STAY TUNED

It's been pointed out by us and others, praise of the Federal Reserve usually comes near market tops not bottoms. Such occurred during the Greenspan years and we are starting to see some now.

Along with it we usually see the cheerleaders telling any and all who will listen things are better than they appear, including much purposeful denial. This bull market is old. It's benefited from all sorts of artificial stimulants, aberrant cheap money, stock buy backs and what has always been a standard Wall Street favorite, fudged earnings. If it were a human it would've been busted for drug abuse long ago.

Now the Fed is set to make a move, one that's been more broadcast than a hurricane alert. Apparently, the news somehow skipped corporate profits and farmers. Here's the story line from two WSJ articles today, "Farm Belt Banks Tighten Buckle," and "No Relief for Corporate Profits."

Let's take farmers first, "....with the farm slump moving into its third year, banks have become pickier, requiring some growers to cough up more collateral and denying financing outright to some customers who need it to pay for seeds, crop chemicals and rent." The Journal quotes the U.S. Department of Agriculture: "... net farm income will slide this year to $54.8 billion, down 56% from its peak in 2013 and the lowest level since 2002. Debt-to-asset ratios among farmers expected to rise for fourth year in row."

And about those corporate profits. Pinched is the kind term the Journal uses. "As if it wasn't bad enough for investors that the economy has been growing slowly, they are also getting a shrinking share of it."  That shrinking share is corporate profits.  No doubt some will name the energy sector downturn, the strengthening dollar and such, but that's hardly the whole picture.

Fourth quarter domestic corporate profits, excluding greenery, the Journal notes, were "down 3.8% from a year earlier." If as the Fed apparently believes the labor market is tightening than wages--wages that for the most part have been flatter for years than most table tops--should be set to rise, further squeezing corporate profits.

The latest report on corporate profit out today showed:
Friday’s report also offered the first official estimate of U.S. corporate profits during the first three months of the year. Profits after tax, without inventory valuation and capital consumption adjustments, rose at a 1.9% rate from the fourth quarter.
The modest rebound came after two consecutive quarters of falling profits. Still, profits were down 3.6% last quarter compared with a year earlier.

“This weakness in profits is likely contributing to the recent pullback in business spending and hiring growth,” J.P. Morgan Chase economist Daniel Silver said.

A separate measure that more closely aligns with economic output, pretax profits with inventory valuation and capital consumption adjustments, rose at a more modest 0.3% rate in the first quarter and declined 5.8% from a year earlier.

Nor will higher earnings for workers necessarily translate into more consumer spending as household debt levels are nearly back to where they were when this mess all began .As the say: Stay tuned.