Second quarter profit reports from companies were awful. But they beat analyst expectations and the markets surged in consequence. Why were these expectations beaten? Because while sales were down (consumers too cash strapped to buy), companies cut their costs faster than they lost sales. Cut their costs largely through layoffs that caused more consumers to become cash strapped—an approach that in the market's view was a sure harbinger of economic recovery.
Economic growth through company shrinkage! When I understood this I was seized with a vision of an alternative reality so powerful, so counter-intutitive, so like a hit from magic mushrooms, I could naught but break into song...
Joy To The Earth,
A Stock Boom Reigns!
Joy to the earth,
A stock boom reigns,
The market's heaven come.
Let small investors bring their cash,
To take part in this won'drous bash,
For this time there'll be no repeat,
No painful blowback and retreat,
All experts now know
Good times again will flow.
Joy to the earth,
The Wall Street earth,
The Street, again, is flush.
For months it was held in disgrace,
But it's regained its rightful place,
On great clouds of comp its afloat,
Smart money's found its old boat,
Best and brightest again give forth
Their old time boast.
Joy on The Street,
While main street sags,
Lost jobs, lost homes, abound.
But those on top disdain this whine,
If folks sold stocks they'll make out fine,
So stop with the sad lamentations,
Rejoice that we beat expectations,
A sure sign of the bright new day
Wall Street's OK.
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