Fall Down Friday - A Little Reality into the Weekend?

"The sluggish Global recovery"

That’s the reason PKX gave for a 59% decline in 4th Quarter profits. That’s 59% LOWER than last year, which also sucked! Posco is the World’s 3rd largest steelmaker and they had issues with rising raw materials costs (duh!) that offset a 26% increase in sales because those sales are coming in at last year’s prices as the CEO says the company is unable to pass on higher costs to it’s customers (primarily car makers, train/rail and shipbuilders).

This is the REAL economy folks – it’s still very rough out there. Posco, like many others, does believe 2011 will be better but PKX is already trading back at $1111, down just a bit from $140, where they traded most of 2007, when the company earned $4Bn on $34Bn in sales. Last year, PKX earned $21M on $31Bn in sales and I don’t have the full year but analysts were looking for 634Bn Won of income in Q4 and got 525Bn (divide by about 1,100 for $$$) so a big 20% miss with 14 analysts covering one of the World’s biggest industrial firms. Do you see why I worry about expectations being a bit too rosy?

Over on that side of the World, the Shanghai Composite fell 1.3%, the BSE fell 1.7%, the Nikkei fell 0.8% but the Hang Seng, which is manipulated by the same Gang of 12 as the US markets, held flat at the week’s high of 24,283. Thank goodness for Hong Kong or we’d be worried about the 12.5% drop in the Shanghai since mid November but, thanks the the Hang Seng, we can ignore the mainland China Market and just talk up Hong Kong – as if that’s China and not just a trading vehicle used by the IBanks to paint the International tape.

Interesting little divergence between the Hang Seng (which most Americans think is the entire Chinese market) and the Shanghai Composite. Where is the China that is is driving the Global bull premise? Surely it is the golden line of the Hang Seng (Hong Kong population 7M vs. Mainland population 1.3Bn) – Pay no attention to that index behind the curtain!!!

Reality is such an elusive thing these days, isn’t it? We live in a society in which we don’t expect the TRUTH from the media so we get none of it. We get versions and we get spin and we are told that they can report and we can decide. Isn’t that a ridiculous concept? Imagine your math teacher telling you that: "I’ll just lay out some problems for you and whatever you decide the answer is will determine how we design the next bridge." NO! There is a CORRECT answer and we need to learn, as a society, not only how to find it but we need to re-learn the NEED to find THE TRUTH. You cannot make either social or economic progress by pretending everything is just a matter of opinion!

I mention this because, aside from the idiocy that passes for news on CNBC and other Corporate Media outlets, I was struck by a statement from the TARP report yesterday which pointed out: "While there was consensus that Citigroup was too systemically significant to be allowed to fail, that consensus appeared to be based as much on gut instinct and fear of the unknown as on objective criteria. The conclusion of the various government actors that Citigroup had to be saved was strikingly ad hoc." REALLY? We gave Citigroup $25Bn, then another $20Bn a month later and then the Government backed $300Bn of their assets simply out of fear?

Treasury Secretary Timothy F. Geithner told Barofsky that creating measurements for systemic risk was impossible because firms would “migrate around” the criteria, according to report. Geithner said that “we may have to do exceptional things again” if the shock to the financial system is large enough, according to the report. Barofsky said that Geithner’s remark “underscores a TARP legacy, the moral hazard associated with the continued existence of institutions that remain ‘too big to fail.’” What are we doing to make sure this never happens again? Don’t worry – the new web site is almost ready:

Speaking of total Government BS – Remember when The Bernank was testifying before the Senate and Senator Enzi said the US is experiencing inflation and the Fed is doing nothing about it (this was last week). What did The Bernank say? “The facts are that inflation is 1% including food and fuel.” is what he said. Bazinga Senator Enzi – you have been OWNED! Uncle Rupert’s Journal (see link) is quite happy to cut the paragraph off right there because, after all – the truth belongs to the last guy who holds the microphone, right?

Well those pesky facts do tend to rear their ugly heads once in a while and today’s annoying fact is the December Consumer Price Index, which shows prices rose 0.5% IN ONE MONTH. Why that’s half of Ben’s 1% right there! For the past 12 months, including "seasonal adjustments" the CPI is up 1.5% – that’s 50% more than the Chairman of the Federal Reserve thought they were up so was he ignorant or lying to congress last Friday? Tough choice, right?

Of course the weighting of the CPI is completely insane with fuel up 16.5% for the year, Food up 1.5% (and we’d like to know where those people are shopping!), Medical Care up 3.4%, Transportation up 2.8% but that is all offset by a 1.1% drop in Apparel, a 2.8% decline in Natural Gas, and a 0.2% decline in new car prices. So, other than natural gas, the things you MUST buy every day carry very little weight while the things you MIGHT buy once in a while are given more weighting. According to the CPI report: "A deceleration in the gasoline index accounted for much of the slowdown, as it increased 13.8 percent in 2010 after rising 53.5 percent in 2009." Gosh I know I feel better about that, don’t you?

Don’t worry investors, there’s no reason to be concerned over rising prices because America’s massive unemployment allows us to make it up by cutting wages! That’s right, December real earnings were down 0.4%, allowing our corporate profits to keep pace with rising input costs as we simply force the proles to make due with less. Unfortunately, this caused December Retail Sales to miss expectations by 33%, rising only 0.6% instead of 0.9% expected but, like the MSM, we will pretend that didn’t happen as it doesn’t fit the bullish narrative they’ve been touting since Thanksgiving weekend.

We get the U of Michigan Consumer Sentiment Report at 9:55, followed by Business Inventories at 10:00 and ECRI Indicators at 10:30 and I’m expecting that to be it for the drop so we’re going to take the money and run on our short plays as the Fed’s Lacker is scheduled to give his Economic Outlook at 12:00 but we already have a video of the dry run of the speech and it looks pretty bullish: