A wave of pessimism has swept over the economy, IF you think November Data is bad wait until January!
US Capital Spending Plummets To Recession Levels
Back in April, we did an extensive analysis of what, in our opinion, is the primary reason for the slow burn experienced by the US, and global economy, and why virtually every liquidity pathway used by central banks is hopeless clogged: the complete lack of capital expenditures at the corporate level, and lack of (re)investment spending. Specifically we said that in both the context of Japan’s plunging corporate profitability over the past 30 years despite year after year of record budget deficits, and its implications everywhere else, that “we get back to what we have dubbed the primary cause of all of modern capitalism’s problems: a dilapidated, aging, increasingly less cash flow generating asset base! Because absent massive Capital Expenditure reinvestment, the existing asset base has been amortized to the point of no return, and beyond. The problem is that as David Rosenberg pointed out earlier, companies are now forced to spend the bulk of their cash on dividend payouts, courtesy of ZIRP which has collapsed interest income. Which means far less cash left for SG&A, i.e., hiring workers, as temp workers is the best that the current “recovering” economy apparently can do. It also means far, far less cash for CapEx spending. Which ultimately means a plunging profit margin due to decrepit assets no longer performing at their peak levels, and in many cases far worse.” Today, with the usual six month or so delay, this fundamental topic has finally made the mainstream media with a WSJ piece titled “Investment Falls Off a Cliff: U.S. Companies Cut Spending Plans Amid Fiscal and Economic Uncertainty.”
In the meantime, here is the pretty WSJ chart proving the collapse in CapEx:
WSJ: US Companies Generating ‘Investment Cliff’
Companies in the United States are reining in investment plans at the fastest rate since the recession, posing another hurdle to the lukewarm recovery.
Half of the country’s 40 largest publicly traded corporate investors have announced plans to trim capital spending this year or next, according to a Wall Street Journal analysis of conference calls and securities filings.
Investment in equipment and software, a key metric of corporate health, stalled in the third quarter for the first time since early 2009, The Journal said, and corporate investment in new buildings has fallen.
Q3 Earnings In One Chart
A shockingly low30% of S&P 500 firms beat revenue expectations in the prior quarter and while Bloomberg’s data suggests around 65% beat earnings expectations, the in-period adjustment of expectations (analysts ratcheting down earnings as the season progresses) naturally biases this to look rosier. The critical question is – how much more fat is there to cut? With Sales (and outlooks) so weak, how many more jobs need to be cut to meet margin expectations? 2013 top- and bottom-line (+13.6% EPS growth) expectations remain magnificent in their optimism – do you believe in miracles?
Chart: Bloomberg Chart of the Day
SCHORK: Don’t Blame Hurricane Sandy, The Economic Downturn In October Is Real
Factories can’t run without fossil fuel feed stocks.
Which is why oil market guru Stephen Schork leads off his Monday note discussing explaining his jaundiced view that Superstorm Sandy alone caused October manufacturing data to fall off.
… the U.S. factory complex has now failed to grow or has contracted in five of the last eight months.
Yet, in spite of the dismal track record of the previous seven months, somehow, as the Fed claims below, the contraction in economic growth for October was all the fault of Hurricane Sandy.
Industrial production declined 0.4 percent in October after having increased 0.2 percent in September. Hurricane Sandy, which held down production in the Northeast region at the end of October, is estimated to have reduced the rate…
Money contraction equals deflation and it is contracting now. Last time I saw this happen was in 2008. Bond yeilds 10yr from 1.7% to 1.58% in a matter of a week.
Look at the debt clock. Credit and derivatives are decreasing at an alarming rate, thus the overall money creation. http://www.usdebtclock.org/
Quantitative easing lowers US bond yields leading to higher bond prices and lower stock prices. The crash will lead to US bond downgrade causing bond yields to rise and the stocks to jump and then hyperinflation.
Some pretty <snip> serious people in the financial world, that they may be planning for a hyperinflationary event…followed by a return to gold + a basket of commodities backed currencies from China, Eurozone, and the U.S.A.
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