FedUpUSA

Well, now this is special….  I want to present two charts.

First, tonight:

Now let’s look at 2007….

Cisco’s 2007 earnings and warning was one of the triggers that told us that we were headed to a real recession.  One that I had talked about driven by margin compression at the time.

What’s going on now?

Companies talking about input cost margin problems (remember the commodity ramps from late 2007 into 2008?) and forward guidance cuts.

Folks, you buy stock on tomorrow’s earnings expectations.  You’ve been buying ‘em lately on the premise of multiple expansion driven by The Fed.

I said you would get destroyed doing this, and it might have started this evening.

If you remember this article, I said that it is my thesis that economic Depressions come not from credit collapses so much as they do from margin collapse.  That is, the inability to make a profit due to input cost ramps while you are unable to pass through those costs to the consumer of your product or service.

This in turn forces you out of business, and you then lay off all your workers.  They now have no money, and thus can’t buy as much as they used to.  That in turn tightens the spiral on others in business – they have the input costs but can’t drop prices to what people with damaged incomes can afford.

Cisco seems to have been “blindsided” by public sector, cable company and consumer softness.  How could they be?  I’ve been charting this in durables for the last two months!

As I said at the time: DUH.

Here’s the chart from my durables report from October 27th:

Blindsided? 

I sure as hell am not.

Now about that so-called reflation trade and economic recovery into collapsing margins…..

No, there’s no margin destruction…..

Campbell’s soup business has been under pressure in recent quarters along with the overall soup industry in the U.S. Industry executives have blamed a confluence of events. Soup became relatively pricey compared with some ready meals such as macaroni and cheese.

Right.

You have vegetables and meats in soup.  Both are… surprise…. commodities.

And what does this mean into stagnant wages?  You can’t pass along cost increases, which means your margins get destroyed.

And what does it do to your stock price?

Remember, we keep hearing that there is no inflation and that QE2 “will help corporations.”

Uh huh. 

What QE2 has already done is decimate margins, and what’s worse is that most of the margin pressures are baked into the cake but unrealized at this point because of the time it takes for cost pressures to go from the input side to the final product on the store shelf.

Wake Up America… and investors…. you’re both fixing to get trashed.

So that the banks, who, in the words of Alan Greenspan, committed frauds – CRIMES – can get away with and in fact profit from it.