Nostalgia’s Not What It Used to Be

Tyler Durden's picture

 Nic Colas' monthly review of the Street’s revenue expectations for the companies of the Dow Jones Industrial Average finds that while markets may be in rally mode, analysts are still fretful about near term sales momentum at these large multinationals. Currently, they expect the average Dow company to post only a 3.6% sales “Comp” in Q1 2012 versus last year, or 5.0% for the non-financial companies in the index.  That is the lowest expected growth rate for the current quarter since we started keeping tabs on what the analysts had in their models a year ago.  Second quarter revenue expectations are also down to their lowest levels, at a 5.3% growth rate on average for the index, and 3.4% ex-financials.  Street analysts are making up the difference for 2012 by boosting back-half expectations to 4-7% from the 2-6% they were carrying in their models just a few months ago.  Glass half full says, “Easy comps into Q1.  Buy em.”  Glass half empty says “How do we get excited about 3-5% comps?”  No glass says “Only 31 trading days until “Sell in May and go away.”

Today on a flight from Florida to New York, I caught a glimpse of the future and I am worried.  Well, not the future – more like my future, or at least one potential version of it.  A midweek, daytime, Gotham-bound JetBlue journey means one thing – retirees.  That word used to mean something.  Old people sitting on rockers watching the foot traffic in Boca.  Ladies knitting scarves for their teenaged grandchildren to never wear.  Bridge and Mahjong and super-strong Old Fashioneds at the VFW Hall on a Tuesday night.  A quiet, dignified, insular experience centered on early bird discounts at buffet restaurants.

But the scales fell from eyes today as attractively demure lady of around 70 blatantly chatted up the 50-something man who was helping her hoist her wheelie bag into the overhead compartment.  And the soon-to-be retired fireman in the row behind me with the all-too-fresh (and HUGE) tribal tattoo on his arm.  And the ancient gentleman caressing the shoulder of a flight attendant and blocking the aisle during boarding.  Older people are now just younger people with wrinkles and TSA-approved 1 liter plastic bags that rattle with prescription meds.  It was like Spring break in reverse, both in direction and generation.

I got hit with a double dose of delusional nostalgia when I returned to the office and looked through our latest data on what Wall Street analysts have in their financial models for the companies of the Dow Jones Industrial Average.  This is an exercise we’ve been doing for about two years now, with an eye to assessing how much enthusiasm the Street has for the global economy generally and multinational company sales momentum specifically.  And my personal sense of déjà-vu comes from a decade of doing these models myself as a senior sell side analyst covering the auto industry.

There are three commandments that every sell side analyst follows when building their financial models - and as far as I can tell they still hew to these time honored guidelines.  Unlike the geriatric partiers on my flight home, by the way.

  1. Keep the message consistent.  If you have a “Buy” on a stock, you can’t be below consensus on sales or earnings expectations.  That means monitoring the average estimates of your peers through the quarter and adjusting your models accordingly.  Or changing your rating, but that is a painful exercise.
  2. Don’t set expectations too high.  The second worst call a sell side analyst can get is from a company they follow that goes something like, “What are you thinking about with your current quarter sales and earnings estimates? All the guys that really know our story are way below you.”  This is the Wall Street analyst version of a call from the police that your spouse is being held on ‘Intent-to-distribute quantity” drug possession charges.  Surprising and unwelcome in equal and drastic proportions.  So you keep your published expectations as modest as possible and perform occasion “Upside surprise” analyses if you want to show you are more bullish than other folks following the stock.  The worst call, of course, is to bring your Blackberry and building ID down to HR.
  3. No matter what your detailed revenue models say, don’t forget Rules 1 & 2.  Most good analysts have excellent revenue models that pick every bit of publically available information off the bones of regulatory filings and add whatever proprietary insights they can muster.  But at the end of the day, you don’t want that “Take your numbers down” call from the company or the embarrassment of missing the actual results by a wide margin.  So you stay safe.

Our monthly review of revenue estimates for the Dow companies shows that analysts are unambiguously cautious, if not outright frightened, by what they expect to see from first quarter earnings releases.  A few numbers to support this assessment:

  • The analysts that cover the 30 companies of the Dow currently expect the average revenue growth for these businesses to average 3.6% growth year over year for Q1 2012.  For the non-financial names, this number is 5.0%.  Both are the lowest printed expectations for Q1 2012 in the year we’ve been keeping track of analyst estimates for this quarter.
  • The trend follows through for Q2 2012, with a 5.3% expected growth rate overall and a 3.4% year over year comp for the non-financials.  That second print is actually just a hair better than a few months ago, but the overall trend is solidly lower for the nine months we’ve been keeping score.
  • Analysts aren’t lowering the boom on 2012 as a whole – they are shifting their expectations to the third and fourth quarters.  On average, they now expect 4-5% growth for Q3 2012 and 6-7% for Q4 2012.


The logical question given the current rally is “What’s going on here?”  Most sell side analysts presumably have some access to a stock quote service or the occasional business periodical, so they know equities are in full-on rally mode.  You’d expect them to start raising expectations, feeding off the signal that markets are growing more optimistic about the U.S economy and global prospects generally.  We suspect they are staying on the sidelines for two reasons:

  • They are hearing horror stories about various companies’ European operations in Q1.  Fair enough on that point – there isn’t much positive corporate chatter on that front.  Even my sporadic monitoring of the auto industry gives me a whiff of the truly dreadful cadence of business in many cyclical sectors for this region.
  • They don’t have to bump numbers to pound the table on their favorite names.  The current rally has been more about valuation than revenue and earnings momentum – our revenue expectation data is all the proof you need on that score.  So why raise numbers if your “Buy” rated names are rallying without the need to put yourself on that limb?

All of this sets up market psychology on a razor’s edge for Q1 earnings reports.  On the plus side – and that’s all that the market sees at the moment – expectations are so low that perhaps companies can beat them.  On the cautionary side, can the market really keep its joie de vivre if all we get is a measly 3-5% top line expansion when companies report in April?  And what about ‘Sell in May and go away?  Only 31 trading days left until May 1st. 

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
sitenine's picture

Peak growth needs to be talked about more openly.  'Growth models' don't work on the downside.  We need new tools to analyze what is really going on, and we aren't going to get those tools until we collectively admit that growth is vaporizing about as quickly as your average MFed customer deposits.

trebuchet's picture

thse graphs are behind the curve.   last summer the market tanked on q411- q212  expectations of a duble dip.


now its overshot its mean reverting position, so.......  

AldousHuxley's picture

mass populations will have nostalgia for 2012 when they realize what kind of fucking shit they are trapped in put upon by politicians to solve problems the easy way. be bernanke's debt-be-gone.

sitenine's picture

Yes, a very good article - coincides a lot with what Chris Martenson teaches.  My humble thanks for authoring it.

michael_engineer's picture

Some additional insights can be found here :

A little duplication from the article you read, but some other interesting angles considered.


UP Forester's picture

The ponzi must go on until the bagholders re-enter....

Dr. Engali's picture

"The current rally has been more about valuation than revenue and earnings momentum "

The current rally is about one thing ..... The Bernank guarantee.

Tsar Pointless's picture

Who needs earnings when you have two thiings:

1) Mark to myth

2) Printing presses


Caviar Emptor's picture

We dun need no steenkin' sales growth

Sudden Debt's picture

Mom, what are earnings?

Mom: Go ask your father

Dad, what are earnings?

Dad: Go ask your mother


adr's picture

The estimate listed in the CNBC page for Apple earnings is like $8.80 per share. I read in another article that the current valuation of Apple stock puts analyst estimates close to $30 per share to justify the stock price. Going to be pretty hard for Apple to blow away the holiday quarter after everyone that wanted to buy an iPhone already did.

OH YEAH I FORGOT!!! Apple releases the new iPad on Friday one month before they report earnings for the quarter. I wonder if that is a coincidence??? Thanks to the chefs at Apple working in the accounting department they will just book billions in forward sales of iPads and blow away analyst estimates.

Next quarter will either be the iPhone 5 or iTV. Each quarter Apple just needs to release a new product so they can use accounting tricks to book billions in revenue that isn't actually there, INSTANT STOCK RALLY!

The game goes on and on. Maybe one day regulators will grow a pair and audit half the traded corporations. It would probably only take one minute per to find gross manipulation and totally falsified books.

Caviar Emptor's picture

We are living in a post-valuation era. We are value-agnostic. We measure value in retweets and coolness. 

trebuchet's picture

and from today, henceforth, we measure value in muppetness !!

OC Money Man's picture

The ECB has provided $900 billion of QE.  The two prior QE provided commodity and equity inflation.  Why should this QE be diifferent?

sitenine's picture

But Ben said he could sterilize it, no?

This statement, along with a conveniently timed cartel smash down, have decoupled commodities from equity price movements (albeit very temporarily, of course).

MeelionDollerBogus's picture

oh shit, I had to re-read this a few times to make sure:


The third approach has some benefits the other options don't have. Unlike Operation Twist, the size of the program wouldn't be constrained by the Fed's own holdings of short-term Treasurys. This approach would also give officials an opportunity to try out some of their new tools to see how they work on a large scale.

Moreover, the program could be conducted with financial institutions other than banks, like money-market funds,


now hold on a second.


How many funds, people & generally investments in other currencies are "hedged" or somehow translated through a money-market fund? I'm not but my brokerage offered. I flat out told them I'd prefer not to hold US dollars so no-thankyou. But I could have. Maybe a lot of money could have.

So if money-market funds get tied into this and a lot of investments are funneling into money-market funds... IS THIS A BIGGER TOILET WITH A BIGGER FLUSH?

sitenine's picture

They can take their new tools and shove them up their ass. They fully intend to keep fractional reserve and debt issued fiat currency firmly in place - the whole game depends on it. Interestingly, very few assets increase in usable utility over time, in fact, most actually depreciate in real value (got gold?). Even more interestingly though, 'TBTF' institutions are given liberty to pretend that ALL assets appreciate, or at minimum retain original 'book value', that they can leverage via hypothication to infinity. Well, we know better than this, don't we? That's really what it comes down to. Hedging in fiat is hopelessly ignorant in a highly inflationary environment. Who gives a shit that your position is hedged when your reward is useless fucking fiat? My humble advise is to withdraw paper assets from the system, and use it to obtain tangible assets while they can still be obtained. Yes, as I mentioned, many assets degrade over time, so go for the ones that don't (got gold?) There is one, and only one, way to protect yourself from the ponzi collapse - STOP PARTICIPATING IN IT! Tools...yeah, they ARE a bunch of fucking tools. Remove your wealth from THEIR system. Let THEM eat cake. /rant

MeelionDollerBogus's picture

Agreed. And yes, I got gold. If those money-market funds can be drained, bankrupted or co-opted at any time & are connected to various trading accounts then this is a way of raiding the accounts without touching share valuation OR screwing with trades ahead of time for a customer. It's MF Global to the power 10 billion. THEN once margins are hit & cash is gone THEN I'm sure various fluctuations will work to the disadvantage of cancelled or locked-in trade orders, further bankrupting clients locked into the money-market funds.

On the 277 week rate of change there's a long-term trading-channel I identified in gold's price (spot, not physical per se). I'd say now's an amazing time to buy more. Future-projected price-graph based on this ROC:$GOLD&p=W&yr=2&mn=11&dy=0&id=p99251767410

looking good so far

sitenine's picture

Yes, we are quite aware of the trend, aren't we?  That hardly matters though.  I'll let you in on a secret.  Physical gold will always be worth its weight in gold, while paper certificates for GLD or some other such three letter illusions can also be worth their weight in gold.  There exists, in my mind,  a very real possibility that a big player could miss a big delivery in the near future.  That's actually been the case for some time now.  What happens at that point is mostly speculation, because it has never happened before aside from the MF Global affair.  Fuck John Corzine, BTW.  Part of the MF Global story is that they didn't make any of their delivery commitments after All Hallows' Eve of last year.  That was due to suspected fraud and subsequent bankrupt proceedings, and those contracts were cancelled at COST, not at SPOT.  I understand a lot of hardworking folk, including farmers, ended up loosing a considerable amount of 'investment'.  No delivery means no seed, so many of these farmers don't have seeds to plant.  We understand that they lost a whole shit load more this growing season than just an investment even if they do eventually get their money back.  Harvest will not come for them.  Now, we also understand that if this scenario plays out on a larger scale there will be complete and utter chaos, bringing the possibility of famine and pestilence in our not so distant future.  I do not look forward to this possibility in the least bit, and I am determined enough to do what I can for myself, my family, and my neighbors to get through some tough times, whatever those times may bring.  Sometimes it's enough just to be human.  You know what I mean?

MeelionDollerBogus's picture

I've been aware of this "secret" for quite some time. I'll let you in on another secret: physical prices & spot prices aren't much off for gold. Deviation is easily plotted & using spot charts is 100% safe for now. You'll know when it's not because they'll move in opposite directions.

keep an eye out. Right now spot prices DICTATE physical prices in gold. Silver in 2008 saw that chain broken but someone bound it back together again.

I am aware of the MF global delivery problem, , I saw the image here.

Most people are not even close to aware of the trend I put into those graphs. That's why I shared it, because it's mine & it's unheard of.

sitenine's picture

No, I guess you really don't know what I mean.

I mean your charts are a brute force attempt at divining the unforeseeable end, but we already know the end.

Take care of yourself MDB ;-)

MeelionDollerBogus's picture

my charts I hope will help save money for people trying to get the most gold for the least hours/dollars/risk. For those wanting to go paper for paper using options, leverage, etc., well I guess you can. I have. The end-result is not about the charts but fundamentals: currency crisis, energy crisis, food crisis from climate crisis, and now we have another one. Fukushima nuclear pollution crisis.

DormRoom's picture

does it even matter.


The Fed & ECB are intervening in the economy as though it was total war. Yout can't effectively solve labor mismatch with ZIRP,  Twist, or sterilized QE.


And if you ask a Republican candidate what structural unemployment is, they'll say it's lazy workers not looking hard enough for a job. And do nothing about it. So the Fed will continue triaching a dysfunctional political system that undermines workable economic solutions.

WatchnSee's picture

Funny, I've been following the Republicans and I don't recall ANY of them saying that the structural unemployment is being caused by "lazy workers". I Do recall OBummer saying that 8+% may be the "new normal".

wee-weed up's picture

And speaking of nostalgia (Chicago-style)...

Poor ol' Blago goes to the slammer tomorrow for MANY years. Lets hope that among the many thousands of buggeries the bastard gets during that time - he earns at least one reacharound!

q99x2's picture

First evidence that someone other than the Fed is buying stock.