The Political Drag Is Real

 | Jul 24, 2012 | 11:01 AM EDT
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This time you really can blame the politicians. It's not an alibi. It's a reality. While I don't like to hear from companies that they missed the quarter because of European weakness or the coming fiscal cliff or the slowdown in China, it has become pretty darned obvious and glaring this reporting period that it's the politicians who stand in the way of earnings growth that can drive markets higher.

The disgusting thing about it all is that the politicians could not care less. It's almost as if the whole world has turned left and the last thing the pols want to think about is the possibility that business may be hurt by their policies.

And you know what's so ridiculous about this? Only the corporations can get the governments out of the hole that they have dug.

In our country, the debt that we have accumulated for everything from pet projects to confused wars to health care can't be repaid just by cutting spending or raising taxes. We need to have more revenue growth to raise tax receipts. We need to grow our way out of this jam. Not cut our way out of it. So to hear Eaton's (ETN) Sandy Cutler say that the fiscal cliff is causing potential buyers of trucks to hold off on purchasing is just devastating, as devastating as Bryan Jordan of First Horizon (FHN) saying the fiscal cliff is crimping loan demand, which is the necessary precursor to hiring, better earnings and higher tax receipts.

If our politicians are horrible at abetting business to create much-needed jobs, the Europeans are downright horrendous. Almost every single international company I follow gave you an "if not for Europe" notation that kept you from being enthused despite solid growth in the U.S. Just today United Parcel Service (UPS) and DuPont (DD), two excellent companies, did a "but for," and you can only wish that they really could asterisk Europe, as if Europe could somehow not count toward earnings, because Europe is bringing both the revenue and the earnings line down.

Even McDonald's (MCD) had to talk about how you need a super-value value meal to attract diners in places like Germany, which have been pretty strong for some time. McDonald's cited the overall multi-year ennui in Europe as a reason for the slowdown, as customers finally understand that things aren't coming back anytime soon, so why bother to go out at all? And this is burgers and fries we're talking about.

Unlike European and U.S. politicians, Chinese pols are actually trying to work some pro-growth magic. It hasn't happened yet, as Eaton's Cutler has made it clear, and even Yum! Brands' (YUM) David Novak has echoed the negativity. KFC sales are not as robust as they were. Neither were the sales of McDonald's in the People's Republic.

All that said, I have hopes that of the three sets of pols, the Europeans, the Americans and the Chinese, it is the Communists who recognize the imperative of growth and the ability of capitalism to provide it. I bet China turns first, and that is why you can't be totally pessimistic as you would otherwise be if you simply took a look at the future for the U.S. and Europe, a future that seems to dim solely because of the endless squabbling by the elected officials who are put in office precisely to solve the problems that they happen to be creating. 

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