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Things have come apart very quickly as government officials have demonstrated they are in this way over their heads.

Especially as it becomes clear the enormous efforts expended to get the TARP passed will do little if anything to address any of the current woes.

Government, including the Fed, has lost what little credibility it may have had.

While they have the ‘silver bullet’ at hand with fiscal policy, they are reluctant to use it due to deficit myths left over from the gold standard that are no longer applicable.

Note earnings growth has moderated but not yet gone negative, ex financials.

Not reported is that core earnings for financials (ex writeoffs) are probably reasonably strong.

Q3 Earnings: Not So Pretty

by Juan Aruego

This earnings season is looking ugly and there hasn’t been much talk about which sectors are bringing the pain.

What’s different this quarter is that expectations for everyone are falling.

Until now, the weakness has been concentrated in banks. But this quarter, the consumer discretionary sector is getting crushed. Estimates have plunged from +15% on July 1st to -9% today.

Other depressing factoids:

  • Four sectors are now expected to see earnings fall. Together they make up 27% of all earnings
  • Only one sector, energy, is looking at growth above seven percent. Oh, for the days when double-digit growth was de rigueur.
  • Can you believe that just three months ago, analysts thought Q3 financials’ earnings would be nearly unchanged from last year? How times have changed.

Amazingly, the ex-financials growth rate is still in the double digits, but it has fallen from 16.7% on July 1st to 11.3% now. As good as that sounds, excluding financials from the overall number is starting to feel a lot like paying attention to core CPI because it’s not as bad as overall CPI… especially since most of the upward drive is coming from the energy sector. Pull out the energy sector and the “growth” consensus plunges to -14.7%.

Here are all the numbers for you earnings wonks out there:

Q3 2008 Earnings Growth Estimates



July 1st

Consumer Discretionary -9% 15%
Consumer Staples -1% 1%
Energy 53% 58%
Financials -67% -4%
Health Care 6% 8%
Industrials 3% 6%
Materials 5% 11%
Information Technology 7% 12%
Telecomm. Services -5% -4%
Utilities 3% 7%
S&P 500 Overall -4.3% 12.6%
Without Energy Firms -14.7% 4.7%
Without Financials 11.3% 16.7%

Special thanks to Thomson Reuters and its earnings gurus for the data to back up this story.


5 Responses

  1. This guy seems to understand, and has an interesting take on new tax subsidy to take over distressed banks.

    Will Paulson’s Two Plans Unplug the ‘Liquidity Trap’?

    “The liquidity trap has neutered the Fed and its chairman, Ben Bernanke, because there isn’t much that the Fed can do with money supply or interest rates to make things better (despite reports that the Fed may cut interest rates again soon). Only fiscal stimulus – tax cuts or government spending hikes intended to increase demand — will unplug the system.”

  2. well stated about fiscal policy, but it’s not the ‘liquidity trap’ that gets in the way, but the fact that ‘monetary policy’/altering interest rates never cuts it.

  3. “Especially as it becomes clear the enormous efforts expended to get the TARP passed will do little if anything to address any of the current woes.”

    For many of my joe 6 pack friends, they feel betrayed by the government and the banks, this credibility will not be restored anytime soon. Not that I am a conspiracy theorist, but it seems to me they couldn’t have done a better job in alienating large parts of the population than with the actions they took, like they are intentionally trying to collapse the people’s faith in government, but then the CIA jackals who run stuff “harrison bergeron” style couldn’t be that smart could they? 😉 I saw this movie about one senator affecting lots of people in russia – charlie wilson’s war with tom hanks – that was just fiction right?

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