Bank Earnings: Revenues Falling, Losses Rising

Could it be that market sheep are starting to wake up? We once again witnessed another laughable round of U.S banks “beating expectations”, as the combination of fraudulent accounting from the U.S. financial crime syndicate, and low-ball estimates for “earnings” by the media propagandists produced that familiar refrain.

In the case of Citigroup (C) and Bank of America (BAC), the two most-obviously insolvent fraud-factories, the “experts” were “surprised” by bottom-line profits – which were directly attributable to multi-billion dollar proceeds from asset-sales. How exactly does an “expert” get “surprised” by that? Presumably, if the “experts” don't follow the news, or can't operate a calculator then they aren't really “experts”, after all.

The more important story from this earnings season, however, was the consistent reporting of disappointing top-line revenues and soaring losses on all categories of loans – while “guidance” for the future was for those losses to keep climbing. The result is that simply using the tired refrain of “beat expectations” is no longer causing investors to immediately bid-up U.S. banks stocks to even more-absurd valuations.

Put another way, investors are no longer being dazzled by bottom-line “hocus pocus”, but appear to be actually looking at the operations of these companies. This is bad news for Wall Street, as take away the “smoke and mirrors” and you have a group of businesses whose underlying operations continue to deteriorate – with the one exception being trading profits.

Those trading profits came on the manufactured “rally” which took place in U.S. markets, based on a pair of myths: that the Obama “stimulus package” was sufficient to interrupt the vicious circle of rising job losses and declining spending in a consumer economy, and the comical “green shoots” slogan of compulsive-liar, Ben Bernanke – who also came out with the equally hilarious slogans of “the Goldilocks economy” and the “soft landing”.

With the Obama “stimulus package” only replacing about one out of ten lost dollars in U.S. consumer spending, it would be overly charitable to call this a “band-aid”. Meanwhile, Bernanke's latest absurd “prediction” is being (once again) shown as false – as U.S. foreclosures continue soaring, real spending continues to fall, and catastrophic, U.S. job-losses continue.

The fact is that even in the fantasy-world of the propagandists, there is not one, single sector of the U.S. economy which is growing. This doesn't mean that the propaganda-machine will be unable to report “growth” in the U.S. economy in the 3^rd quarter.

With inflation suddenly soaring in the U.S., the statistical liars in the U.S. government now have something they can work with. As I have mentioned in many previous commentaries, for the last decade most of the “growth” in the U.S. economy has been nothing more than under-reported inflation.

Each quarter, GDP (for any country) must be “deflated” for inflation, to prevent the GDP estimate from being “inflated”, literally, by inflation. In the U.S., wholesale prices have been rising at a double-digit level for months. Meanwhile, that massive inflation entering “the pipe” started working its way through the U.S. economy in June – with even the doctored “consumer price index” showing an annualized rate of inflation registering at over 8%.

To provide some context for what we are about to see in statistical manipulation, during 2008, before the Wall Street-induced global collapse and take-down on commodities destroyed prices, real inflation in the U.S. was also in double-digits (as reported by respected economist John Williams, on his site shadowstats.com). Yet when the government “statisticians” calculated U.S. GDP, they only deflated the raw data by a little over 1%. This is how the U.S. government was able to pretend that the U.S. economy was still “growing” even after the economic collapse was well under way.

Going forward, the massive injection of “liquidity” (i.e. new debt) in the global economy is having its inevitable effect: building up a massive, inflationary tidal-wave which will sweep over the global economy. Thus, we will likely see “positive growth” in the U.S., produced from those tortured numbers, despite the fact the U.S. Greater Depression continues unabated.

This is even a worse environment for U.S. financial companies, as the return of inflation will rapidly eat into the shrinking, spending-power of U.S. consumers – and accelerate job-losses yet further. This trend will be greatly exacerbated by massive, lay-offs from U.S. state governments, trying to close a funding-gap well in excess of $100 billion.

With U.S. markets now trading sideways, it appears that the previously brain-dead sheep may be finally emerging from their self-induced comas – and basing valuations on what is really taking place today. This is bad news not only for U.S. banks, but U.S. corporations in general, as the huge 40% rally in U.S. markets was completely fueled by “optimism”.

As “realism” replaces “optimism” in the attitude of investors, this means no more “easy money” in trading profits for U.S. banksters – and more bottom-line, bad news ahead.

Dislosure: I hold no position in Bank of America or Citigroup

Comments

[basehitz:]

"Could it be that market sheep are starting to wake up? "

If so, they've got a lot to contend with. Seems to me the bulls are making an all out effort to break out to the upside.

Here in the blogosphere, spin gets confronted. But Tout TV (WS’s marketing arm), churns out propaganda constantly. And people I talk to are mixed in their outlook. For example, some folks believe we can afford the expanded social programs being considered because "we're a rich nation". And some think cap & trade is a good thing, seemingly ignoring that China, India and Mexico not cooperating will put the US at a competitive disadvantage. They're getting these ideas from somewhere.

Consider the persistence of Tout TV. Yesterday, Zero Hedge posted links to video clips, including one from Kudlow, who was in full pom pom mode. Tyler emphasized Karl Denninger’s outlook, which is credible and who is bearish. Kudlow did what he always does AFTER a market has rallied. But the most misleading comments came from Jerry Boyer who actually said “we have a stable work force”. WTF? This guy has been so wrong for so long, I don't see how he even gets air time. I nominate him in next year's runoff against Dennis Kneale (aka that annoying idiot) for Head Buffoon.

Here’s the link to TD’s post w/linked videos:
www.zerohedge.com/arti...

Jul 19 08:30 AM

[john s. gordon:]

statistical manipulation is our most important product.
> jack

Jul 19 08:59 AM

[truthteller:]

Another interesting read, I am especially impressed you caught onto the Bank of America profit by asset sale. However, I find it amusing to state we are in the midst of the great depression. You probably should be a little honest and let people know that depressions, recessions and recoveries are all always identified using hindsight. Most honest folks will tell you that it's difficult to predict where the economy goes from here. I think it probably will go down a little bit more before it gets better, but I'm not entirely sure about that either. Sometimes, things improve or get worse for no reason at all. I wouldn't take depression off the table, but I wouldn't say we are in one either.

Another, point we agree on is Bernanke is an idiot, who's lying to everybody. I treat most information from him with a grain of salt.

Also, I think you are dead wrong on inflation, at least for the time being. You can't have your cake and eat it too. Either the economy improves, or worse-case scenario stays moribound and inflation returns. The other option is the economy deteriorates, demand for goods/services drops, prices fall and deflation is present. If I remember my economics correctly, stagflation can also occur with no recovery and no inflation.

Jul 19 09:05 AM

[lbsterling:]

I think you "overuse" smart quotes.

Jul 19 09:25 AM

[Warm_Paw:]

Great Article!
Hits the nail right on the head!
Volumes aren't very high in trading at present so I think many are thinking the same way. Waiting for other shoe to drop. Probably October. 1 trillion of toxic asset probably turned over with another trillion left to be realized. That's roughly my opinion.
I've been watching CNBC and anyone who discusses these obvious facts is brow beaten and treated like a spoil sport, while manic hosts babble on in an anxious fashion.
The bottom line for dragging the country out of recession (depression) is jobs. If labor is being offshored, who in the US can afford to live on credit (home equity loans) any longer? As long as products are purchased from countries with $1 an hour labor, how does the US compete at home by manufacturing the same product? Last but not least, how do $1 an hour workers purchase North American big ticket items? Something has to give.

Jul 19 09:46 AM

[Roger Knights:]

California's budget crisis (and subsequent tax increases and job losses) will hit banks with heavy exposure there, (like BOA & WFC) next quarter.

Jul 19 10:21 AM

[HardwoodFlo...:]

Jeff your right revenues are falling. B/C banks are deleveraging. They are trying to lower their deposits, decrease their cost of capital, decrease the number of loans they have on thier books to meet the ratios auditors are looking for. This is what deleveraging is. It sucks for businesses b/c they are getting taken to the wood shed as bank problems become their problems.

But keep up you anti- US crap. What is Canada anyway? What is up with you frost-backs and you anger toward America?

How's your gold bet going?

Jul 19 11:36 AM

[Asitoughtobe:]

I'm of the mind that within the next 30-60 days the light will be so bright that even the dimmest of bulbs will see right through the hocus pocus!

Healthy Trading!

Jul 19 12:01 PM

[Tack:]

Those preparing for Armageddon and adopting the view of this recession --that 'this time it's different"-- will, as in all others, still be predicting (maybe, hoping for, if they're short or in cash) the ultimate doom, as markets anticipate recovery and advance, leaving them even more out of sync and angry.

I recall the predictions in the aftermath of Enron, when many energy companies and utilities lost 80-90% of their share values, that the "industry would never recover" or would be "changed forever." Within three years, energy shares had not only recovered all losses, but had set new highs. I fully expect a similar scenario to evolve with financials, and other sectors, over the next several years.

It really doesn't matter whether nominal gains outstrip inflation, or not. Nominal gains are the only kind that investors can pursue. They will be ill served if they are positioned for collapse and deflation, while markets and the economy, through a combination of currency inflation and genuine growth, move in the opposite direction.

Jul 19 12:37 PM

[Michael Clark:]

Very good article. Where are all the talking heads on tv doing their research? I see mostly cheerleaders for Goldman Sachs.

"...For the last decade most of the “growth” in the U.S. economy has been nothing more than under-reported inflation..." And that's why deflation becomes necessary.

Jul 19 12:37 PM

[Angry Banker:]

Another great blowhard article. Banks are not trying to manipulate their results. Citigroup in fact said very clearly in their press release that the profit they posted this quarter was driven by the sale of controlling interest in Smith Barney. Without this sale, it would have been another loss making quarter. We are going to see this sort of lumpiness for awhile as the banks shed non-core assets and get back to the business of good old fashioned banking. But to accuse the banks of being liars and fraudsters simply because their profits are coming from one-off events is simply blustering to try to get more followers. Try to do some real analysis for a change.

Jul 19 03:35 PM

[H. T. Love:]

On Jul 19 08:30 AM basehitz wrote:

> "Could it be that market sheep are starting to wake up? "
>
> If so, they've got a lot to contend with. Seems to me the bulls are
> making an all out effort to break out to the upside.
><snip>

Only the ones left that have balls and/or no common sense - the rest are steers. Feb 10 SPY volume 536.2M trades, trending down fairly consistently since then to Friday's volume of 138.6M (even considering expirations, "sell in may go away", pretty sorry, huh?). I checked stockcharts.com to confirm it is reliably tracking $SPX volume.

From www.nyxdata.com/nyseda...

we see that June NYSE volume is the lowest monthly total since Jan. '09.

I think if you consider the recent revelations of the high-frequency trading program that GS uses (and the other big houses may have them too?) one could reasonably ask if even these volumes are being propped up by the trades that resulted in profits reported from their program trading this last quarter.

One nice thing about the free flow of information is that sooner or later the clueless (I include myself in that category, but I work hard to change that status) get a clue and we may end up with no trades but the "big houses" high-freq programs battling it out and swapping money back and forth among themselves.

I won't go into what I think that would mean, considering what's really on their books and the economy.

But I went to cash but for a gold miner and a couple small positions in a couple small-caps before the end of June. Waiting, waiting, waiting, ...

HardToLove

Jul 19 04:18 PM

[5142152-337:]

By the way, Jeff, another GEM article! Keep it coming!

Jul 19 04:41 PM

[Jeff Nielson:]

HardwoodFlooring,

The anger is clearly directed at CORPORATE America (and most specifically the Wall Street banksters), the oligarchs who rule you in a much more oppressive manner than the English ever did.

I don't recall the English ever needing to resort to mass prison-building as the mechanism to deal with poverty and other "social problems".


On Jul 19 11:36 AM HardwoodFlooring wrote:

> Jeff your right revenues are falling. B/C banks are deleveraging.
> They are trying to lower their deposits, decrease their cost of capital,
> decrease the number of loans they have on thier books to meet the
> ratios auditors are looking for. This is what deleveraging is. It
> sucks for businesses b/c they are getting taken to the wood shed
> as bank problems become their problems.
>
> But keep up you anti- US crap. What is Canada anyway? What is up
> with you frost-backs and you anger toward America?
>
> How's your gold bet going?

Jul 19 05:05 PM

[AngryAmerican:]

As a hedge against the continuing downward spiral of the banks as they totter in the repurcussions of their criminality and stupidity, we need to do something to restart consumer spending with a REAL 2009-focused consumer spending stimulus program. The current continuing wave of job losses began when consumers panicked and STOPPED spending in the fall of 2008, A resumption of consumer spending could begin to turn this tide.
Most Americans are employed and many are not underwater with foolish mortages and credit card debt --many can spend and need to be encouraged to do so to restart our economy. We need a REAL and immediate consumer spending stimulus program that will encourage consumers to make purchases of durable goods by offering rebates and tax credits along with a campaign to encourage spending for the good of the country. The current Obama "stimulus" bill is a nothing more than a slow-motion spending/pork boondogle posing as a stimulus -that does little more than grow the debt.
Also, as a morale booster for honest Americans, the Obama administration should begin prosecuting the racketeers who got us into this mess with the same vigor that they prosecuted Madoff. RICO should be used to seize the ill-gotten gains -- bank accounts, homes, yachts, automobiles. Unfair that those who caused this problem sit on easy street while innocent Americans lose life-savings, jobs, homes. In the eleven months since the melt down, nothing has been done to bring these people to justice.

Jul 19 07:04 PM

[oceansmike:]

Doom n Gloom,,, all the nagativity,,,Mike slit your wrists and make everybody happy,,, you all say what is wrong with the system ,yet have not heard one positive way to fix,,, one day you Dooom n Gloomers willl wake up and have to trade RMP as the new Monetary currency,, Keep it up and your Kids can try to buy the US debt back from the Chinese,,,,

Jul 19 08:31 PM

[Angry Banker:]

My facts and figures are in Citigroup's press release. Read it and you will see it says exactly what I said.


On Jul 19 04:40 PM 5142152-337 wrote:

> To those posters that can't see the forrest because the TREES are
> in the way, well, you deserve what you get. Those that merely want
> to bash the author with mindless diatribe, well, thats your right.
>
>
> Me, I just ask one question? Can you sheeple, like, Mad Banker,
> just DEBUNK what Jeff is saying by providing FACTS and FIGURES to
> illustrate his being wrong? If you can't, then shut the f@@k up
> and just continue to eat grass!

Jul 20 02:09 AM

[Clint007:]

Must watch this following, it is seriously funny. "Max Keiser takes offense to Goldman Sachs oligarchy (pt2 of 2)" www.youtube.com/watch?...

Jul 20 11:01 PM