Sunday, January 11, 2009

From +52% To -12%

So-called analysts are now forecasting a 12% decline in profits for Q4 2008. It didn't seem so long ago that these same analysts forecasted a gain in profits of 52% for Q4 2008, in order to reassure their clients that buying stocks were a good idea. That 52% forecast was justified by the base effect of very low profits in Q4 2007 due to large write downs in the financial sector, so a 12% decline from that very low level is actually a lot worse than it sounds. And even that might be over-optimistic. The near 45% decline in corporate income tax revenues I reported about yesterday certainly hints that corporate profits are collapsing.

Not surprisingly though, these same analysts now reassure us that Q4 2008 is "old news" and that the low numbers for 2008 will create a base effect that will create positive profit growth in 2009, just as they predicted a 52% gain for Q4 2008 based on the same reasoning earlier. They will again be proven wrong.


Post a Comment

<< Home