S&P 500 Q1 profits down 18%, stocks only 3.2% down

Spot the coming fall on Wall Street! The numbers say it all. Profits for the 461 out of 500 S&P companies that have reported first quarter profits are down by 18 per cent. By contrast the S&P 500 Index was only down by 3.2 per cent in Q1. More evidence that a substantial correction or even a full on crash is due on Wall Street should not be necessary.

Yet the masters and mistresses of spin are still working overtime to keep this bubble afloat. My conspiracy theory devotees in the Middle East sense a media conspiracy and I guess that is the definition of democracy with a Presidential election coming up.

Chief cheerleader Treasury Secretary Hank Paulson was at it yesterday forecasting that $100 billion in forthcoming tax rebates is about to create 500,000 jobs and turn the economy around. A Bloomberg poll of 10 forecasters produced a lesser estimate of 158,500 jobs and this could well prove over-optimistic.

Of course, Paulson will likely be joining the ranks of the unemployed himself next January when President Obama’s administration is sworn in. But will Wall Street manage to keep its head above water by then, particularly if profits continue to disappoint.

Why should they improve? We have oil at $135 a barrel and inflation surging upwards courtesy of super lax Fed policy and tax giveaways. Ask the airlines what that means for their profits. And houses continue to fall in value depressing consumer sentiment.

Well, at least last week Wall Street had its biggest weekly retreat since last February with the S&P off one per cent at 1,380 points. But shorting the S&P has got to be the most obvious winning trade at this moment in time.