Read it here 1st: Profits Flip Negative for Q3

Sunday, November 25, 2007 | 08:09 AM

On Friday, Merrill Lynch's David Rosenberg notes that with "90% of the companies reporting, third-quarter earnings per share dropped 8.5% from the third quarter last year."

As we noted last Monday, S&P 500 Profit Flips Negative for Q3.

Here's an excerpt via Barron's Alan Abelson:

"With the tally now encompassing 90% of the companies reporting, third-quarter earnings per share dropped 8.5% from the third quarter last year. A bad enough showing in itself, it's even worse when compared with a 9.6% gain in the second quarter over the corresponding '06 period and 11.6% when the whole world was smiling a year ago. It's the worst performance since that dispirited fourth quarter of 2001, hard on the heels of 9/11.

It won't shock you, we're sure, to learn that financials took a real profits pummeling (down 33% from the year-earlier total) topped (if that's the word) only by the shares of companies that cater to consumers with more than a dollop of discretionary income to spend, which were off 39%.

David stresses that profits drive the business cycle -- capital spending and employment feed off them. And he sighs: "It has always been thus." Hence, he's ineluctably forced to the conclusion that a recession in the economy "is either here or no more than two quarters away." And he goes on to note the last two times corporate earnings skidded to a comparable extent into negative terrain were in the fourth quarters of 1989 and 2000 (both instances, we might add, proved the beginnings or a prelude to something ugly in the stock market as well as the overall economy).

There's a tendency, David notes, especially prevalent among the considerable number of die-hard optimists, "to strip financial-related earnings out of the pie" because financials now account for 30% of corporate profits and crow about how good everything else is. Well, everything else isn't so hot and, as David observes, "stripping out financials is like stripping out California, Florida, New York and Texas from GDP."

Indeed . . .

Skeleton at the Feast    
Barron's NOVEMBER 26, 2007    

Sunday, November 25, 2007 | 08:09 AM | Permalink | Comments (12) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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But haven't they been buying back shares, so the number of shares is smaller?

Posted by: Scytale | Nov 25, 2007 9:30:09 AM

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