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    05/06/2016 - 06:03
    The US, in its own decline, is showing this same self-destructive tendency. The worse things get, the greater the inclination of the citizenry to say, “Carry on, everything’s fine.”

As Two Thirds Of Companies Report EPS In The Next 3 Weeks, Talk Of "Record Earnings" Is About To Hit Mute

Tyler Durden's picture


Just like back in the first half of 2011, when GDP experienced a premature climax to coincide with the end of QE2, only to tumble promptly afterwards, so just as two thirds of the S&P by market cap prepare to announce earnings starting tomorrow, Q4 EPS forecasts have hit the lowest they have been at in the past 12 months. While the general economy has been lagging the contraction of Europe and Asia, yet finally hit a downward inflection following the disappointing data of the past week (more on that shortly, as we explain why with the Fed set to begin an easing bias in 10 days, all economic indicators are about to take a dive), it has been corporate results that have so far managed to keep the market afloat. This may be coming to an end, courtesy of a perfect storm of negative earnings preannouncements (which have soared to a ratio of 3.5x compared to positive ones; the highest since Q1 2008) together with outright coincident misses. Because as the chart below shows, at $24.09 and pointed decidedly downward, Q4 EPS and its transition to Q1 2012 does not portend anything good for the world economy or markets. In fact, with the EUR plunging, while the news is welcomed by German exports, the adverse impact to US companies, via FX losses and otherwise, is about to be unveiled.

Here is how earnings seasons is shaping up: the next three weeks are critical.

And why any talk of record corporate earnings is about to be muted for a long time.

here is Goldman's take on earnings:

We expect modest 1% upside to bottom-up consensus for 4Q S&P 500 earnings, and estimate beats for Telecom, Financials, and Info Tech, but lower profits for Energy, Materials, and Consumer Discretionary. We also expect the margin expansion cycle to end at 8.9%, flat on a trailing four quarter basis since 2Q. Consensus has cut estimates for 4Q 2011 and 2012 significantly since the summer despite stronger US economic data and the cyclical rally. Below-trend growth and Europe risk support selective cyclical exposure. ... Bottom-up consensus earnings estimates have been revised down ahead of earnings. While 4Q is typically the strongest quarter for earnings, estimates have fallen 9% since the summer and are now below both realized 2Q and 3Q results. This trend of revisions has existed since July, when weak US economic data along with concerns of recession in Europe and slow growth in Asia led analysts to lower estimates. Full year 2011 consensus EPS has been cut 3%, from $100 to the current $97, in line with our forecast.

And more importantly, on margins:

Our margin forecast is notably different from consensus. We expect LTM margins to be unchanged since 2Q at 8.9% (ex-Financials and Utilities) while consensus expects margins of 9.0%. The outlook for S&P margins explains the majority of our below-consensus earnings forecast. In 2012 we expect margins to fall slightly to 8.7% and S&P 500 earnings of $100 while consensus expects record 9.3% margins and $107 EPS.

Finally, this is what the next week looks like for reporting companies.

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Sun, 01/15/2012 - 20:42 | 2067378 StockProdigy
StockProdigy's picture

Lower expectations then beat estimates has been the con for quite some time.

Sun, 01/15/2012 - 21:02 | 2067446 johnu1978
johnu1978's picture




Sun, 01/15/2012 - 23:13 | 2067782 ihedgemyhedges
ihedgemyhedges's picture

"...experienced a premature climax..."

Gee, THANKS A LOT TD.  My wife was reading this with me and said "See Honey, it happens to other guys too."

Mon, 01/16/2012 - 04:21 | 2068146 Sudden Debt
Sudden Debt's picture

not really.

do you actually know other guys who fail to please your wife?


Mon, 01/16/2012 - 02:45 | 2068058 resurger
resurger's picture

Yeah! i have seen that alot! i want to go short on the entire market, but it's not easy to know what those fuckers up to now, lets wait for the earnings

Sun, 01/15/2012 - 20:42 | 2067379 GenXer
GenXer's picture

But the "Green shoots" are starting to blossom into plants...

/sarc off

Sun, 01/15/2012 - 20:54 | 2067425 q99x2
q99x2's picture

Venus Fly Traps

Sun, 01/15/2012 - 21:09 | 2067463 erg
erg's picture

"Green shoots" of stinkweed.

Mon, 01/16/2012 - 12:31 | 2068706 sun tzu
sun tzu's picture

That's poison ivy

Sun, 01/15/2012 - 20:46 | 2067400 seek
seek's picture

I follow technology stocks closely, Q4 was not pretty, so I'm sure there will be ample bad news (if it wasn't already pre-announced in December.)

Sun, 01/15/2012 - 20:50 | 2067416 Caviar Emptor
Caviar Emptor's picture

But now bad is good again. 

Sun, 01/15/2012 - 23:06 | 2067767 onarga74
onarga74's picture

Bad is QE's daddy

Sun, 01/15/2012 - 20:50 | 2067418 booboo
booboo's picture

record urnings, ash, the new cash.

Sun, 01/15/2012 - 20:56 | 2067429 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

It's all priced in, but if stocks go down it's just transitory, so BTFD!

Sun, 01/15/2012 - 21:02 | 2067443 VelvetHog
VelvetHog's picture

...as the U.S. recovery continues.

Sun, 01/15/2012 - 21:10 | 2067468 lotsoffun
lotsoffun's picture

as long as people keep talking about the 'recovery' - there isn't one.  it's like people claiming to have spotted the bigfoot.

that said, for the last few years 85% of the companys 'beat' the experts earning estimates - no matter how bad the actual earnings are from previous years or quarters.  remember - all the bank 'earnings' from 2005 - 2008 were fake, they were in the end enormous losses that will take years in reality to recover.  whatever.  life is good. borrow at zero and lend at infinity.


Sun, 01/15/2012 - 21:23 | 2067505 sabra1
sabra1's picture

i spotted bigfoot! it's up oblahmas' big ass!

Mon, 01/16/2012 - 12:45 | 2068756 sun tzu
sun tzu's picture

The banks that survive will take at least a decade to write off their bad investments

Sun, 01/15/2012 - 21:04 | 2067447 Snakeeyes
Snakeeyes's picture

With staggering debt, a dead housing market and the Eurozone is chaos, I will be stunned if earnings are a positive surprose.


Sun, 01/15/2012 - 21:03 | 2067448 midgetrannyporn
midgetrannyporn's picture

Volume to zero, S&P 500 to infinity.

Sun, 01/15/2012 - 21:09 | 2067465 Travis Bickel
Travis Bickel's picture

S&P will selloff before the Fed meeting. They need MSM coverage for justification for QE3. And of course the MSM gauges our entiire economy on stock prices.

Sun, 01/15/2012 - 23:01 | 2067754 onarga74
onarga74's picture

You and I are the only ones on the planet (aside from the Fed) who see this coming. Im short SLV and gonna watch the market implode for about a week the Bennie becomes a hero with his QE thing

Sun, 01/15/2012 - 21:18 | 2067482 847328_3527
847328_3527's picture

Deflationary Depression unless fiscal and monetary stimuli are turned on with the Middle Class being riddled with more losses and the lower class reduced to a wretched state....

Aggregate Demand collapsed (as Bill Gross already said) and demand for money (liquidity) soaring = Deflation

Simultaneously, education and insurance soaring.....

Housing, stocks and assorted electronics plunging...

Biflation perhaps.

Sun, 01/15/2012 - 21:48 | 2067564 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Why is anyone of us guessing anymore?  TSIHTF.  Who cares.  Let's get drunk!

Sun, 01/15/2012 - 22:48 | 2067718 847328_3527
847328_3527's picture


Sun, 01/15/2012 - 23:07 | 2067770 BeerBrewer09
BeerBrewer09's picture

Homebrew on tilt. Portsmouth Kate The Great clone, for all you beer nerds out there.

Mon, 01/16/2012 - 08:53 | 2068329 falak pema
falak pema's picture

Biflation has a mad effect on transvestites they don't know which way to go...it's a terrible paradox. Pandora's sweet box or Pan's bludgeon. 

Sun, 01/15/2012 - 21:27 | 2067517 antonwarnung
antonwarnung's picture

Am i missing something here?  Everyone I have read thinks easing is a few months away.  Sure if the Dow is down 1000 points next week I suppose it could change things.  Seems to me the Fed and ECB have been selling the muddle through idea to quelch volatility while doing some back door easy money deals.  Please help me understand?  I've had a feeling that more toxic mortgage paper buying will be one of the next Fed moves?  Again please help as I want to know so I can put gas in the car before oil is $115/barrel again.



Sun, 01/15/2012 - 21:45 | 2067559 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Do you buy silver?

Sun, 01/15/2012 - 22:15 | 2067646 antonwarnung
antonwarnung's picture

Yeah, but we don't have much as we are part of the new intellectul degree holding peasant class.  Silver could be $35 or $25 next month.   If we truly had no easing going on it would be $25 right now with the DOW below 11,000.  What do you think Mr. Hendrix?

thanks in advance,


Sun, 01/15/2012 - 22:59 | 2067748 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

We have OT2, POMO, and the Fed has monetized hundreds of billions or more.  Yet the dialectic is still believed by the status quo that if Europe is bad, then the US is good.  Somehow we have a strong dollar and equty has held up.

Don't worry about price action in silver, just buy some every month.  Do this until you have s position you are comfortable with, like 10% of your assets.  It will be important to hold some gold too.

As far as what I think the price will be?  Well I think finance is going to wallow in the mire for a few weeks while Europe slowly implodes.  I think the US equity market will be held up by the PWG.  I think that by the time Europe is about to go boom the Fed will be discussing QE, and then when Europe does implode they will issue it.  Then Iran happens in late Fed/early March.  Silver will be in the mid $30's in a month, but will scream higher when oil goes up.  The Fed qill frontrun this action and the dollar will lose massively, silver will scream higher.  I think it will be back at $50 by summer.

Then again, who the hell knows anymore.  It's hard to know what the next act is at a circus run by clowns.

Mon, 01/16/2012 - 02:12 | 2068026 jeff montanye
jeff montanye's picture

you should also consider the miners (gold too).  unlike bullion they (in aggregate) pay a dividend (reinvest) and require no storage or insurance.  they also have more favorable tax on gains than bullion under current law and, at least by some measures, are more undervalued than bullion.  in deflationary depressions they outperform the bullion over the market cycle.  and the big gains are well ahead, when the falling knife hits the granite floor and bounces towards the track lighting.  and when (nearly) everyone else can no longer buy the frightening dip.

Sun, 01/15/2012 - 21:31 | 2067526 847328_3527
847328_3527's picture

Markets, banks and PO closed on MLK Day.

Sun, 01/15/2012 - 21:37 | 2067539 francis_sawyer
francis_sawyer's picture

Thank God Almighty! Free at last!

Sun, 01/15/2012 - 21:38 | 2067541 Stoploss
Stoploss's picture

"Negative earnings preannouncements" . You guys are getting better.. Nice. Never forget the pion (peed on?) has the last laugh!

Mon, 01/16/2012 - 02:14 | 2068029 jeff montanye
Mon, 01/16/2012 - 02:21 | 2068035 StychoKiller
Mon, 01/16/2012 - 09:35 | 2068396 falak pema
falak pema's picture

peon becomes pion once he's peed on!

Sun, 01/15/2012 - 22:12 | 2067638 devo
devo's picture

Pretty much exactly what I thought would happen.

Expect a lot of cooked books, and a government willing to play along.

Sun, 01/15/2012 - 22:27 | 2067676 apberusdisvet
apberusdisvet's picture

The world is about to understand what margin compression really means.

Sun, 01/15/2012 - 22:53 | 2067728 monopoly
monopoly's picture

Excellent post Tyler, thank you.

Honestly, I just do not give a shit if companies beat earnings or go splatt. I just do not go there and have not for a long time. With volume pathetic and markets if not rigged certainly prodded in one direction or another I just have no interest. And so tough to short when inmates have the keys.

We know what the real long term picture will look like. Just waiting for another pitch. And, I am ready no matter what they throw at us.

Sun, 01/15/2012 - 23:35 | 2067825 toadold
toadold's picture

"I predict record earnings!" "What have you been drinking!?"

"I didn't say that I predicted record "high" earnings."

Mon, 01/16/2012 - 01:15 | 2067972 covert
covert's picture

record losses?



Mon, 01/16/2012 - 00:13 | 2067888 adr
adr's picture

So just like every earnings season since god knows when the consensus expectation is lowered 5-10% allowing for massive $.02 beats and 10% up moves in garbage momo stocks. Seen this play before. Let me know when Sears goes caput and 100 malls close within a month. You'll see first tim claims go to 800k "seasonally adjusted" with a real number close to 2 million. It doesn't matter how many momo chasers go after Buckle if every mall property owner goes bust. Think we have a commercial property problem now, wait a year. You're going to start seeing the "Great Engine of Growth" the American consumer die a rapid death. American malls have been one step away from death for years, stubbornly clinging to life. When they go down Best Buy, Target, a ton of restaurants, dollar stores, and the whole retail con job stock scam goes with them. The same property developers who own the malls own the retail strips. I wonder if Chipotle and BW3 own the land all those francises sit on. 2012 is going to be fun. I can't wait to see jumpers on the roof of Developers Diversified's real estate boom fueled monument to greed headquarters. 

Mon, 01/16/2012 - 16:27 | 2069328 sun tzu
sun tzu's picture

Bankruptcy doesn't mean all the malls will close down. Either the debt is renegotiated or the lenders take over and sell it to someone else. Do you really think all these paying tenants are going to be kicked out and the malls bulldozed?

Mon, 01/16/2012 - 00:49 | 2067933 bigkahuna
bigkahuna's picture

Well we all know that the bottom could fall out anytime and right quickly at that. I believe that the only reason most people are on the sidelines is because they all know it too. Just waiting for the stock market to correct itself down to whatever number and perhaps tip-toe back in the wreckage-perhaps just buy some PMs and call it good-who knows, does it even matter anymore? HAHAHA--(crazy laughter) 

Mon, 01/16/2012 - 02:23 | 2068039 StychoKiller
StychoKiller's picture

What?  When did we reach peak "creative accountants?"

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