As Good As It Gets

Tyler Durden's picture


While the impact of the Fiscal Cliff remains front-and-center in everyone's mind, SocGen's Albert Edwards has another, more prescient, insight into why stocks are reverting. In his words, "commentators are worrying about an impending fiscal cliff, we have actually already stepped off the profits cliff." As we noted last week, the divergence between markets and macro suggest a rather ghastly echo of 2008; as the market is falling in line with the dismal outlook for profits (rather than the more upbeat macro economic data). As far as the latter, we are getting close to a cyclical peak - so macro surprises are 'as good as it gets' - and for the former (earnings outlooks), Edwards shows an unprecedented level of optimism about EPS going forward. As we proceed into the new year, Edwards expects "the combination of poor profits and poor economic data to prove toxic."


Via SocGen's Albert Edwards:

Top Down, Edwards has concerns that we have 'topped out' in terms of economic surprise, and along with our views from last week, he also notes:

The resilience of the global equity market in recent months has been, in very large part, down to better than expected US economic data. The widely cited Citigroup Economic Surprise Index recovered from its nadir in late July and has been surging ever since. Together with the intoxicating vapours of QE3, the better than expected economic data helped drive the S&P to its mid-September 1475 peak.


But, despite the economic data continuing to surprise on the upside, the equity market has started to slide sharply lower. And, although renewed worries about the fiscal cliff have resurfaced in the wake of the Presidential Election, the S&P was in clear trouble two weeks before the election, when on 22 October it broke decisively out of its H2 up channel.




the bottom line is: despite the upside economic surprises, profits have been spiralling downwards. It's not the impending fiscal cliff the market is worrying about, it?s the actual profits cliff we have already fallen off.


My former boss, Roger Palmer, who brought me into this business in 1988, used to say “if the market can’t go up on ‘good’ news it will fall very sharply on ‘bad’ news”. It's all about expectations. The very prescient market commentator John Hussman regularly uses the chart below to demonstrate that economists optimism goes in waves - and for some curious reason that wave lasts about 44 weeks.



As we get towards the end of the year, the economic data will inevitably disappoint as we begin to slide down the sine curve.

Bottom-up things are also concerning. Edwards cites his colleague Andrew Lapthorne who notes:

"the outlook for earnings has been extremely poor in recent weeks. Yes, the US reporting season led to an improvement in near term (2012) earnings forecasts with the ratio of upgrades to total estimate changes for 2012 earnings rising from 44% to 50% over the past month, but earnings momentum for 2013 has slumped, dropping from 48% to 42%, leading to a major divergence between the two. For earnings momentum to collapse during a reporting season is highly unusual, as optimistic forecasts are generally reeled in over the period between reporting seasons."


[ZH - the unprecendented divergence between FY1 and FY2 profits optimism suggests we are full of hope]


and goes on...

"The question is not the level of earnings growth, but the rate at which earnings are being downgraded, and currently with global earnings momentum down in the low forties, it suggests we are already in a profit recession."

As Edwards concludes:

Disappointing economic data AND falling profits. Now that IS a toxic mixture!

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Wed, 11/14/2012 - 16:19 | 2981272 eclectic syncretist
eclectic syncretist's picture

So far the market's decline looks eerily like the bursting of the Japanese bubble in 1990.  A slow motion train wreck with no panic at all. 

In fact, Churchill described the start of the 1929 crash in similar terms (black thursday, I believe).

Wed, 11/14/2012 - 16:58 | 2981455 hedgeless_horseman
hedgeless_horseman's picture



As good as it gets

I thought this article was going to be about opening a short position in FB today.

Wed, 11/14/2012 - 16:20 | 2981273 LawsofPhysics
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Garbage, there is no market for true price discovery.

Wed, 11/14/2012 - 16:23 | 2981294 redpill
redpill's picture

Yeah but it's kinda fun to watch them create these technical analysis fantasies and actually believe they mean something.

Wed, 11/14/2012 - 16:21 | 2981284 fonzannoon
fonzannoon's picture

I have a confession. I am watching cnbc. I can't get enough of it. They keep bringing out shmuck after shmuck to say "now is the time to put money to work" and "where else are you going to put your money". They alternate it with "money on the sidelines" although "chase for performance" is eerily absent. I try to figure out if the people speaking are totally constipated or worse. I think one of them actually verped (vomit burp) while telling the audience to jump in. They throw in a Pento or someone every once in a while and they laugh like a maniac at the other guest. It is splendid entertainment. There, I have confessed.

Wed, 11/14/2012 - 16:28 | 2981308 redpill
redpill's picture

From time to time I enjoy re-watching the "Peter Schiff was right" video from '06 where they showed all the douchebags literally laughing at him on CNBC when he suggested that housing would be declining in the years to come.

Wed, 11/14/2012 - 16:28 | 2981314 SheepDog-One
SheepDog-One's picture

Seems everyone is putting their money to work buying guns and ammo....they cant keep anything on the shelves. Today I tried to stop by my local gun store, I didnt even slow down the parking lot was jam packed.

Wed, 11/14/2012 - 16:32 | 2981336 The Gooch
The Gooch's picture

grabbed a few hundo rds @ lunch...

Wed, 11/14/2012 - 16:35 | 2981364 DoChenRollingBearing
DoChenRollingBearing's picture

250 rounds in N FL two days ago.  Guy told me business was BOOMING for about 3 weeks now.

Wed, 11/14/2012 - 19:40 | 2982030 mayhem_korner
mayhem_korner's picture



"Secondary market" for G&A is also booming.  Gotta be 60% barter in some locales.  Or so I hear... ;)

Wed, 11/14/2012 - 20:41 | 2982247 xtop23
xtop23's picture

Yup. 400 rds. of .308 168 gr. TAP day before yesterday.

Wed, 11/14/2012 - 16:29 | 2981318 centerline
centerline's picture

No worries.  We all have had our CNBC moments.  Just don't do it while drinking.

Wed, 11/14/2012 - 20:49 | 2982294 xtop23
xtop23's picture

Shouldn't that be, while operating a motor vehicle?

I've found alcohol is absolutely necessary for the mainstream financial / political news.

Unless it's Chris Mathews. For that, alcohol alone is rarely enough. 

I can honestly say, that I would donate a full months salary to slap that irritating fucker right in the face.

Wed, 11/14/2012 - 16:30 | 2981322 CrashisOptimistic
CrashisOptimistic's picture

They have to serve their customers.

You are not their customer.  Their customers are the folks who buy their product, which is advertising minutes.  Those folks are all desperate for "retail investors" to return.

They never will.

And yes, that's the N word.  Never.

Wed, 11/14/2012 - 16:22 | 2981285 DoChenRollingBearing
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Things are still fine in Peru...  Sales and profits up.

Wed, 11/14/2012 - 16:25 | 2981301 LawsofPhysics
LawsofPhysics's picture

Yes, I really need to start looking for closed ended funds in more countries.

Wed, 11/14/2012 - 16:41 | 2981396 DoChenRollingBearing
DoChenRollingBearing's picture

Or I could find you could find a worthy borrower for $50,000 - $100,000 down there...

/sarc (j/k)

Wed, 11/14/2012 - 16:33 | 2981337 somethingisrotten
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I just returned from Peru last week. 

It appears things are turning as we speak - I talked to several of the natives who are getting restless and returning to Miami.

Wed, 11/14/2012 - 16:40 | 2981390 DoChenRollingBearing
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I go next month.  Thanks for the update.  Lima has had a HUGE property boom for years now, condos are way over-valued IMO.  Our bearing sales are still holding up nicely though, we sell mostly to the KOREAN parts replacement market.

If China goes down, Peru will likely as well..

Interesting that a Peruvian banker that we know went BACK to Peru several months ago.  I wonder if he too will "bounce back up".

Thanks for the nice report!

Wed, 11/14/2012 - 16:46 | 2981418 somethingisrotten
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Yep on the property boom.  One of the small businessmen (restaurants) that I talked to said his place in Miraflores is now for sale.

Wed, 11/14/2012 - 20:52 | 2982308 xtop23
xtop23's picture

What's your take on Chile, DCRB?

Wed, 11/14/2012 - 16:22 | 2981288 Bicycles and Beer
Bicycles and Beer's picture

please dont feed the swans.

Wed, 11/14/2012 - 16:23 | 2981289 Manthong
Manthong's picture

Shouldn't Barry give a little encore before closing?

Wed, 11/14/2012 - 16:24 | 2981299 VonManstein
VonManstein's picture

Kudos to the Tylers. Theyve been banging this drum a while now, that QE~ is priced in and what not,  i dint buy it, thought we would get a pop at least before the big down. I was way off. Today is laughable, what the fuck can the FED acutally do to effect stocks now? Zip thats what. Pathetic bunch of crooks. 2008 could have solved the problem but no no.. the people must hurt longer and suffer sa much as possible before the inevitable. Fuckers.

Well ive got my phyzz, both metals and i am long XAG for what its worth, short SPX.

i have a, Yuan acount with BOC london branch, got some SEK and NOK... else can one do really?

Oh and i have a chemistry exam friday... that sucks

Wed, 11/14/2012 - 16:26 | 2981305 Confundido
Confundido's picture

"...Thus, despite the gigantic efforts of the Fed, during early 1933, to inflate the money supply, the people took matters into their own hands, and insisted upon a rigorous deflation (gauged by the increase of money in circulation)—and a rigorous testing of the country’s banking system in which they had placed their trust..."

Wed, 11/14/2012 - 16:28 | 2981310 Iconoclast
Iconoclast's picture

Perhaps 2007/2008 was the intro to this, the main event. Whatever they state the Fed, ECB and other central banks are out of ammo and ideas. Beyond Draghi type spin, that just isn't being 'bought', they've got nothing left

Wed, 11/14/2012 - 16:33 | 2981347 walküre
walküre's picture

They're out of bullets. Correct. When Draghi and Bernanke came out with the infamous "hope springs eternal QE" bullshit, everyone should have gotten the memo.

When you tell your family "all will be well forever" is the time you know that you, your wife and children will probably not survive the shitstorm that's coming.

Wed, 11/14/2012 - 16:30 | 2981326 buzzsaw99
buzzsaw99's picture

Rubbish. Free market forces have no bearing on this situation. There is no market, there is only the bernank.

Wed, 11/14/2012 - 16:37 | 2981376 CrashisOptimistic
CrashisOptimistic's picture

You're half right.

There is no market.

There is only headline reading algos driving HFT.  The algos are likely reading about Greece.

Wed, 11/14/2012 - 16:32 | 2981334 e-man
e-man's picture

Everyone please panic in a calm and orderly fashion.  Nothing to see here.

Wed, 11/14/2012 - 16:33 | 2981344 CrashisOptimistic
CrashisOptimistic's picture

The dirty little secret is that very quietly, Greece is resuming its place as the determinant of world markets.

Not the fiscal cliff.  Greece.

It is Greece that can set the precedent as first ever country to default on an IMF loan.  It is Greece that can trigger what are clearly billions upon billions of CDSwaps on the debt they owe the EU, ECB and IMF.  It is Greece that, via those swaps, can do another 2008 evisceration of the entire world's banking system.

Wed, 11/14/2012 - 16:33 | 2981349 robertocarlos
robertocarlos's picture

They said, "I'll get you, and your little dog too".

Wed, 11/14/2012 - 16:39 | 2981388 Silverhog
Silverhog's picture

Somebody stole the fan. Guess we'll have to throw the shit around ourselves now.

Wed, 11/14/2012 - 16:49 | 2981435 NEOSERF
NEOSERF's picture

And from MW...just unbelievable...government starts encouraging NINJA loans for housing to goose numbers and what gets into solar, housing, college loans and starts spending like drunken sailors trying to "prime the pump"...Folks if you really think things are getting better, maybe they are but not without trillions every year spent to try and convince you of it.

WASHINGTON (MarketWatch) -- The Federal Housing Administration is expected to report later this week that it could exhaust its reserves because of rising mortgage delinquencies, The Wall Street Journal reported, citing people familiar with the matter. That could result in the agency needing to draw on taxpayer funding for the first time in its 78-year history, the report said. The decision won't be made until February, and Congress would not need to authorize any funding because it has "permanent and indefinite" budget authority, the report added.

Wed, 11/14/2012 - 16:50 | 2981441 Tango in the Blight
Tango in the Blight's picture

Jack Nicholson for president!

Wed, 11/14/2012 - 17:00 | 2981483 HurricaneSeason
HurricaneSeason's picture

State pension plans will need a bailout after this drop. Like they didn't need a bailout already.

Wed, 11/14/2012 - 19:37 | 2982024 mayhem_korner
mayhem_korner's picture



...and Timmer will bail 'em out by confiscating Federal employee pensions.  Like a snake swallowing its tail.

Wed, 11/14/2012 - 17:00 | 2981484 Encroaching Darkness
Encroaching Darkness's picture

Along these same lines, Ann Barnhardt goes on an epic, eight-part rant on Youtube, here's part one:


She nails it; lots will be old hat to ZH readers, but she manages to link lots of things (Spanish bonds, credit default swaps, money printing, "money out of thin air " which she calls counterfeiting) into a fairly coherent whole. She also has apparently declared a tax strike on her Federal obligations; hope she's loaded up for the long haul.

Gutsy lady.

Wed, 11/14/2012 - 17:06 | 2981510 TraderTimm
TraderTimm's picture

Below Dow 14,400 there's a lot of air under the post-May 2012 bounce.

At least I got a smile out of today's action, not ripping to the moon for once at the close.

Wed, 11/14/2012 - 17:12 | 2981533 RougeUnderwriter
RougeUnderwriter's picture

Fiscal Cliff, EU falling apart, and war in the middle east - that is as good as it get today. Thank God the market did fall more

Wed, 11/14/2012 - 19:25 | 2981992 Winston Smith 2009
Winston Smith 2009's picture

More important to me:

No more Twinkies? Strike may do in Hostess

Hostess Brands - the maker of Twinkies, Wonder Bread and other household-name products - said it would seek this week to liquidate the company unless enough workers stopped striking by the end of the workday on Thursday to allow the company to resume normal operations.

Thu, 11/15/2012 - 01:44 | 2983165 DaveA
DaveA's picture

Liquidation means the Hostess brands will be auctioned off, and then we'll have the new improved Twinkies from China, with extra melamine!

Wed, 11/14/2012 - 19:36 | 2982016 mayhem_korner
mayhem_korner's picture



Is "sliding down the sine curve" techno-speak for "unwinding the lies baked into the Q2 and Q3 numbers"?

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