Bank Earnings: Revenues Falling, Losses Rising

Includes: BAC, C, GS, JPM, KBE, WFC, XLF
by: Jeff Nielson

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 (NYSE:C) and Bank of America (NYSE: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 3rd 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 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