Santelli's Primer On The 'Miracle' Of Earnings Expectations

Tyler Durden's picture


Our last discussion of the miracle of earnings expectations focused on the bottom-up hockey-stick that it seems the consensus believes is ahead (always out there in the future). Today's 'factual' and 'empirical' whiteboard lecture on the 'miracle' comes courtesy of CNBC's Rick Santelli, who appears as frustrated at his co-correspondents permabullishness (see Liesman's flip-flopping views on retail sales today) as the implicit disconnect between the market and fundamentals. To wit, the fact that expectations for GDP growth and earnings are so divergent. With earnings growth expected to be +14.7% this year and nominal GDP around +3-4%, Santelli asks his guest where nominal GDP 'normally' is for such strong earnings expectations - the answer 7.6% nominal GDP growth.

"It's very simple, nominal GDP is sales; it's growth. It's tough to grow earnings without sales," and yet - thanks to the inexorable outpouring of free money, they grow (or not). The current environment has very low wage growth and very low earnings growth, but "what is happening with the monetary system is we're flooding the system with money, and we get data like we saw today where energy prices are spiking again," leaving very little disposable income for the average household.

The kicker comes right at the end... on what really happened in retail sales today - just as we noted earlier.


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Wed, 03/13/2013 - 15:52 | 3327225 JeremyWS
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Do these videos not work in the UK or something, They always have an error message on them :(

Wed, 03/13/2013 - 15:58 | 3327270 darteaus
darteaus's picture

Ministry of Truth filter.

Wed, 03/13/2013 - 16:12 | 3327339 FMR Bankster
FMR Bankster's picture

Although I basically agree with Santelli I have to mention that the EPS numbers always quoted are "adjusted" EPS (that means take out all the bad stuff) and only for the S&P 500 which does half it business outside the US. Regular profits for all US companies are a lot worse.

Wed, 03/13/2013 - 16:33 | 3327423 max2205
max2205's picture

Back to the old credit card economy

Wed, 03/13/2013 - 16:05 | 3327300 savagegoose
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never works here in aust either

Wed, 03/13/2013 - 16:06 | 3327309 JeremyWS
JeremyWS's picture

awesome Cheers :)

Wed, 03/13/2013 - 21:51 | 3328287 Slipmeanother
Slipmeanother's picture

Always works here in NZ

Wed, 03/13/2013 - 16:05 | 3327302 smlbizman
smlbizman's picture


Wed, 03/13/2013 - 16:05 | 3327306 JeremyWS
JeremyWS's picture

Yeah exactly, Damn CNBC!

Wed, 03/13/2013 - 16:07 | 3327313 Fíréan
Fíréan's picture

Do these videos not work in the UK or something, They always have an error message on them :(


check that you have the right software, flash . . .  what ever for viewing from this source.

Wed, 03/13/2013 - 17:13 | 3327591 Anglo Hondo
Anglo Hondo's picture

Got the latest 'Flash@.  Message from CNBC is that a message has been sent to sort it.  Never happens in Europe.  Maybe the system is broken, used to work with no problem.


Perhaps the USA system doesn't want the rest of the world to know the upcoming disaster in the western hemisphere.


Wed, 03/13/2013 - 21:55 | 3328301 Orly
Orly's picture

No, something weird is going on with Tyler's redirector.  Half the links I try to access from posters say Page Not Found.

Tue, 03/19/2013 - 16:39 | 3349385 edaguy
edaguy's picture

I'm in the US and the embedded video's haven't worked with Chrome or Firefox for awhile now but they do work in Safari.  Firefox & Chrome are the latest versions with the latest Flash.  Go figure.

Wed, 03/13/2013 - 23:50 | 3328612 Keegan11
Keegan11's picture

Or in Chicago (shocking!)

Wed, 03/13/2013 - 15:52 | 3327227 Silver Bug
Silver Bug's picture

Santelli rocks it again. At least someone at CNBC can speak the truth.

Wed, 03/13/2013 - 15:55 | 3327244 CaptainSpaulding
CaptainSpaulding's picture

Pope Santelli.. Hmmm

Wed, 03/13/2013 - 15:57 | 3327264 darteaus
darteaus's picture

Emperor Sanetlli?

Wed, 03/13/2013 - 18:13 | 3327754 Law97
Law97's picture

Unemployed Drinking Buddy of Dylan Ratigan's Santelli

Wed, 03/13/2013 - 15:57 | 3327261 tony bonn
tony bonn's picture

"...nominal GDP around +3-4%..."

lmao even with bernankenstein's massive digital dollar machine...

Wed, 03/13/2013 - 16:18 | 3327364 SmallerGovNow2
SmallerGovNow2's picture

Even the CBO (yeah I know, down arrow me now) says nominal GDP will be 2.9% for FY13...  So where we getting the 3-4% ?

Wed, 03/13/2013 - 17:59 | 3327722 riley martini
riley martini's picture

Goverment math : Feb. constructionn spending down 2.1% Feb Const. employment up 40,000 . Maybe they don't get paid until March.

Wed, 03/13/2013 - 16:05 | 3327305 Fíréan
Fíréan's picture

Farr out Richard .



Wed, 03/13/2013 - 16:08 | 3327324 toys for tits
toys for tits's picture

I'm new at this but I thought the kicker was that with 3-4% nominal GDP (like we have), that bodes for negative earnings growth according to Santelli and guest. 

Wouldn't that mean that the current stock prices, which are based on future earnings, are overbought, new normal aside?

Wed, 03/13/2013 - 23:38 | 3328586 jerry_theking_lawler
jerry_theking_lawler's picture

those 'facts' are filled with old is the new speak....

'Don't Fight The Fed!!'

Wed, 03/13/2013 - 16:18 | 3327365 zdk45
zdk45's picture

I guess I don't understand. Something about numbers are high, or wrong, or something.


No prob, I'll just apply the logic that has delivered continuous solid results: 


A. bullish

b. btfd

c. bunga bunga


Analysis complete. I enjoy Economics. It's tough at first, but once it is a very rewarding career. Best of Luck.


Wed, 03/13/2013 - 17:07 | 3327560 rlouis
rlouis's picture

Still seems a little complicated; I might take some day trading lessons from a 16 year old.

Wed, 03/13/2013 - 19:30 | 3327921 Fíréan
Fíréan's picture

The little guy let the big guy use the crayon. that's it really.

Wed, 03/13/2013 - 19:57 | 3328018 Tango in the Blight
Tango in the Blight's picture

I only understand one thing about the current economy:

Gold, bitchez!

And silver too...

And none of that phoney paper ETF crap but the real thing.

And avoid boating accidents.

Wed, 03/13/2013 - 16:22 | 3327378 Lady Heather...UNCLE
Lady Heather...UNCLE's picture

...overbought?  STAWKS OVERBOUGHT!!??  you wash your mouth out and ... and BUY!!

Wed, 03/13/2013 - 16:26 | 3327394 TideFighter
TideFighter's picture

So, close the big box store but keep their out-parcel gas station open. Check.

Wed, 03/13/2013 - 16:37 | 3327437 FubarNation
FubarNation's picture

Not worth sitting through the CNBS fucking advert.  Sorry Rick.

Wed, 03/13/2013 - 17:16 | 3327605 Boxed Merlot
Boxed Merlot's picture

Mute for 30 sec, scroll down and start reading comments, go back and start interview, return to comments.  A bit like going to the kitchen during commercials.

Wed, 03/13/2013 - 16:44 | 3327465 AynRandFan
AynRandFan's picture

Ok, we all know that GDP growth is entirely dependent on monetization by the Fed at this late stage in the Great Inflationary Recession.  The question is, how long can it continue to work?

John Mauldin tried to make the point in the recent video posted on ZH that monetization is working, for which of course he was slammed by members of the panel and ZH'rs.  However, it is of course TRUE that monetization has worked for over 4 years now, and not just worked but worked extremely well to maintain paper asset prices across the board.  

An optimist would say that this money will eventually find its way into the pockets of consumers, just as all expansion in capitalist systems begins first with accumulation of capital and then reinvestment in new production.  A pessimist would say . . . well, it hardly bears repeating here because these boards are nothing if not a sounding board of pessimistic theories.

My point is that the problem sorely in need of analysis is the when and why artificial stimulus through debt monetization will fail.  Noone has answered it or come close in my mind, which is of course no reason to believe that failure is less likely, but it does point out that we (including me) waste an inordinate amount of time and energy looking at reasons to be amazed and angry and precious little effort on attempting to predict the triggering mechanisms or likely progression of events.  Mauldin, at least, and for all his vanity and apparent ghost-written articles, has predicted that it will be a "finger of instability" such as Japan that sets off our final decscent into hell.  Kyle Bass appears to share that view.

Wed, 03/13/2013 - 17:12 | 3327587 ITrustMyGut
ITrustMyGut's picture

I will suggest the triggeer for the fall.. will only be when the PTB decide to flip the switch... just like 29. and not until then. they expand.. they contract. no one else ... certainly not fundamentals or  forces...


Hx shows again and again, this is plain manipultaion with a goal.. expand and contract on their own que.. the contraction comes when they are ready toswoop in and absorb more...


Wed, 03/13/2013 - 19:17 | 3327788 Law97
Law97's picture

I think it's entirely possible the trigger might be political.  There is now an incessant chorus from the far left that is, ironically enough, in agreement with the far right, that the Fed printing is doing far more damage than good and must be stopped.  I don't ever see a lot of comments here about what the lefties are up to, but if you stop on over at,,, et al, you will see almost daily articles echoing almost exactly what we are all saying here on ZH.  Basically, a corrupt system of crony capitalists that are using the Fed to enrich themselves at the expense of everyone else, that the Fed is doing severe long term damage to the economy and the well-being of the citizens, etc. 


So after watching the gradual spread of the anti-Fed sentiment, first on righty libertarian blogs, then on more mainstream right wing news sites, then on lefty blogs, then on lefty news sites, it's starting to become evident that the anti-fed sentiment is growing, and growing quite rapidly now. Even the Washington Post has run a few stories lately about the importence of the Fed to bring down employment or help the real economy.  (New York Times [Krugman] and Huffington Post are still 110% pro-Fed ...for now)


I'm not sure how the political situtation will act as a "triggering mechanism," but the Fed must be watchig this growing criticism VERY closely and is seeing how far they can go without creating blowback against Democrats, Washington incumbants, and/or Wall Street elites, or creating outright civil unrest.  Being the optimist, I think they (the Fed) know they are running out of time rather rapidly on the political front, and will have to start backing off the printing to let some of the air out of the growing political backlash.


Nevertheless, you make a very excellent observation: that we need to start shifting the conversation to watching for when Fed policies are likely to fail or at least begin reversing.

Wed, 03/13/2013 - 23:43 | 3328595 jerry_theking_lawler
jerry_theking_lawler's picture

this can be easily resolved by the fed.....they will 'slow' their purchases and the economy will tank....period.


they will then ask the question, do we stop reducing or contract our balance which time Amerika will go back to the stone age, or do we continue enriching our friends and ourselves and you maintain you Macky D lifestyle......

Thu, 03/14/2013 - 03:44 | 3328886 Notarocketscientist
Notarocketscientist's picture

Impossible to fight the Fed ... I mean physically fight the Fed.

They will sic their dogs on you - peaceful protestors get pepper sprayed - if they turn violent you will see a massacre very quickly.

The Fed will NOT be told what to do by some unruly protestors

Wed, 03/13/2013 - 20:14 | 3328057 WallowaMountainMan
WallowaMountainMan's picture

'Mauldin, at least, and for all his vanity and apparent ghost-written articles, has predicted that it will be a "finger of instability" such as Japan that sets off our final descent into hell.'


i believe the event will be physical in nature. not the electronic, usb containable bad country banking control p-ing.

it will take scale... the greatest number of people under the greatest amount of misery. with nothing to lose. having had its taste of the possible only to be crushed back to starvation. exiting the city, exiting the factory, home to where they can eat what they can many that no amount of external aid can help...

while i find no sustainability in the so called free markets of the 'developed' world, it is the process of transformation of the greater inefficiency of the central command decision making communist process to something else, that, when inevitably forced to restructure to something else, the fickled finger of fate will change the world. no matter what else precedes that event. the chinese people will eventually demand freedom.

good news is it aint gonna happen this week. or the next. cause i'm in need of some march madness. but it will happen before i pass into a disassembled patchworh of molecules.

just my prediction. time will tell.

Thu, 03/14/2013 - 03:43 | 3328884 Notarocketscientist
Notarocketscientist's picture

Had dinner with a friend who is a goldman lawyer last night.  He says things are getting 'marginally better' in the global economy.

How in the fuck is it that people - particularly those who are in finance - are unable to see what is coming?

Fri, 03/15/2013 - 13:32 | 3332912 WallowaMountainMan
WallowaMountainMan's picture

my guess is that it is a chemical reaction based upon reward stimulus models similar to those that demonstrate other mammals are capable of choosing short term pleasure to the detriment of the lives, even to the point of their own death. (see rats, literally).

much like meth addicts chose today's high over living.

the outer pathways (sex, power, imagination...) to the result may vary. (result being self annihilation).

while irrational, it explains much of human behavior. that is does is because, as a matter of fact, emotions predate logic, and per force are more powerful due to their actual physical location in the hierarchy of the brain.

why are humans wired this way? easy to answer if one looks at natural selection. the process of selection took place at a moment in history when it was advantageous to choose short term gain (gorging when food was available, satiating salt) because of scarcity. those who did so were more likely to survive. those who gorged on the wrong things, killed only themselves, not the species.

today's financial world is an environment of no scarcity. it's constraints are only limited to the imagination. (unregulated).

until it is not.

my hope is that this imaginary construct is confined to a small physical structure, like an mp3 player, and allowed to play with itself much like Moriarty in Star Trek Next Gen, this madness is forced onto 'the books'.



Wed, 03/13/2013 - 23:42 | 3328591 constantine
constantine's picture

For the USA, I think it will be a swath of delinquencies at the state level. I dont believe the FED can monetize local debt. Another possibility that could come a lot sooner would be a major conflict with Iran that sends the price of oil into the stratosphere reigniting a similar inflation to that of the late 70s. The Volcker 20% interest rate won't work these days.

By the way, you state that the system is currently working... Only in the fantasy world that is the mainstream media.

Thu, 03/14/2013 - 00:23 | 3328693 modest_proposal
modest_proposal's picture

For lessons on how to monetize local debt, see current ECB (and roundabout Fed) policy on Spain. Basically the bad local debt is getting 'laundered' in swaps for national debt. Having swapped away their poor debt for freshly monetized national debt, the national debt is then sold off or used as collateral to satisfy the local debt. 

Alternatively, US Build America Bonds constitute a direct subsidy of local debt (potentially used to satisfy prior local debt issuance, dirctly or through cross-subsidy) that comes directly from Federal General Fund, which of course is propped up by monetized Treasuries.

As long as Treasury and the Fed can get away with raw <ctrl>-P, they can keep the locals from defaulting in a mad cascade.

Wed, 03/13/2013 - 16:50 | 3327489 I am a Man I am...
I am a Man I am Forty's picture

No worries, earnings to follow money printing by ben.

Wed, 03/13/2013 - 16:55 | 3327512 Lord Peter Pipsqueak
Lord Peter Pipsqueak's picture

Santelli blasts thru the bullshit with the real facts and the reaction in the studio is either LiesMan contradicting him or total nonchalance from the anchor who quickly moves on to the next link,pathetic.

Wed, 03/13/2013 - 16:58 | 3327524 Bobportlandor
Bobportlandor's picture

Should have autographed it.

Wed, 03/13/2013 - 17:07 | 3327561 MiniCooper
MiniCooper's picture

The videos always work in the UK for me. I also get them live on CNBC as well here.

I only turn the sound up for Rick Santelli though. ;D

Wed, 03/13/2013 - 17:23 | 3327621 lasvegaspersona
lasvegaspersona's picture

per Kyle Bass...I'm sellin Yen , buyin gold and going to sleep.

I'm not sure when I should plan to wake up though. I'd hate to come around before the shit that hit the fan quits stinkin.  

Wed, 03/13/2013 - 22:00 | 3328313 Orly
Orly's picture

Bass said ten years.

Wed, 03/13/2013 - 18:37 | 3327802 Herdee
Herdee's picture

How much money printing from the FED would it take to save Japan's Banks?And would that even be possible?Right now they're pushing it with European Bank help.If it is possible,that would be QE infinity.

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