The experts acknowledge how quickly they’re changing their forecasts for corporate earnings in the face of a shrinking economy.
Goldman Sachs strategist David Kostin invoked a quote from storied economist John Maynard Keynes, right, when he cut his estimate for 2008 earnings per share for the Standard & Poor’s 500 to $55 from $65: “When the facts change, I change my opinion. What do you do, sir?” That was Keynes’ reply to criticism during the Great Depression for changing his monetary position.
It’s the fourth time Kostin has cut his estimate since early September. He says “the speed and magnitude of contraction in domestic business activity, consumer spending and foreign demand has shocked even veteran market observers.”
Crude surprise.
It’s not what you buy but when you get it. Crude prices have been tumbling recently — from a summer peak of close to $150 per barrel to below $50 earlier this month.
But that’s only crude slated to be consumed in the near term.
Looking further out, prices have been more stubborn.
Spreads have recently been wider than ever — close to $20.50 per barrel — between the nearest-term and 27-month contracts in dollar terms, according to Barclays analyst Kevin Norrish.
With such a spread, anyone buying oil today and storing it for years should be able to lock in big gains. While the credit crunch makes this tough to do, such trades could push up near-term prices.
Pension plus.
Pensions are getting pummeled in the bear market.
That’s bad news for corporations, but could be good news for one group of industry players: consultants.
“The market turmoil is shaping up to be an unforeseen boost of additional work as plan sponsors revisit their options for ongoing retirement plans,” says Ashwin Shirvaikar, an analyst with Citi Investment Research.
Thrift lift.
Slowly but surely, Americans are saving more.
In October, the nation’s consumers saved 2.4 percent of their after-tax income, according to the Department of Commerce.
That’s the highest rate since December 2004, excluding one month this summer when savings rates were juiced by stimulus checks from the federal government.
Many economists believe the country is returning to a thriftier mind- set after gorging on easy credit for years. More saving also means less spending. Consumer spending drives 70 percent of the economy’s growth.
The Associated Press
