A Completely Bogus Way to Look At Earnings

From IBD:

With 58% of the S&P 500 reporting results as of Monday morning, fourth-quarter earnings are on track to dive 20.7% from a year earlier, according to Thomson Financial. It would be the worst showing since the fourth quarter of 2001.

But that's mainly due to massive write-downs and other losses by banks. When all results are in, the sector will likely show a net loss.

"It's awful when you aggregate everything. But strip out financials, it's phenomenal," said David Dropsey, senior research analyst at Thomson Financial.

S&P 500 earnings excluding financials look set for an 11% gain.

This is nothing more than pure bull market spin and it is complete and total garbage, plain and simple. "One of the most important sectors in the economy is really sick right now. But if we don't look at that sector then everything is just hunky dory." I hope to God one of the idiots who is talking like this gets extremely sick, but the Doctor says to them, "outside of that cyst on your brain that may kill you within six months and cause you unbearable pain in the meantime, you're really quite healthy."

For those of you people who are peddling this crap, let's review econ 101.



Above is a poorly drawn chart of the US economy. Does anybody notice where the financial industry sits? At the middle of the economy. They are sometimes called "financial intermediaries" because they intermediate between lenders and borrowers. The financial sector takes individual investors money, aggregates it and then makes bigger loans to large companies.

But that sector -- the sector that provides financing for the whole damn economy -- is going through it's worst period since the S&L debacle right now. Read the post below on the tightening of lending standards. Why do you think that is happening right now? Because business is booming and earnings are increasing? Or because there are serious problems?

If instead of the financial sector we were talking about the water buffalo castration business I wouldn't have this issue. That is obviously a very small section of the market and pretty meaningless.

But when one of the largest sectors of the economy and the stock market is having major problems -- and that sector just happens to provide the lubricant for the whole economy -- then the fact that that sector's earnings are in the toilet is more than a statistical inconvenience.