.
In Argentina, those with big stakes were expecting either default or devaluation. Now, they've been slammed with both at the same time.
Despite all this, Wall Street and Greenspan are telling us that a recovery is just around the corner - that it's time to spend with a passion - or buy with lust.
They're lying though their teeth. The flood of bankruptcies and defaults has only just begun with the stock market rallies just another hot-air balloon-hype from Wall Street and spin from Washington.
For example, they're telling the world that Enron's collapse is unique. Crap! Bethlehem Steel, Phar-Mor, Polaroid and 352 other publicly listed companies also went belly-up last year.
The high risk this year? - well, watch this space because according to analysts there's about another 1,500 others ready to fall.
The days of wine and roses are over for the US stock market. But most investors still think they will retire in comfort on their income. They have a rude awakening ahead of them because it will hit when there is no time to recover.
That's why I encourage people to start thinking now about how to generate a stream of income for retirement that does not depend on the impossible dream of 20% per year compound growth in the stock market.