The buzz is modest at best for the fourth-quarter earnings season. Don’t be surprised to see your fair share of disappointments.
It’s being called the new normal. And at this point we are all used to it — an anemic growth story for the U.S. and global economy. And while the fourth quarter is typically an earnings grower due to holiday spending spurring money movement, the buzz I am hearing is modest at best for the fourth-quarter earnings season.
Don’t be surprised to see your fair share of disappointments.
At the end of 2012, S&P Capital IQ had an expectation of earnings growth for the fourth quarter of some 16.5 percent … pretty good right? Well, that was two months ago. Today, that expectation is down to growth of just 3.3 percent, largely because individuals and businesses are hoarding cash. It doesn’t matter much if companies have trillions in cash on the sidelines if they don’t do anything with it. This is partly due to the stand-still Washington left business in for the entire fourth quarter, as we all guessed what tax rates and regulation would look like.
Charles Hugh-Smith: What If Corporate Earnings Have Topped Out?
The market may have reached cyclical highs in corporate earnings. That does not bode well for additional stock market advances.
4th Quarter Earnings Will be an Unmitigated Disaster
Stocks setup for fall
It is ironic that stocks are at five years highs going into what is probably going to be the biggest disappointment of an earning`s season since the 2008 financial crisis. We got a hint of 4th quarter results during the disaster which was the 3rd quarter earning`s season where most companies missed on the revenue side, and those that beat EPS guidance, did so barely, and most of that was created through stock buybacks and creative smoothing techniques.
Make no mistake when a public company sets earning`s guidance these are numbers that are very conservative, and they expect to blow these numbers away given a healthy business environment. When a company just barely hits or beats the EPS number, and misses on revenue you know they were buying back stock, and trying any possible financial trick to attain the EPS number. One of the oldest tricks on Wall street, besides giving easy guidance so that when it comes time for earning`s the stock shoots up because they “beat” expectations.
The fact that companies have to struggle so much just to meet expectations tells how bad things are from a corporate profit standpoint. They have cut their operations to the bone for the last three years, and built earnings up from the bottom, and that strategy has reached its point of exhaustion. No more to be squeezed out of that cost cutting strategy.
The Fiscal Cliff
Moreover, with the continual uncertainty coming out of Washington from a policy perspective, code word the Fiscal Cliff, it`s unlikely that CEO`s committed much towards year end discretionary CAP EX purchases which would spur corporate growth during the fourth quarter. So expect to hear the term Fiscal Cliff during Earning`s season quite a lot as the primary excuse for business headwinds by the executive teams during conference calls.
Yesterday, we pointed out a new analysis from the Bipartisan Policy Center that provides a good, in-depth look at what would happen if the U.S. hits the debt ceiling.
The report also suggests that the U.S. could default on its debt as early as Feb. 15, which is about half a month sooner than was widely expected. The Bipartisan Policy Center says that the “X date” will come sometime between Feb. 15 and March 1.
“Our numbers show that we have less time to solve this problem than many realize,” said Steve Bell, the senior director of the Economic Policy Project at BPC….
The debt ceiling is only part of it.
Goldman’s Alec Phillips puts them into timing and context:
Q: How does the debt limit relate to other upcoming fiscal debates? A: The debt limit is the most important of three separate fiscal issues Congress must address in Q1. Beyond the debt limit, congressional leaders and the President must work out two other issues: further delay in spending cuts under “sequestration” and an extension of government spending authority. While these are separate issues, it is clearly possible that all three could be wrapped up into one agreement. Spending cuts under sequestration are scheduled to take effect from March 1, 2013. Those cuts had been scheduled to take effect January 1, but were delayed two months as part of the fiscal compromise reached last week. In the upcoming debate lawmakers will aim to delay those cuts once again, offsetting the increased spending that would result with savings (spread over ten years) from other areas of the budget.
A month later, on March 27, the temporary extension of spending authority (known as a “continuing resolution”) that Congress enacted last year expires. Congress is likely to extend spending authority to September 30, the end of the current fiscal year, but lawmakers must first agree on a spending level. If no agreement is reached by March 27, all non-essential government operations funded by congressional appropriations would cease. However, while this sounds severe, it is far less of a risk to the economy or the market than a failure to raise the debt limit, since the lapse would be temporary and the payments that would cease are clearly categorized, would have no effect on Treasury financing nor on most payments to individuals, and are of a smaller overall size.
It really does appear as though the combination of these issues will make the January 1 fight over taxes seem like a walk in the park.
Obama’s $264 Billion Tax for 2013 May Spark New Recession
With the fiscal cliff deal and many Obamacare taxes taking effect, Americans will be slammed with an estimated $264 billion in new taxes this year alone — making 2013 memorable for delivering one of the largest one-year tax increases in American history.
The math breakdown of the new taxes is simple: Key parts of the Bush tax cuts will expire as a result of the new fiscal cliff legislation, hitting American taxpayers with taxes of about $39.5 billion each year for the next decade.
In addition, the expiration of the so-called “payroll-tax holiday” will fill federal coffers with another $160 billion each year, on average, over the next 10 years.
And finally, several new Obamacare taxes begin this year, costing Americans an estimated $41.8 billion of additional taxes….
A cold snap in China hasn’t gotten much attention here, but it might start to get more, as it’s causing massive food inflation.
Monitoring results of the Ministry of Agriculture show that prices of 27 vegetables in the first week of 2013 increased 4.5 percent week-on-week for an average price of CNY 4.17/kg. In the past ten weeks, average price of vegetables has jumped 55 percent.
Eurostat is out with November unemployment numbers for the EU and the Eurozone.
The euro area1 (EA17) seasonally-adjusted2 unemployment rate3 was 11.8% in November 2012, up from 11.7% in October4. The EU271 unemployment rate was 10.7% in November 2012, stable compared with October4. In both zones, rates have risen markedly compared with November 2011, when they were 10.6% and 10.0% respectively. These figures are published by Eurostat, the statistical office of the European Union.
What’s really scary are these heart-stopping youth unemployment numbers.
More Central Bank Gimmicks Exposed As European Collateral Shortage Deteriorates
The epic farce that is the opaque balance sheets of European banks, sovereigns, NCBs, and the ECB, continues to occur under our very eyes. Only when one sniffs below the headlines is the truth exposed with no apology or recognition of ‘cheating’ anywhere. To wit, following November’s farcical over-payment on collateral by the ECB to Spanish banks (that was quietly brushed under the carpet by Draghi et al.), Germany’s Die Welt am Sonntaghas found that the Bank of France overpaid up to EUR550mm ($720mm) on its short-term paper financing to six French and Italian banks. The reason – incorrect evaluation of the crappy collateral (i.e. the NCB not taking a big enough haircut for risk purposes) on 113 separate occasions. The problem lies in the increasingly poor quality of collateral the CBs are willing to accept (and the illiquidity of the underlying markets) – as higher quality collateral disappears; which leaves the central bankers clearly out of depth when it comes to ‘risk management’, no matter how many times Draghi tells us this week.
Via Fox Business:
The European Central Bank continues to have problems with its collateral management, according to a German newspaper report Sunday.
The Bank of France, a member of the European System of Central Banks, has granted too much credit compared with collateral to six banks due to insufficient risk valuation discounts, or haircuts, made on the collateral, reports German newspaper Welt am Sonntag. The Bank provided credit in exchange for bonds known as Short-Term European Paper, or STEP, which it accepted as collateral from the banks, the newspaper says.
One of those things: the gigantic asteroid heading toward earth.
From this morning’s Cashin’s Comments:
And You Thought The Debt Ceiling Was All You Had To Worry About – Trading was slow enough yesterday that traders had more than the usual allotment of time for chitchat. Quickly exhausting sports, politics and the rest of the usual roster, thinking and thoughts turned skyward….