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Wednesday, October 21, 2009

Peter Pan Recovery?


I love a good fantasy story just as much as the next man. Except that is, when this present fantasy becomes reality.

With the Federal Reserve saying the recession is over, and the S&P 500 up approximately 65% from the lows reached in March things definitely took better. But are they? With neighbors still losing jobs, and more and more mortgages falling delinquent; is this a Peter Pan recovery rooted in fantasy?

This week we have seen good earnings numbers from companies such as Coca-Cola (KO.N) and Caterpillar (CAT.N). However on closer inspection, these two companies like many others are creating earnings by cutting costs. Their biggest savings have been made by laying people off. There has been a big absence of revenue growth for these companies which is worrying going forward. When will the cost cutting tonic end? Well you can only cut costs to zero right? WRONG. It is possible to cut costs to below zero, if the company is the beneficiary of Government subsidies, which is even more worrying! As we are footing the bill.

So where do we go from here? When the cost cutting reaches it's natural conclusion and there is no revenue growth, do we fall back into the abyss? Or will the Government step in again with our money to create lots more "programs" to support the fantasy a little longer?

I'm not against companies making a profit, I'm against companies making profit on the back of Government gifts. When I see the Financials hit it out of the park playing with our money for free, it literally makes my stomach churn. All the while they give us prudent savers anemic yields on our savings. I know life isn't fair, but I didn't expect it to be this one sided...

My conclusion is that a jobless recovery is a feasible outcome for an inventory led recession, but not for a credit collapse led recession. But what do I know, I'm just a guy picking up coins in the street!


-Luke Sidewalker
-Current balance $23.72

3 comments:

Crone and Bear It said...

I have stopped watching the news since they focus so much on the immense bonuses of Wall Street CEOs and that simply infuriates me. And I have stopped ignoring the odd penny here and there on the ground - in fact picking them up and depositing them in the old change jar recently netted $95.oo when turned in to the credit union change machine! Wonderful surprise! Keep up the good work. Cheers!

blueviolet said...

I never really think about the kickbacks and now I'm ticked!

Mountain Woman of Red Pine Mountain said...

It's a strange new world and to me "jobless recovery" is an oxymoron. Take the oxy out of that and you pretty much have my idea of the people in charge. Yikes, that was harsh.

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