Wednesday, July 30, 2008

Are They Serious?

Bloomberg News reports that even as profits at S&P 500 companies looks set to plunge 24% compared to a year before, profits for 2008 as a whole are forecasted by so-called analysts to rise by 1.6%, because profits will supposedly soar during the fourth quarter.

This alleged Q4 boom will supposedly be the result of a base effect from the large write-downs during Q4 2007. But while this base effect will likely mean the end of the large year over year declines we've seen so far, the forecast that profits will boom rests on the assumption that somehow the problems for the financial sector will be over by then and no more write-downs will be made. A forecast which is so out of touch with reality that it's absolutely breathtaking.

This illustrates why Wall Street is in such a mess, and would have collapsed by now if Helicopter Ben hadn't flooded them with money. Remember, we're talking about the same analysts that a year ago forecasted profit growth of over 10% during Q2 2008 this year. And whose colleagues at other parts of the company a few years earlier came up with the idea of investing in the U.S. housing market.


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