The Micro View - Q2 Earnings Season: Past, Present And Future

Tyler Durden's picture

It is obvious by now that the macro economic picture is collapsing.  The only good news is courtesy of the micro economy, specifically corporate earnings, where massive deleveraging and cash hoarding is the only thing keeping the economy alive at this point. Here is Goldman's David Kostin with a perspective on the Q2 earnings season: where we were, are and are going. 

PAST: 2Q 2010 earnings season - We expect index-level 2Q 2010 earnings will positively surprise relative to bottom-up consensus expectations. Of the 37 companies already reported, 20 beat consensus EPS expectations by more than one standard

PRESENT: 2010 full-year earnings outlook - Our full-year 2010 S&P 500 operating earnings forecast of $78 per share implies 4% potential negative revisions to current bottom-up consensus estimates of $82. GS Economics expects US GDP growth will slow to 1.5% annualized pace during 3Q and 4Q 2010, below the consensus estimates.

FUTURE: How various economic scenarios will affect 2011 - EPS Investors are intensely focused on the profit outlook for 2011 more than 2Q results. We provide sensitivity analysis around our 2011 EPS forecast of $93 adjusting assumptions for US real GDP growth.


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papaswamp's picture

dude..I know your bitchez statements irritate others...but I fuck'n love it...keep on rock'n!

spekulatn's picture

+ whatever....

keep rockin the bitchez!


traderjoe's picture

The myopic focus of the "market" and "analysts" on the earnings of a select group of companies as representative of the health of the US corporate sector is just dumb. Sure, the top 100 companies can manipulate taxes, push vendors, influence governments, etc. 

Eventually, the leveraged consumer and over-stretch muni's - among all of the macro headwinds will pull them down too. 

RoRoTrader's picture

nice point; killing the goose that laid the golden egg..........greed.

poopdeville's picture

If there's to be any sanity in equity investment, and any hope for an economic recovery, people need to start scouting for small businesses with good business plans, or R&D shops.  The fact that "financials" are forecast to make up 15% of the S&P's earnings is extremely distressing.  A massive tax on progress, and we get even less to show for it than our Federal and State taxes.

Monkey Craig's picture

great point - it is hardly progress when humans trade IOUs  back and forth all day and call that the people that engage in this spent many years in expensive undergraduate and graduate degree programs being brainwashed

Implicit simplicit's picture

The country desperately needs new innovations especially in energy. Small nuclear power sources would be a good start, along with goverment spending on infrastructure to support a massive switch to natural gas, and continueing to develop all green sources. Any growth in GDP will be dependent on utiliizing all the energy sources available in the most cost efficient way possible.

 However, the US is too beholden to lawyers and lobbyists, so nothing gets done the way it should. Its sad because there are many great minds with good perseverence that could get the job done, but they won't even try because of the beurocratic nightmare it entails

Monkey Craig's picture

Big government + Big Labor + Giant corporations = end of the republic

Implicit simplicit's picture

You'll appreciate this from an article by Hugh Smith over at "Of Two Minds"

"In the 1930s, the Federal government and the household held very modest levels of debt. Thus a borrow-and-spend frenzy to fund a global war (World War II) was possible because the borrowing began from a very low basis.

Before the 1929 stock market crash, Federal regulation of the financial industry was light to non-existent. Thus a move as simple as guaranteeing savings deposits in banks (the FDIC) had enormous leverage because it filled a void.

If additional regulation would have fixed the U.S. economy at a fundamental level, it would have already done so. It hasn't, and the reason is marginal returns. In the 1930s, tens of thousands of people were put to productive work for very modest sums of money, even when adjusted for inflation.

Now, politically influential unions and private contractors would kill off any large-scale work projects, demanding instead that repairing roads, etc. go to private corporations seeking hefty profits and union labor which costs $100,000 or more per worker.

This is how we reach the absurdity that the Federal Stimulus package has "saved" (supposedly) thousands of jobs at an average cost of $323,000 per job.

That's the consequence of increasingly marginal returns. "

Whole article

RoRoTrader's picture

why do we need Harvard degrees to understand the value of community?.......NOT.........that is sort of what you are saying, right?

nothing like common sense, and value in community.......I think John Bogle called this predatory capitalism.

boeing747's picture

The secret of high corp earning today: Fire two high paid senior worker and hired one new non-experienced worker. I found out more and more companies did that. The reasons, Zhers shall figure out easily.

Monkey Craig's picture

I was speaking with some HR people at the regional bank in my town - fortunately I'm not looking for a job, as many people in northern California are. There are very few open positions  (mostly tellers, but also a few lending and credit positions), and when they make offers to senior people, the company is able to lowball.  


Also, I think that recent college grads are having trouble finding work. Some of the big corporations (Accenture, IBM, etc) are hiring entry level engineering and accounting types, but the smaller companies are not creating jobs.


This is not news to anybody, but just a confirmation from the people with whom  I correspond. I definitely think this is a tough job (and small business) market, unless you have a juicy government contract.


jbc77's picture

Earnings? Earnings are now just another big joke in the side show circus. We have JPM pushes numbers around to make it look good. Theres Alcoa too. Was that one fun or what. Yeah, lets revise down three times, use our arms to pull our legs over the mark and call it swell. They're scratching, scrapin and using fradulent numbers through acounting "magic". All part of the fallacy and BS that these companies can keep infinitely beating their numbers, infinite growth. It doesn't exist. The numbers and expectations are part of the problem, it's built into the system.

The only question is how far, how long can this system be gamed until a fatal error is made. There won't be anyone left to trade. It'll go from 90% robots to 100%.

powersjq's picture

It's not possible for "massive deleveraging and cash hoarding" to keep the economy alive, since they basically reduce the velocity of money to zero.  This is the paradox of thrift at the corporate level.  If consumers don't spend, and gov't doesn't spend (or stops spending), and corporations don't spend, well then no one's spending.  No spending = no buying = no selling = shrinking economy.  Corporate cash hoarding is basically CEOs refusing to invest in the USA.  So much for supply side.

RoRoTrader's picture

so, if the money supply is falling then the velocity of money must be collapsing, right?

powersjq's picture

That sounds right.  I'm not formally trained, so there could be other reasons for tha collapse in M3 that Shadowstats has been tracking, but that's how I read it.

Reese Bobby's picture

Come on people. Stop paying your stupid mortgages and buy some iCrap.

doolittlegeorge's picture

well it better be collapsing or how else are we going to explain we "we had to open fire on those worthless American scum."

moneymutt's picture

nice interview with Elizabeth Warren...she talks about commercial real estate and local/regional banks precarious situation starting at 11:46

Like this: "The longer you pretend, the longer it takes to get the market back to where supply and demand match each other, the longer it takes to get the right price back on commercial real estate, attract in the businesses, get the rents back in the right place, and get this economy back up and moving. Everyone would like the world to be always in bubble times but that doesn't happen, what we have to do to have a secure financial system, and frankly an economy that functions well, we've got to be right back down where supply meets demand...that means that are there are a lot of losses in commercial real estate....that just have to be acknowledged..."


New_Meat's picture

Best explanation of "clear the market" I've seen, Thanks. - Ned

sbenard's picture

If Barack Obama does what his hero FDR did, he'll impose an "excess profits tax" and steal the cash that corporate America is too afraid to spend. Then, businesses will fold by the millions, and we'll have an even worse recession or even depression.

He'll probably use his "deficit  commission" as cover to confiscate the savings of businesses, or perhaps even private individuals. Nothing is safe with the man.

But at least we'll be "collectively saved" in his Marxist fantasy heaven.

chrisina's picture

You write "If Obama does X, we'll have a depression". Sounds as if Obama does Y (the right thing), we won't have a depression ?

No, a very long depression is the base case scenario, caused by 30 years of an over-developped world living beyond its means via reckless spending and a level of private debt that is so high it can't grow anymore.

The only alternative is collapse, revolutions or civil wars and complete chaos. And no government is going to want to be in charge if this happens.

New_Meat's picture

Our Dear President won't be able to get that done before the 112th Congress convenes, and won't have the votes to put that part of the commission's recommendation in place.

Calvin Coolidge, where are you?

- Ned

RockyRacoon's picture

Putting the success or failure of the U. S. economy on the back of one hack politician is quite puerile.  Your overview of how the world or economy works is somewhat lacking.

Eric Cartman's picture

It's getting to be about that time... Absent any QE, this ship is gonna sink. Now it all comes down to timing, which obviously is the most difficult thing to do. I don't want to be premature (i have that problem enough as it is) but I don't wanna miss the crash! Hmm... I think it might be best to see how things play out the next few weeks and take it from there. Then just double down on all the sectors doomed for failure. Sweet!

chrisina's picture

Small correction, the ship is going to sink no matter what. More QE is just a small plaster that will give the illusion that the ship is staying afloat for a little while longer.

RockyRacoon's picture

Yep, just a few more folks in the engine room of the Titanic bailing water in pails to the observation deck.  Looks like a lot of activity, puts a few folks to work, but the ship is going down!  The first life boats have already been commandeered by the upper crust.

Bluntly Put's picture

More Q/E (enough to provide "apparent" salvation) = currency crisis.

No more Q/E = Austerity, necessary depression

Take your pick.

Eric Cartman's picture

Sweeeet! Now is my time to shine!

Real Estate Geek's picture

At least your new avatar is less annoying than your old one . . .