The Most Ridiculous Forecast You Will See In A While
With Apple apparently building a lower-cost iPoor model and now accepting iLayaway payments, the question of margins is once again front-and-center. However, the market as a whole is in a world of its own in its consensus view of what US companies are capable of producing next year. As Morgan Stanley notes, 58% of firms are expected to raise their margins YoY through 2012, and then consensus sees a stunning (record-breaking) 76% of firms will raise margins in 2013. If that eye-watering buffoonery is not enough to raise some doubts at the market's implied ebullience, then a reminder that we have seen this divergence from GDP growth and margin growth before - as, simply put, the squeezing of costs to improve margins inevitably plays out down the chain (aggregate supply and demand lags) and increases the load on government as safety net living-standard-provider-of-last-resort. The bottom line is simple - margin expectations must fall and given the dour outlook for top-line growth in a stagnating global economy, that will expectations correction will drop straight to the bottom-line. Of course, prices will be nominally defended by a herd of talking heads expecting moar multiple expansion.
The incredible consensus view of margin-expanding companies in 2013...
Excluding energy and financials, incremental margins are expected to expand to 15.9% in 2013 after contracting to 5.8% in 2012
and we have seen this kind of wild (one-sided - demand vs supply) divergence before... the solid green arrow shows the consensus expectations surging while GDP consensus is sideways to lower...
Charts: Morgan Stanley
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