Friday, October 9, 2015

World Earnings........ANOTHER PESKY FACT!

World Earnings

The chart below shows how earnings growth for the S&P 500 companies, as measured by 12-month trailing earnings, has sharply deteriorated, and by Q2 was barely above zero.

The last time earnings of the companies in the MSCI AC were shrinking like this without a recession was in 1993. And according to the measure used by Bank National Financial, the last time earnings of the S&P 500 companies were close to zero without a recession was in 1998.

The reason is simple: When corporate revenues and earnings tank, bad stuff starts happening. Companies curtail their investments further, and they cut expenses even more, all of which are a drag on the economy. And they whittle down their workforce, which drags down consumer demand even further. This coincides with today's high business inventories and inventory-sales-ratios. To bring inventories in line with lower demand, companies slash their orders, and this additional hit to demand ricochets up the supply chain.

Interest rates are already at zero. The Fed's balance sheet is weighed down by $4 trillion in QE assets. Companies have loaded up on debt, much of it high-risk junk bonds and leveraged loans, that many companies will not be able to service during leaner times. Governments at all levels, after years of deficit spending, are burdened with enormous amounts of debt, with for example, US gross national debt more than doubling since the onset of the Financial Crisis.

And when the next recession materializes, all these chickens are going to come home to roost.

So the risks that the Fed promised to banish from the globe suddenly are returning with a vengeance, and by the looks of it, the global economy is just now sinking deeper into "its funk."


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