Expect lower revenue this earnings season
Companies can't hide weakness in the top line.
By Thomas H. Kee Jr. Stock Traders Daily
As the U.S. economy weakens, Corporate America feels the pain. Although accounting tricks can be used to hide an earnings miss from time to time, lower revenue growth cannot be hidden.
The economy is relying on stimulus to support growth, but even that has been ineffective. Fiscal stimulus is not being supported by the price of gold either, which should be eye-opening to the would-be bulls who are praying for more support from Federal Reserve chief Ben Bernanke. But the Fed is out of bullets, and soon the printing presses will become inefficient as well.
After everything we have already done the U.S. economy is still weak and needs life support. We will see more of it this earnings season when some of the biggest companies report revenues that hint at contraction.
Already, Alcoa (AA) reported lower revenue last week. And on Monday, Gannett (GCI) reported a 2% decline in revenue, while Citigroup (C) reported a 10% drop in revenue. More is to come this week with Wynn Resorts (WYNN), which is also expected to report poor real growth numbers.
Accounting tricks may still work to make everything appear to be good, but executives cannot change the top line number. In fact, soon the lack of positive influence from future stimulus (if it happens at all), proven by these lackluster results and more, will prove to be detrimental. In the 1970s, investors took multiples down violently because the results were based on inflation, not real growth, and something similar will happen again.
The Investment Rate, which is my longer term model, tells us that the economy is in the third major down period in U.S. history -- one that can be worse than either the Great Depression or the Stagflation Period of the 1970s, and no one can stop it from coming.
Economies weaken from time to time throughout longer term cycles; that is happening now. Furthermore, that weakness is based on societal norms, and lifetime investment patterns, not policy decisions. People are what the economy is made of.
Whether stimulus happens again or not, no one can stop this weakness from coming, and investors need to protect themselves from the declines that lie ahead.
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