Hopes Evaporating For 4th Quarter, Too

The Daily Reckoning

Weekend Edition

August 4-5, 2001

Paris, France

By Addison Wiggin

MARKET REVIEW: Hopes Evaporating For The 4th Quarter, Too.

“You are going to have a very difficult summer for the stock market,” a managing director at Credit Suisse Asset Management told Reuters… (Summer, eh? Buddy it’s August 4th!)

Friday, one of the slowest trading days of the year, left traders low “as hopes evaporated for a year-end bounce in corporate profits and left Wall Street fumbling” with fears over the economic downturn. (Reuters) The Dow lost 38 points to 10,512. The Nasdaq Friday fell 21 points to 2,066 snapping a three-session winning streak. Cisco and Intel gave back mid-week gains. The S&P 500 was down 6.4 points at 1,214.

Many Wall Street ‘experts’ now say the S&P companies will suffer “flat” earnings in the fourth quarter – a far cry from the 12.6% growth forecast just a few months back… where’s Abbey Cohen’s +15% when you need it?

A flat – or negative 4th – would mark the first time since 1991 that corporate profits were stymied in four straight quarters.

FLOTSAM AND JETSAM: THE BIG FAT EARNINGS LIE

– From The DR Blue’s Dan Denning

“… Notice how companies always exceed expectations by a penny? Is that just excellent guidance and good work by the analysts? Or is it a concerted effort to manage the price of the stock by carefully manipulating earnings growth so it’s viewed as positively as possible by the stock buying public? Don’t answer that yet…

…fact is, analysts have a less than stellar track record at successfully evaluating a business’ reasonable rate of long term growth. How many analysts predicted that JDS Uniphase would lose $500 million dollars and $.30 a share in July? And that they would then write off $45 billion in bad investments? None.

In the prior three quarters JDSU, had exceeded analyst’s expectations twice (by a penny once and by two pennies), and met them once.

What about Lucent? It announced it lost $1.2 billion in its most recent quarterly report. It ended up losing $.35 a share. Meanwhile, analysts had projected Lucent to lose only $.21 a share. They missed by 66%. And that’s after under-projecting Lucent’s previous quarter’s loss by 60%.

Again, just bad work by the analysts? Or were they working with Lucent to try and limit the amount of bad earnings news that could drive the stock down? Hmmm…

You can’t predict the future down to the last penny. No matter how good your models and projections are, the marketplace changes, especially in technology, where it changes faster than anywhere else.

The earnings game is a racket played by Wall Street. It generates meaningless content for the knuckleheads onCNBC.

If you want a better measure of what a company is worth in cold hard cash, then look at cold hard cash. Or better yet, look at dividends…”

Bon Weekend,

Addison Wiggin,

The Daily Reckoning