In the post, Panzner points out market guru Karl Denninger's basic observation (See: "The Thesis Continues to Validate: GE.") that we cannot continue to look at the ongoing stream of dramatically contracting earnings reports from corporate America and then come to the erroneous--and downright absurd IMHO--assumption that things are going to get better anytime soon.

Denninger reminds us that GE's revenues are down 17%, Harley-Davidson is selling 30% fewer motorcycles, (he doesn't even mention Detroit's diminishing market share, but  it's as bad if not worse than these previously-cited firms' numbers), and most other major firms' (he cites Intel and IBM, among others) "revenue numbers are down double-digit percentages on an annualized basis," too.

He also tells us to take a look at the overbought stock market, and he points out that when you combine that with an ongoing contraction (or inadequate growth in the gross domestic product ["GDP"], to the point where we're not creating jobs, in general) in the overall economy we end up with whacked out price-to-earnings-growth numbers.

...How can it be otherwise?  Even with no inefficiencies due to firms having too many employees for the revenue contraction that is occurring, a 30% reduction in business done should lead to a 30% decline in profits earned.  Add to that the fact that firms are nearly always behind the curve and you have profit declines that are much larger - in some cases 100% or even going from a profit to a loss.

This is not a circumstance that will reverse in the immediate future; in order for it to do so, revenue must come back up, and in order for revenue to come back to pre-bust levels, we would have to re-inflate the credit bubble - which simply cannot happen.

Denninger then chastises the MSM (and, I'll add to that group, some of the "recovery's-just-ahead" crowd around the blogosphere), for putting forth the false premise that "...that this is a typical recession, it is short-lived, and we will soon go back to previous spending and business patterns."

Denninger continues on to remind us that:

--the Port of Long Beach's container shipments are down almost 30%
--freight carloadings are down almost 25%
--state sales tax collections are down double-digits
--personal and corporate income tax collections are "collapsing"

The truth is, as Denninger also points out...

...there is simply no argument that "the recession is over" or that "trend growth is around the corner...

--SNIP--

...port, rail and tax receipts are not subject to being  "gamed" by government number-crunchers, they do not play "seasonal adjustments" (since they're year-over-year numbers), they do not represent wishes, dreams, or desires.

They represent real-time, high-frequency, "right now and in your face" economic performance metrics and are impossible to argue with.

Paraphrasing Denninger, and stating the obvious: 'We are in the middle of an economic contraction.'  Things are 'stabilizing' in a few sectors, for now, but there is little or no upward economic movement. IMHO, stabilization is just another word for bottom-bouncing.

Perhaps the biggest irony of all of this--and continuing to state the obvious--is the ongoing stream of so-called 'wonderful earnings reports' that we're now seeing from the financial services sector. Denninger refers to Wall Street and the other entities closely associated with it, such as the insurance sector, as having been "shielded...from taking the losses that should have come last year and in 2007 related to their over-extension of credit."

This is the other side of in-your-face economics. In fact, we just concluded a week of this in-your-face fiction with regard to the obscene profits that were had by Wall Street in the second quarter.

But, again, Denninger tells us that at some point common sense must prevail. With joblessness expected to continue to rise at least well into 2010, and then to stay at unacceptably high levels perhaps for many years thereafter,  eventually the banks will be caught in 'the squeeze.' They'll continue to raise rates and fees and chargeoffs and defaults will continue to accrue, as well; so, while that scenario is playing out on the consumer side,  banks' portfolios will still need to be propped up, at least to the point where it "will make durable economic recovery impossible."

We see that propaganda being put forth by the MSM already as they tout minor shifts in secondary economic barometers while trivializing/downplaying harsh employment statistical realities, not to mention abysmal gross domestic product ("GDP") and manufacturing sector numbers.

With regard to the inevitable fail of Wall Street, no matter how we might try to continue to push their off-the-books losses under the rug...

Our government and regulators have chosen "earn them out".  The problem is that this path cannot succeed because "earn them out" requires that the economy return to trend growth - that is, 3-4% GDP - before next year.  That is not going to happen; the government backstop and artificial support only work so long as they continue, and we cannot continue to borrow two trillion a year for the purpose of propping up these institutions in excess of their natural earnings power in the economy.

Denninger points to the obvious result:  we're just deferring the inevitable. He reminds us that Roubini and many others predict sub -1% growth for the next couple of years (most economists concur that we need a minimum of 2.75% to 3% annual growth in GDP just to start to create enough new jobs to begin to reverse the course of our economy as we attempt to dig ourselves out of this trough), and that means a flatline for many firms on Wall Street and Main Street, as the former leads the latter further into the abyss.

And, IMHO, speaking of "the abyss," if the government's current handling of our "bailouts" is any indication of where we're going over the next couple of years, the only folks left will be WalMart and a few other big box stores, along with those deemed too big to fail on Wall Street, because most of Main Street (those not too big to fail) will be thrown under the bus if they aren't witnessing that occurring to them already.

You see, we're hearing every justification for our government pouring $6 trillion (times two, actually) into Wall Street, but when it comes to putting up $6 billion--less than what Goldman Sachs supposedly made in "profits" in the first six months of 2009--to save 300,000 small businesses,  and who knows how many hundreds of thousands if not millions of jobs, it's an issue for which the standard comeback is: "Where do you draw the line?"

And, to that this New Yorker answers, "How about somewhere south of Canal Street in Lower Manhattan?"

thought I'd leave you with this bit of current events prose, something I read in a comment on the "Room For Debate Blog" at the NY Times:

Too Big to Fail;
Too rich to be poor;
Too arrogant to look stupid;
Too greedy to be humble;
Too reckless to be conservative;
Too much other people's money to be considerate.
-- Y Evans

Peace.