A scheme we call ‘consensual hallucination.’
Yesterday, we were bashing big pharmaceutical companies for jacking up prices of patent-protected drugs at obscene rates. Those double-digit price increases were largely responsible for the sales increases these companies reported. Drugs have become the largest wholesale category, at $54.3 billion in May, or 12.2% of total wholesales.
This boom is based on price increases at a great cost to US consumers and taxpayers. It’s cannibalizing the rest of the economy. But it’s made possible by the abuse of the patent system, the increasingly monopolistic structures in the industry after a tsunami of mergers funded by cheap credit and a soaring stock market – as planned by the Fed – along with legislators and regulators that have been compromised by the big money and the revolving door [read… This is What’s Cannibalizing the US Economy].
And we said that investors were soaking up the money. But even investors are getting schemed.
In its report released on Friday, FactSet projects that the health-care sector in the S&P 500 will show revenue growth of 7.8% in the second quarter. But even ‘adjusted’ ex-bad-items earnings – a classic in American fiction – is expected to grow by only 2.2% (even as revenues and ‘adjusted’ earnings for the S&P 500 overall are expected to fall once again).
But it’s even worse. As reported under Generally Accepted Accounting Principles (GAAP), which all publicly traded companies in the US have to use for their required financial reports, these Q2 earnings in the health-care sector are likely to drop.
This post was published at Wolf Street by Wolf Richter ‘ July 16, 2016.