This blog post originally appeared on RealMoney Silver on Jan. 11 at 7:29 a.m. EST.After Thursday's close, American Express ( AXP) followed Capital One ( COF) and reported a bruising increase to its loan-loss provision and in credit losses. Shares of American Express (a sizable holding by Warren Buffett) plummeted after the close of trading, similar to those of Capital One on Thursday. As well, Merrill Lynch ( MER) raised its forecast of fourth-quarter writedowns to $15 billion, which represents about 13% of the brokerage's beginning-year 2007 shareholders' equity base. As I mentioned on Columnist Conversation yesterday, the eroding outlook for American Express and Capital One is proof positive of the consumer's plight, and the Merrill Lynch and Morgan Stanley ( MS) analysts who downgraded these names in December provided value-added analysis and were dead right on the fundamentals. The deterioration in consumer spending, after years of bingeing, has just begun, and those who have anticipated a bottom have been burnt. The worst is yet to come, and the stated intention of Bernanke yesterday to become more aggressive will not remedy the structural problems that I have dwelled on in 2006, 2007 and now 2008. What ails the economy runs deep and reflects years of imprudent risk-taking and accumulation of debt (especially of a consumer kind). Moreover, it will require a coordinated effort on the part of the Fed and some of the more healthy institutions -- see Bank of America's ( BAC) rescue of Countrywide Financial ( CFC) -- to fix it.
That curative process will take time -- lots of time. Tonight, I will again debate Larry Kudlow and his band of merry men -- I will take the high road, protect the innocent and not name names this morning -- on "Kudlow & Company," many of whom have remained glibly optimistic ("for the long run") and intellectually dishonest. These permabulls seem to be increasingly relying on anecdotes rather than fundamentals -- just listen to last night's show in which a Dain Rauscher strategist's bullishness seems to be based on the notion that he gave a speech to hundreds of people but only six were bullish -- and they are oblivious to the plight of the economy, which has been reflected in one of the worst Januarys in stock market history. (In certain sectors, such as the financial area, the share-price declines are of nearly biblical proportions.) The economic fundamentals remain awful and will not rebound for some time to come. Expectations for corporate profits, personal consumption expenditures and business spending are way too high. Until investors, strategists and commentators take off their rose-colored glasses and become more realistic in their expectations, any meaningful recovery in stocks is near impossible.