Employment, American Style
by Andrew Hoffman, Miles Franklin
It’s Thursday morning, and after last night’s ugly Greek news, which prompted me to alter my Audioblog title to “The Big One has started – Protect Yourself Now!” – gold and silver’s gains were magically vaporized at the “2:15 AM EST” open of the London paper “pre-market” session, for the 376th time in the past 430 trading days; and when they returned to the nearly unchanged level around the NYSE opening, following a slew of PM-positive news and no material moves in other markets, they “magically” plunged anew. Meanwhile, Miles Franklin’s physical PM business has increased significantly in recent weeks, in line with that of the entire planet – which, of course, will inevitably cause something to “give”; and likely, quite short.
I don’t have the time – or space – to write of each of this morning’s other “horrible headlines,’ but suffice to say, the Greek situation actually worsened considerably, as this morning’s meeting between Greek Finance Minister Yanis Varoufakis and German Finance Minister Wolfgang Schauble ended with extremely aggressive words, prompting Greek Prime Minister Alexis Tsipras to maintain Greece won’t back down, in its aim of writing off a significant portion of its €320 billion of debt. And to give you an idea of how PM-positive the other key headlines of the day are, a smattering of such include “Challenger Report layoffs surge to highest monthly reading in three years”; “Bulk shipping bankruptcies begin as Baltic Dry Index collapse continues”; “Ukraine currency plunges 30% after Central bank gives up on indicative rate”; “Denmark cuts rates for fourth time in three weeks, to negative 0.75%”; and my favorite, of how the Swiss National Bank has created a new, “unofficial” Euro/Franc peg at 1.05, just three weeks after its official 1.20 peg was vaporized. And I haven’t even mentioned the horrific explosion in the U.S. trade deficit, which surged from $39.0 billion in December to $46.6 billion in January, versus expectations of a decline to $37.9 billion. Which, by the way, nearly guarantees the already punk initial 4Q GDP reading will be revised downward. Gee, I wonder if sub-$50 oil prices had something to do with that.
And finally, we’re at the tail end of the fourth quarter earnings season; which according to Zero Hedge, produced ZERO growth when excluding Apple. The vast majority of companies reduced 2015 guidance as well – including the largest negative revisions in the history of the consumer discretionary sector. Consequently, Q1 2015 earnings are expected to decline year-over-year, for the first time since 2012; and even perpetual MSM cheerleader CNBC admits “consumer spending weakest since 2009.” However, the perpetual party line of “second half recovery” continues ad infinitum – or at least, as long as the PPT maintains control of the
And one final note on this topic; of how company after company seemingly beat “expectations,” despite reporting cumulatively weak earnings. Let me tell you how this is so, from someone who worked as an award-winning sell-side equity analyst for seven years – including six at Salomon Smith Barney. OK, here’s how said “expectations” are created. First, at the time of each earnings report, nearly all reasonably sized companies issue “guidance” for the coming quarter, and sometimes the coming year – either via press release, conference call, or informal discussions with equity and fixed income analysts. Outside the press release route, such practices are borderline illegal, and certainly unethical; but nonetheless, this is how Wall Street works.
Using said guidance, analysts spend the ensuing weeks prodding the CFO, Investor Relations Officer, or otherwise specified “point person” for incremental information regarding the validity of such guidance. Said “point person” is carefully schooled as to what he or she can say, particularly as material guidance changes are considered “inside information,” which must be disseminated broadly, via press release. However, some analysts have better “relationships” with point persons than others; and inevitably, earnings trend changes – at times, material – translate into analyst estimate revisions. Next, competing analysts call up said “point person” and say, for example, Goldman Sachs lowered their estimate below the consensus (which in most cases, is based on “official” guidance). WHY? Said point person, depending on his or her “relationship” with the analyst, will proceed to clam up or play game like “20 questions” or “colder, warmer” until the analyst has the truth; causing him to lowers his estimates accordingly. Inevitably, analysts with lesser “relationships” with corporate insiders – or lesser incentive to pursue a particular company – simply revise their estimates to match those of the implicit “axes” on the name; and voila, reduced estimates – of which, the company inevitably “beats,” causing the MSM to fall over themselves in excitement, even if said “beat” is of a number well below initial guidance. And the beauty of it is, unless the earnings “miss” is that bad, no one questions the odd, “prescient” estimate trends; let alone, when the PPT is constantly supporting the stock market, hiding earnings “misses” with offsetting “multiple expansion. And I haven’t even discussed the historically high, comically liberal usage of “adjusted” (non-GAAP) earnings to exclude “non-recurring charges.”