Diary of a Financier

The Street’s 2009-11 Review & 2012 Forecasts: Check the Sequence, Time Bias

In Capital Markets on Thu 22 Dec 2011 at 06:10

Cullen Roche of Pragmatic Capitalism posted a great piece last night. He featured Zachs Research’s rundown of S&P 500 (SPX) components’ 2009-11 reported financial data, along with 2012 forecasts. Terrific to see the annual and quarterly numbers displayed in sequence.

At first the actual “as reported” 2009-11 data look like heartening, unsung progress for US markets:

  • Full year total earnings for the S&P 500 jumps 46.5% in 2010, expected to rise 14.5% further in 2011. Growth to continue in 2012 with total net income expected to rise 9.8%. Financials major earnings driver in 2010. Excluding Financials, growth was 28.2% in 2010, expected to be 17.8% in 2011 and 7.5% in 2012.
  • Total revenues for the S&P 500 rise 7.95% in 2010, expected to be up 6.05% in 2011, and 4.98% in 2012. Excluding Financials, revenues up 9.35% in 2010, expected to rise 9.77% in 2011 and 5.22% in 2012.

However, these data suffer from a bit of time bias, since a 2009 starting point (post bellum) provides a low base for sequential growth. (More on that later.)

Also, I notice some of the charts presented, which display explosive Net Income growth, but tame Total Revenue growth:



Neither I nor Zacks can picture continued margin growth, which can only indicate that the bottom line growth will henceforth resemble some kind of exponential decay in future sequences. A testament to the heretofore artificial economic recovery, both revenue and earnings have failed to surpass their 2007 levels, particularly in real terms (i.e. chained to 2q07 “ante bellum” prices):

Not so “heartening” after all. The big question: can companies restock inventories for a third time since 2009? That’s been the America’s “magic formula” since the crisis began: margin expansion>inventory build>margin expansion>etc. In the recent words of legendary bond manager Van Hoisington:

The important thing to keep in mind is that this isn’t your typical business cycle. You can’t say, ‘That was a recession, now we had a recovery, and we’re going into another recession.’ This is all one development.

I myself am on the record (as of June) claiming the US will avert another recession:

I’m amazed that this crisis is in its fourth full year. I do not expect a “double dip” into a new recession, but I do think the market will shakeout… some pretenders who are hanging by their umbilical cords.*

Yet, I wholeheartedly agree with Van Hoisington that today’s malaise belongs to a rolling recession dating back to 2008.


*See MFG, AMR.



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