Sense on Cents

What is driving our markets higher? A rebound in earnings along with a rebound in the economy, correct? Well, let’s take a quick look at corporate earnings.

Thanks to our Sense on Cents Hall of Famer and resident Economic All-Star David Rosenberg, we learn this morning that:

Financial sector profits have accounted for 85% of the overall increase in corporate earnings.

When I read this, I immediately think of the market akin to that gutless driver who jumps behind an ambulance as it screams down the street. Who is in that ambulance? Main Street. Who is in that car getting the ‘free ride’? Wall Street.

While there is plenty of legitimate and profitable business being transacted on Wall Street, there is also an enormous transfer of wealth from Main Street to Wall Street going on right now as well. How is this wealth transfer occurring?

1. A 0-.25% Fed Funds rate allows Wall Street banks to borrow money from savers for virtually no cost. Who are the savers? Main Street, especially those on fixed incomes, including the elderly.

2. The current structure of Wall Street with lessened competition has allowed for more price controls by the banks across a variety of products. Which products? Start with the rate on your credit card.

Who is promoting the transfer of wealth? The Federal Reserve, the Washington establishment, and the financial media are all very much promoting this wealth transfer by not calling out the banks. Why don’t they? Because they are in bed with and getting paid by Wall Street to keep quiet.

Thank you to David Rosenberg for highlighting the figure on corporate earnings. Why does it take a Canadian to expose the ‘ambulance chasing’ here in America?

LD

This entry was posted on Monday, April 12th, 2010 at 10:58 AM and is filed under General, Wall Street. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.