The Abysmal Earnings Season Explained In Two Charts

Tyler Durden's picture

The following two charts show just why any hopes that corporate earnings can mask the US economic deterioration this year, as they did in 2011 (probably the first and only way in which 2012 is not a carbon copy of 2011 so far), should be promptly dashed.

Basically revenue growth is abysmal. But no surprise there - after all we have been warning for nearly a year that with the Fed intervening directly in corporation cash allocation decisions (via ZIRP), management teams are much more eager to hand out retained earnings in the form of dividends than reinvest via CapEx - an extremely short-sighted strategy and one that backfires immediately with cash-generating assets around the world already at record old age. (for more read: "How The Fed's Visible Hand Is Forcing Corporate Cash Mismanagement").

And with revenue growth absent, EPS can only grow if corporations cut even deeper into the muscle and let even more workers off, since employee pay is already abnormally low and can not realistically be cut any more. Sure enough, ex-financials, Year over Year EPS growth is now at 0% for the first time since the Lehman collapse!

In other words, corporations have already extracted all the growth they could courtesy of ZIRP.

It is all downhill from here, as only the negative consequences of the Fed's disastrous policies now predominate in finance and the economy.

As an appendix, here is a full summary of the earnings season to date:

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_ConanTheLibertarian_'s picture

The negative chart corresponds directly with my mood hehe.

I'm a contrarian and loving it.

Buckaroo Banzai's picture

The ZIRP evilness grows!!! Muwahahahahah!

JPM Hater001's picture

Looks like I picked the wrong week to quit cheap money.

Sudden Debt's picture

if the profit doesn't come from sales.... it'll come from costs.

RSloane's picture

That will come in the form of more jobs being cut, more pay being cut, and a move from permanent fulltime employment to part-time, no benefits, suppressed wages employment.

This maybe why the Fed is failing miserably at one of their dual mandates. Someone should explain to our PhD megabrained Fed and their consultant economists that policies have consequences.

Buckaroo Banzai's picture

Who says they're failing? Did you ever stop to consider that maybe they are achieving exactly what they want to achieve?

These aren't stupid people. Well, Bernanke is, but he falls into the category of Useful Idiot.

Harlequin001's picture

Well I for one am going to get an even bigger mortgage with my lower wages and er...

RSloane's picture

Their public mandates may be a far cry from their hidden mandates, that is true. However, they are not only failing at their stated public mandate but they are also failing at bloating the pockets of their bosses as exemplified by the "The Abysmal Earnings Season".

In short, they are failing on two levels. While they are failing on two levels, their policies are ensuring that there will be continued failure in the both short and long term future.

If you are saying that Bernanke and the Fed have issued policy after to policy with the aim at the destruction of the United States without prejudice to class, valued assets, nor political power, that's another matter entirely.  

I'm going to go with they're too stupid to breathe.

RockyRacoon's picture

Didn't I read somewhere that banker bonuses were at all time historic highs?   Somebody is obviously doing something right.  Isn't this the unspoken goal of our governments, both visible and invisible?  It's working.

Caviar Emptor's picture

Much of even the positive EPS being reported is thanks to stock buy backs being reported as 'profits'. Thank you Ben!

orangegeek's picture

Expressed in a different context, primary wave 3 down is pending.

RSloane's picture

Nothing, but nothing, says it like a chart.

Goldilocks's picture

Beach Boys-(Wipeout) (2:41)

The Ventures Live: Wipe Out / (3:40)

The Ventures - Wipe Out (3:43)

Jason T's picture

short term gain, long term pain. .. fire workers, give them shity wage increases due to weak labor market and expect there to still be a vibrant consumer in America.  

grid-b-gone's picture

It's worse than just lousy wages. Over 25% of the weak available jobs are temp jobs, $8-11/hr with no benefits. 

The young are burdened by school loans and many older workers who exceed COBRA and unemployment checks are one hospital stay away from losing most of their retirement preparation. Their homes are pending shadow inventory.

The Fed completely understands the situation. Their customers are member banks, not U.S. workers. The dual mandate was always just as meaningful as a Reagan or Bush pro-life stance - people love to hear it, but it changes nothing. Corporations are happy to borrow cheap, buyback shares, and enjoy lower domestic labor expense. 

What they are beginning to understand is that the middle class was the golden goose of the past 30 years and the expected worldwide consumer growth of pre-2007 is evaporating quickly.

Check out the Consumer Metrics weighted composite.

Chip4Pips's picture

Anybody else notice that Goldman made a big mistake with the last chart in this article. The bottom clip of the chart is titled "S&P 500 Cap-Weighted" but is actually the S&P 100 Equal-Weighted. Last time I checked, the S&P 500 added up to 500 not the 100 shown in the second column of numbers.

Centurion9.41's picture

Granted ZIRP's unintended consequences are proceeding as expected.

However for the Fed/CB Cabal, if one posits their idols - fiat currncy & Keyensian theory - they could do little else.

The real cause of all this is in the "Democracy" mirror.

One of the very fundamental reasons the USA was created as a Republic was to avoid the debt creation of Democracies. As Communism ignored the disincentive dynamic of human nature in its "from each according to....", pure Democracies ignore the incentive impact of Democracies on the taking end.

Communism ignored human nature and died on the work/creation end.

Democracies ignore human nature and die on the consumption and "taking", I.e. entitlement, end.

Fiat currencies and central banking only marginally and temporarily effect the trajectory and destiny human nature demands.

ZIRP et. al., are but players in the stage.

They however did not write the play and at powerless to re-write once the macro ideologies are set by the writer and producer.


JPM Hater001's picture

I think this shows perfectly clearly one inmitible fact...

We're fucked.

bxy's picture

Earnings are easy...You just release loan loss reserves and call them earnings.  Problem solved.  What could possibly go wrong?

q99x2's picture

2008, Take Two.

Grand Supercycle's picture

As mentioned before, market intervention has only postponed the inevitable.

Despite short and medium term market vacillation - the following remains a constant :

>> USDX monthly indicators [ie big picture] continue to warn of significant long term USD upside. (thus EURUSD & AUDUSD etc bearish)

>> SPX monthly indicators [ie big picture] continue to warn of significant long term downside for equities which will be worse than 2008.

Hulk's picture

bring back the scary clown...

Redfish's picture

The charts are misleading and lack any adjustment for FX translations, which have adversely impacted reported revenues this quarter; moreso than most quarters due to recently large currency movements.  It would be interesting to see the same charts, FX-adjusted.

RockyRacoon's picture

Yeah, somebody always wants to "adjust" something.  It's always ex-auto, ex-this, ex-that.  About the only adjustment I trust is inflation-adjusted nominal dollars.   But even that should be done with Williams' inflation numbers, not the gubmint's.

slaughterer's picture

Insane clown posse = the Fed

radicall's picture

I think the surprise factor also needs a third chart (earnings and revenue estimates by analysts)  to show how much lower the bar is in terms of a "positive surprise"