The signal reads: dark clouds ahead

When corporations lose sense of market conditions.
As a business owner, you want to see that everything goes your way. From committed employees to happy customers, there is nothing better than feeling the wind on your back. But somehow, all of government promises and enough liquidity to drown everything on sight are not able to prevent the dark clouds that are now forming.

Launch Bespoke Article

On Wednesday the 24th of April, the smart guys at Bespoke shared their great research on how unresponsive corporations have been to the market's pools of extra liquidity. They presented two very clear graphs that highlight the under-performing sales and profits trends among public companies. When the best management teams in the nation miss their forecasts, it really serves to show how unpredictable this market has become. Let's remember that when managers of public companies under deliver, their risk of job loss goes up exponentially. Just look at the recent dismissal of super-retail-CEO Ron Johnson from J C Penney. Public company executives have a strong incentive to under promise and over deliver; exactly the opposite of what is happening right now.

Take a look at Bespoke's online article. While it is written for portfolio traders, it sheds light on what is really happening in our economy.
But why would things be so bad? Isn't Obama's team doing all sorts of quantitative easing and driving job growth while growing the economy? Well, obviously things are not peachy. Data is very important to me. It is like traveling through unfamiliar roads with the help of a good map and following the road signs. If neither matches, you are in trouble. Yes, I used the map metaphor because there is no such thing as GPS for politicians. They are just plain lost.
The reality is that business environment has been anything but great. Consumers have lost their homes, lost their jobs or lost their retirement funds. In some cases, they lost them all. Investment on large capital equipment, the kind that Alan Greenspan describes as delivering value over longer than 20 years, plummeted during the recession and never recovered. There is a lack of trust on the day after tomorrow. This means that all investment has been focused on small short term assets, the kind that do not last but takes care of the fires.
Then there is the fact that the cost of capital for all medium and small companies went up, rather than down, at the end of 2009, which is after the recession had officially ended. Perhaps this was in response to scaring the living hell out of bankers everywhere.
Should I say more?
Most corporate out performance has so far come from gains in efficiency and from employment cuts. It is just incredible what happens when the team shrinks and those who are left behind still get the job done; as a way to make sure that they don't lose their job as well. In any case, profit improvements that are not funded by increases in revenue are never sustainable. So we are now getting to the unsustainable part of the journey.
If we could just stop publicly embarrassing those who took the risks that paid off. Maybe the weather would then improve. For now, stay away from the golf course during the coming lightning storm.