Corporate Revenue the Victim of Too Much Money Printing?

As central banks around the world continue to print excessive amounts of paper money, currency printing is starting to have a negative effect on corporate revenue.

Pfizer Inc. (NYSE/PFE) reported revenues of $59.0 billion in 2012, a decrease of 10% compared with $65.3 billion in 2011. Due to an unfavorable foreign exchange rate, the company lost $1.5 billion in revenue—or two percent. (Source: Pfizer Inc., January 29, 2013.)

For Johnson & Johnson (NYSE/JNJ), the effect of currency fluctuation on its corporate revenue was bigger. In its full year report, the company showed sales of $67.2 billion worldwide – down 2.3% from 2011’s sales because of currency fluctuation. (Source: Johnson & Johnson, January 22, 2013.)

3M Company (NYSE/MMM), on a 2012-to-2011 comparative basis, says exchange rates decreased its sales by 2.4% in 2012. (Source: 3M Company, January 24, 2013.)

Unfortunately for many American companies that get their sales abroad, central banks around the world are in outright currency wars. The Bank of Japan, central banks in Latin America, and, most importantly, the Federal Reserve have expanded their balance sheets by record amounts.

The corporate revenue of large multinational companies is affected by rigorous central bank paper money printing. And it could be a long time before central banks get out of printing mode. Just look at our own central bank; the Federal Reserve is purchasing a combined $85.0 billion a month in mortgage-backed securities and government Treasuries with no expiry date yet.

Key stock indices have risen, as central banks have increased the money supply. But if companies in those indices are not able to squeeze more earnings out of declining revenue, they will need to resort to plain old-fashioned stock buy-back programs to make up the difference in per-share earnings. Companies can only pass on costs to their customers for so long, especially when consumer real income has been declining.

I still see gold bullion as a hedge against central banks’ printing paper money. It has been known to store value for much longer than the paper currency. The best thing about the yellow metal is that, unlike fiat currency, central banks cannot print more gold.

Michael’s Personal Notes:

The U.S. Treasury Department reported that the U.S. government had a surplus of $3.0 billion in January—the first surplus since September of 2012. (Source: Market Watch, February 13, 2013.)

Let’s look into the “details” of this favorable report:

For the current fiscal year 2013, which began in October 2012, the U.S. government has already raked in $290 billion in deficit, ballooning the national debt to $16.5 trillion.

When the U.S. government incurs a deficit, it simply means it needs to borrow to pay its expenses. A one-month surplus of $3.0 billion doesn’t mean much—it’s more a timing issue between how much it borrowed in the past months, revenue in the current month, and expenses due for payment in the current month.

The U.S. government has run a deficit of over $1.0 trillion in each of the past four years. For 2013, the Congressional Budget Office (CBO) expects the deficit to be $845 billion—less than a trillion-dollar budget, but it’s still going to increase the national debt well past $17.0 trillion. (Source: Congressional Budget Office, February 5, 2013.)

And consider this: from now on, if the U.S. government continues to post a surplus of $3.0 billion a month and pays off national debt with the proceeds, it would take 458 years to pay off the national debt!

As I have been stressing repeatedly in these pages, government spending is out of control and the national debt is way too high—almost unsustainable. How long can the Federal Reserve go on printing money to pay the U.S. government’s debt before the house of cards falls?

I listened to President Obama’s State of the Union address on Tuesday night like millions of other Americans. I basically heard: “We need to do this, and we need to help these people, and we need to help this group…” But I didn’t hear him say, “We need to slash government spending to get our budget under control.”

Yes, I heard, “We don’t need a bigger government; we need a more efficient one,” but I didn’t hear about cutting back on government spending that has ballooned the national debt by $6.0 trillion in just over four years.

If we look at the deficit the government has incurred from October 1, 2012 to January 31, 2013, we get a number of $290 billion. At that rate, the deficit for the current fiscal year comes in just under $900 billion—and that’s if interest rates stay low and we don’t have another war or any natural disasters!

And I have to wonder: how high would interest rates really be if the Federal Reserve weren’t buying the majority of Treasuries issued by the government? Scary thought.

Where the Market Stands; Where it’s Headed:

The bullishness and optimism in the stock market are becoming overwhelming—which tells me we are within reach of a top in the bear market rally that started in March of 2009.

What He Said:

“Partying Like a Drunken Sailor: The party continues. Stocks are making new highs and people are spending like there is no tomorrow. Why? I really don’t know. Big (cap) stocks, they just continue going up. Wall Street bonuses are at record levels. Popular consumer goods are flying off the shelves. Designer clothes, fast and expensive cars, restaurants with one-hour waits…people are spending in America today at an unbelievable clip. 1932, 1933…who remembers those years? The depression of the 1930s was the biggest bust of modern history. 2005, 2006, 2007…welcome to the biggest boom of the same period. When will it all end? Soon, my dear reader. Soon.” Michael Lombardi in Profit Confidential, February 7, 2007. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.