Earnings Declined Over 90%.

From Chart of the Day

• While the stock market is up sharply since early March, the economy as well as corporate earnings continue to suffer. Today's chart helps provide some perspective as to the magnitude of the current economic decline. Today's chart illustrates that 12-month, as-reported S&P 500 earnings have declined over 90% over the past 20 months (with over 90% of S&P 500 companies having reported for Q1 2009), making this by far the largest decline on record (the data goes back to 1936). In fact, real earnings have dropped to a record low and if current estimates hold, Q3 2009 will see the first 12-month period during which S&P 500 earnings are negative.
  
  
  

Numbers are numbers and sometimes one can have so much unreal fun with numbers.

Let's see.

You start at 100. Say you lose 90% of value.

You only have 10.

At 10... if you go back to 20. That's an increase of 100%.

Or if you go back to 30, that's an increase of 200%.

So how good is this 100% or 200%?

Inflation Adjusted Chart Of S&P 500 Earnings

The following is from Inflation Adjusted Chart Of S&P 500 Earnings

• It's no secret that it's bad out there. Today's chart helps provide some perspective as to the magnitude of the current economic decline. Today's chart illustrates that 12-month, as-reported S&P 500 earnings have declined over 80% over the past 18 months, making this by far the largest decline on record (the data goes back to 1936). In fact, real earnings have dropped to a level not seen since the 1930s and 40s – the back end of the Great Depression. While earnings have been struggling since Q3 2007, it was the latest quarter (Q4 2008 the first full quarter following the financial meltdown), where the real damage was done. During Q4 2008, the S&P 500 came in with its first negative earnings quarter ever and the amount lost during the quarter was more than the index has ever earned during a single quarter.

Early Corporate Earnings Notes For 2009

Published on Bloomberg News, Global Corporate Profits to Drop in ’09; More Bankruptcies Loom

• By Katie Hoffmann and Joseph Galante
  
  Jan. 5 (Bloomberg) -- Corporate earnings will continue to slump into the first half of 2009 amid the first simultaneous recessions in the U.S., Japan and Europe since World War II.
  
  Earnings at Standard & Poor’s 500 companies will probably fall in the first half, marking eight straight quarters of declines. In Europe and Asia, the outlook may be even worse as the recession curbs demand for retail goods and exports.
  
  “It’s going to be a miserable ride,” said Bruce McCain, chief investment strategist at Cleveland-based Key Private Bank, which manages about $30 billion. Earnings probably won’t rebound until the end of 2009, he said. “The market recovers, then the economy recovers, then finally the earnings recover.”
  
  Companies are battling falling consumer demand and dwindling cash flows after banks tightened lending to cope with billions of dollars of real-estate losses. The U.S. Federal Reserve has cut interest rates to as low as zero percent, while governments worldwide have taken stakes in banks and companies to prevent a collapse of the global financial system.
  
  “We hit the peak in earnings in 2007, and in 2009 we’re going to see continued deterioration,” said Diane Garnick, who helps oversee $500 billion as an investment strategist at Invesco Ltd. in New York. Analysts’ earnings estimates are “still way too optimistic.”
  
  In the U.S., profit at Standard & Poor’s 500 companies will fall 11 percent in the first quarter, followed by a 6.2 percent drop in the following three months, according to data compiled by Bloomberg. Earnings should improve in the second half, driven by a rebounding financial industry, the data show.
  
  Europe, Asia
  
  While profits will rise 4.3 percent for the full year in the U.S., earnings in Europe are projected to decline for all of 2009 and analysts predict worsening reports out of Asia because the recession hasn’t fully hit there yet.
  
  The energy industry will lead U.S. declines, with earnings estimated to drop 29 percent in 2009. Profit at Exxon Mobil Corp., Chevron Corp. and ConocoPhillips, the largest U.S. oil companies, will probably fall after the recession sapped fuel demand, spurring a 78 percent drop in crude-oil prices from July’s record.
  
  At Irving, Texas-based Exxon Mobil, the world’s biggest publicly traded company, earnings will probably tumble 39 percent to $28.2 billion, the first decline since 2002, according to a Bloomberg survey of analysts.
  
  “We expect industry earnings to be down sharply, especially in exploration and production,” said Gene Pisasale, who helps manage $13 billion at PNC Capital Advisors in Baltimore.
  
  Retailers Close
  
  Earnings at U.S. retailers will fall 20 percent this year, according to analysts’ estimates. The International Council of Shopping Centers in New York predicts 73,000 U.S. stores may shut in the first half of 2009 after what may have been the worst holiday-shopping season in 40 years. That’s after about 148,000 stores closed last year, the most since the 2001 recession, according to the trade group.
  
  “You’ll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains -- either multi- regionally or nationally -- go out,” said Burt Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York.
  
  AnnTaylor Stores Corp., Talbots Inc. and Sears Holdings Corp. are among chains shuttering underperforming locations as consumers tighten budgets. More than a dozen U.S. retailers filed for bankruptcy in 2008, including Circuit City Stores Inc., Linens ‘n Things Inc. and Sharper Image Corp.
  
  Wal-Mart Stores Inc., the largest retailer, may report a 6 percent profit increase this year by offering lower prices to consumers seeking bargains, according to estimates.
  
  ‘Very Difficult’
  
  JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley, the biggest U.S. banks, will probably post higher profits this year compared with 2008, when finance companies wrote down more than $720 billion of losses.
  
  “For the large financials, it’s going to be a very difficult year,” said David Burg, a Purchase, New York-based analyst at Alpine Woods Capital Investors LLC, which manages about $6.5 billion, including JPMorgan shares. “The story for 2009 continues to be radical transformation -- companies fundamentally changing their business model.”
  
  Goldman Sachs and Morgan Stanley, which were the two biggest U.S. securities firms before converting into banks, will suffer from a 15 percent decline in mergers and acquisitions and slowing underwriting fees, Kenneth Worthington, an analyst at JPMorgan in New York, said last month in a note.
  Autos, Technology
  
  U.S. automakers will show some improvements in 2009 after sales plummeted last year, forcing the government to lend $13.4 billion to General Motors Corp. and Chrysler LLC to keep them out of bankruptcy.
  
  GM’s loss may narrow to $12.8 billion from $19.6 billion last year, according to analysts’ estimates. Ford Motor Co. may report a loss of $6.38 billion, compared with $9.2 billion last year, the estimates show.
  
  Technology will be one of the best-performing sectors in the second half as customers start to increase budgets, said Pete Sorrentino, senior portfolio manager for Cincinnati-based Huntington Asset Management, which oversees $16.5 billion. Earnings at software and services companies may rise 8.1 percent in 2009, while profits at hardware makers may slip 6.7 percent, according to analysts’ estimates.
  
  Apple, Google
  
  Consumers may continue to curb spending in the first half, dragging down sales at Apple Inc., maker of the iPhone and Macintosh computers, David Bailey, an analyst at Goldman Sachs in New York, said last month. Google Inc., owner of the most popular search engine, will probably post a 14 percent increase in profit in 2009 as it clamps down on spending, according to the estimates.
  
  Health care will be one bright spot, as sick people still need medical treatment, said Les Funtleyder, an analyst with Miller Tabak & Co. in New York. Profit at Standard & Poor’s 500 drug companies and medical equipment makers, such as Johnson & Johnson and Pfizer Inc., may increase 6.8 percent in 2009.
  
  “Health care tends to be recession-resistant,” Funtleyder said. “Some people may use fewer drugs, so that’s obviously a bad thing, but it’s less cyclical than other industries.”
  
  In Europe, profits at Dow Jones Stoxx 600 Index companies may fall less than 1 percent this year, compared with a 17 percent decline in 2008. Oil and gas companies face the heaviest declines, according to analysts’ estimates.
  
  Wild Card
  
  “The biggest near-term risk is how tough it’s getting overseas,” said McCain at Key Private Bank. “That’s the wild card.”
  
  Earnings at European oil companies may drop 21 percent in 2009, compared with a 4.7 percent gain last year, according to estimates. Profit at Royal Dutch Shell Plc, Europe’s largest oil company, may drop 27 percent. The company postponed projects in Canada and Australia as demand for oil declined.
  
  European retailers may post a 12 percent drop in earnings this year. Discounts of 70 percent or more during the holiday shopping season by U.K. stores hurt profit margins and may lead to a raft of bankruptcies, said Nick Hood at Begbies Traynor.
  
  Nokia Oyj, the largest mobile-phone maker, said last month the global handset market may contract this year for the first time since 2001. Earnings at Espoo, Finland-based Nokia could decline 14 percent in 2009, according to analysts’ estimates.
  
  Asia Recession
  
  Half of Asia will probably be in recession this year as a $700 billion drop in export earnings causes economies in Japan, Hong Kong, Singapore, South Korea and Taiwan to shrink, according to Macquarie Group Ltd.
  
  Japanese corporate earnings may extend their slump after the yen rose against all major currencies in 2008 and eroded the value of exports. Credit Suisse Group AG estimates earnings will be weakest in the first half at carmakers, machinery producers and technology companies.
  
  Japanese automakers are slashing output, jobs and profit forecasts as the global recession deters consumers from buying new cars and sport-utility vehicles. Toyota Motor Corp., Japan’s biggest automaker, last month predicted its first operating loss in 71 years for this fiscal year because of the slump and a stronger yen.
  
  Vehicle demand from emerging markets, where automakers had counted on sales shoring up collapsing demand in the U.S., Europe and Japan, is also likely to decline as fallout from the credit crunch and economic slump spread, said Song Sang Hoon, a Seoul- based analyst at Kyobo Securities Co.
  
  No Immunity
  
  “No one will be immune from this downturn. It’s time to see who’s losing least, not who’s winning more,” he said.
  
  Among technology companies, Tokyo-based Sony Corp. will begin eliminating 16,000 jobs as the slump undermines sales of Bravia televisions and Cyber-shot digital cameras. Panasonic Corp. is projecting profit in the year ending March 31 will be 90 percent lower than previously anticipated.
  
  Asian banks will grapple with falling earnings and rising defaults on loans this year as economies from China to Australia slow, prompting central banks to slash interest rates, said Tim Rocks, an Asian equities strategist at Macquarie in Hong Kong.
  
  Lenders in Japan, Australia, Singapore and South Korea raised money in the final quarter of 2008 after they escaped most of the initial writedowns and credit losses that forced U.S. and European rivals into government takeovers.
  
  “This quarter and the first quarter ‘09 are just going to be really ugly quarters,’’ said Frederic Dickson, who helps manage about $19 billion at D.A. Davidson & Co. in Lake Oswego, Oregon. ‘‘It’s just going to take a long time to get confidence restored.’’
  

US Corporate Earnings

My Dearest Moo Moo Cow,

The Dow had another wonderful run again finishing at the all time high. ( click here for CNN Market Wrap. )

I thought it would be nice to read what the market commentators at FSO would say. Today's market wrap is made by Chris Puplava. Who's Carrying the Economic Baton? Part I -- The Corporate Sector?

I would like to highlight the point he made about US Corporate profits, as I believe a more balanced view is always needed.

• The Corporate Sector

  Analysts are right to point out the health in the corporate sector as quarterly profits have consistently come in with double-digit gains on a year-over-year (YOY) basis for years now.

  
  

  Figure 1

  
  

  
  Source: Moody’s Economy.com

  
  

  However, what is also clear is that the trend in corporate profits is slowing, with Q4 2006 profits down 0.3% from Q3 2006, though the YOY rate came in at a very respectable 18.3%, though down from the 30.56% rate seen in Q3 2006. The argument many financial and economic pundits are making is that with pristine balance sheets, corporations will pick up the slack in the economy from a weakening consumer. In essence, corporations will continue to spend and take on more leverage by expanding their businesses. Is this happening? Yes and no.

  Corporations are taking advantage of their pristine balance sheets and the low interest rate environment by taking on more debt as corporate debt growth reaccelerated after what appeared to be a peak earlier last year. Corporate debt growth came in at 6.5% Q3 after peaking at 9.6% in Q1 2006, but reaccelerated to 10.9% in Q4 2006. Can corporate debt growth compensate for decelerating household growth to support the economy?

  Generally both the corporate sector and household sector debt growth trends move in unison, with household debt growth leading the corporate sector. There has only been one period in the last 50 years where corporations continued their debt growth while the consumer segment contracted.

  The period occurred in the middle 1960s as consumer’s retrenched while the corporate sector also retrenched briefly before reaccelerating its debt growth, and presents a possible scenario to the current picture. In Q2 1966, corporate debt growth peaked at 12.4% and then fell to 9.1% in Q4 1966. It then reaccelerated to 13.6% in Q4 1967 to help offset the decrease in consumer debt growth which peaked at 11.1% in Q1 1965 and bottomed at 2.8% in Q4 1966.