Everyone Should Start Dumping This Market: Real Earnings Cliff Is Bad And Getting Worse, Possible Q4 Negative GDP Due To Sandy, Wages Not Keeping Up With Inflation, And People Rummaging Through Garbage Dumpsters For Food In NYC!!
November 3rd, 2012
Why The Real Earnings Picture Is Bad And Getting Worse
Listening to the incessant chatter of confirmation bias from CNBC, you could be forgiven for thinking that earnings are ‘not that bad’. Headline-makers like AMZN, GOOG, and AAPL scare for a few moments but we are reassured back to numb BTFD-land by some disingenuous analyst (or worse a PM) who says he is buying with both hands and feet. The misleadingly top-down positive impression of looking at a ‘beats-to-total ratio’, suffers from one rather annoying bias (that often gets forgotten): analysts constantly revising their expectations throughout the reporting period, and hence rarely deviates from the current level of 71%. But, as Citi notes, if one examines results relative to analyst expectations prior to the reporting season, it’s clear just how disappointing Q3 has been – especially given the sell-side mark-downs already factored-in.
If one uses unrevised expectations – which simply anchor lower and make every succeeding number look relatively better and better as earnings season progresses in one direction or another – then the S&P 500′s earning surprises are even worse than Q2 – making the sixth quarter in a row of ‘missed’ pre-expectations…