On the macroeconomic front, I continue to be very, very disturbed by several factors. The fact that anyone cares about third-quarter earnings is beyond me. They are, to my mind, approaching irrelevance. The real story, yet only the beginning of the story, will be what fourth-quarter earnings look like. And while I'm not a betting man, I am pretty confident that they will suck. Hard. It's not that earnings for durable goods manufacturers will fall by 5%, 10%. They could drop by 50% or more. We are in the early stages of a consumer slow-down that does not seem to be factored into current stock prices. My fear is that people will find this as a shock, and that the market will get absolutely massacred when the realization sets in that corporate earnings aren't merely down, but are falling off a cliff.
And this, my friends, will precipitate staff cuts that will make the recent downsizings look like child's play. Falling corporate earnings. Falling stock prices. Firms with limited access to capital and high fixed costs will cut the only thing they can: people. More out of work people means a drop in consumer spending, which means falling corporate earnings, and so on.
At the end of the blogpost,"aarondelcohen" makes an interesting comment:
Are you kidding me? That is the single bleakest outlook I've seen. It's probably worth discussing. I don't feel completely equipped on macroeconomics, but I talked to a quant vulture fund person today who told me she had modeled the $15bn a month we are spending in Iraq coming back into the US in investments 24 months from now and you can really see where that kind of investment helps restore activity and even positive GDP growth. To use her words, "You'd be amazed what happens when you take that money away from there and put it here."
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