Category: Stocks
"Earnings Season" for Some, "Stupid" Season for Others?
AKA, If losses are "good," big losses must be "better"
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| By Robert Folsom |
Published: Fri, 18 Apr 2008 17:45:00 ET |
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"Earnings season" in corporate America is the period when most big companies report their earnings for the previous quarter, and we've been in one of those periods this week. But, the relevance of this period goes beyond that simple definition -- because earnings season also habitually provokes "stupid season" in the financial media.
What I mean is this: The need to avoid non-sequiturs (or even respect simple logic) goes out the window, because the press collectively depicts all stock market activity as the direct outcome of this, that, or the other earnings report. It doesn't matter how laughably or egregiously absurd the example may be. Lest it appear as if I've overstated matters, please allow me to introduce exhibit "A" into evidence:
Which is, the literally hundreds of headlines today that said "Stocks surge on profit reports from Citigroup...", "U.S. stocks rally on Citigroup earnings...", etc., etc., etc. Those headlines would of course be plausible if Citi had indeed reported positive earnings. However and alas, the teeny-tiny detail that some of these stories didn't even see fit to mention was that Citigroup didn't HAVE any earnings in the previous quarter, because earnings are PROFITS. Instead, what Citigroup DID have were "negative earnings," which is a two-word definition for one word, namely LOSSES.
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Yes, Citigroup reported a LOSS for Q1, specifically a loss of $5.11 billion, or -$1.02 per share. But there's more. Here's what else Citigroup (and other sources) reported:
- The -$1.02 per share loss exceeded the consensus estimate of -0.95.
- Citi's Q1 revenue fell 48%.
- For the current quarter (Q2) Citi has announced plans to layoff 9,000 employees; this is in addition to the 4,200 layoffs in Q1.
- Today's announced $12 billion writedown brings Citi's total mortgage-related writedowns to $32 billion.
- The bank "still has $23 billion worth of CDOs on its books and another $47 billion of assets from structured investment vehicles it was forced to bring back on its balance sheet last year when it couldn't find buyers" (Forbes).
None of this can dispute or even mitigate the fact that Citigroup shares and the stock indexes rallied today. But I don't have to dispute, mitigate or openly twist the facts because I'm not the one who thinks that investors are "rational," nor do I think that "earnings drive stocks." The problem with today's news falls in the lap of those who DO believe investors are rational and that earnings drive stock -- like most economists and members of the press, for example.
Once you realize that investors are frequently irrational, then it's not too hard to see Stupid Season for what it is.
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