Folks who believe in conspiracies never take the facts for granted.
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One of my personal favorites is the claim that the only lunar step that Neil Armstrong or any astronaut ever took was on the set of a Hollywood sound stage. Despite the mountain of evidence to the contrary, and moon rocks on display at the Smithsonian, you’ll never dislodge these conspiracy theorists from their staunch beliefs.
Much the same can be said for the economy.
So far, as the earnings season progresses, the numbers look great.
Banks like Goldman Sachs and Morgan Stanley are reporting outrageously bullish earnings. Profits for companies like Santa Clara-based chipmaker Intel have beaten the forecasts of several leading industry analysts.
According to the Conference Board – the business-based group that monitors the economy — the index of U.S. leading indicators rose in June for a third consecutive month, reinforcing signs the economy may be emerging from the worst recession in five decades.
Ending a Long, Dusty Spell
The outlook for the next three to six months increased 0.7 percent, more than forecast, after a revised 1.3 percent gain in May, the New York-based research group said today. It is the first time the index has climbed for three months in a row since 2004.
The Board also points to smaller job losses, rising stock prices and stabilization in homebuilding and manufacturing as evidence that government efforts to stem the financial crisis and lower borrowing costs is starting to pay off.
Wall Street’s cheerleaders, like the Conference Board, have been undeterred even as the job losses continue to mount.
Analysts at Goldman Sachs, for example, boosted their forecast for the Standard & Poor 500 Index, saying improving earnings will spur the steepest second-half rally since 1982. Not to be outdone, JP Morgan’s in-house analysts are projecting a rise of 40 percent in share prices the end of the year.
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On paper, and with the aid of the largest bailout in history, several major financial institutions and banks have been able to bring their losses under control. Even a once troubled bank like Citigroup posted a $4.28 billion profit in the second quarter. A year ago, before government aid bolstered its balance sheet, Citigroup looked like it was headed for the financial junk heap.
Slightly Non-Traditional Route
Likewise, several major manufacturers appear to have repaired their bottom line. A closer look shows that much of this has been accomplished through massive layoffs. In other cases, bankruptcy or the threat of insolvency has aided many companies in shedding labor and benefit costs that have impaired their profitability.
The fortunes on Wall Street may be looking brighter, but all of this has reinforced the notion that the economy is in the midst of a jobless recovery.
Despite the positive spin from Wall Street or from inside the Washington Beltway, the public at-large apparently still perceives that the economy is in a shambles. Wall Street earnings may be up, but consumers have yet to see the benefit.
This view is undoubtedly reflected in the 10 point popularity drop the President has seen since February. Mr. Obama’s approval rating has dropped from a whopping 69 percent to 59 percent over the weekend with 43 percent saying that they don’t like the job he is doing with the economy.
From the outside looking in, especially with unemployment growing, there still are no tangible signs that the jobs lost will be returning any time soon. For the time being, the burden for creating a replacement for these lost jobs seems to have shifted to the government.
This may explain the President’s precipitous drop in popularity. While the federal government has spent billions to shore up the banks, and a record amount on stimulus, consumers are starting to lose their patience.
To most Americans at this juncture, Wall Street seems as remote as the surface of the moon on that July evening in 1969. Although the pictures are great, no one can really prove whether the economic recovery is really happening or if it’s simply being staged for the benefit of the viewing audience.
For my money, I cling to the naïve belief that Armstrong actually walked on the moon.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
