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Earnings Have Peaked… and a Dropping For the First Time since 2008

Earnings may very well have peaked.

 

MarketWatch notes that adjusted profits (even after all of the accounting gimmicks), FELL last year. This is the first time this has happened since we entered the alleged “recovery.”

 

For the full year, adjusted profits slipped 0.8% to $2.09 trillion. The last time profits fell was in 2008 when a recession was in full swing. Banks and other finance companies showed lower earnings, while nonfinancial firms modestly increased profits. Profit figures are adjusted for depreciation and the value of inventories.

           

            Source: Marketwatch

 

Bear in mind… earnings are overstated. Indeed, a study performed by Duke University found that roughly 20% of publicly traded firms manipulate their earnings to make them appear better than they really are. The folks who were surveyed for this study about this practice were the actual CFOs at the firms themselves.

 

These practices have only worsened since the “crisis ended.” Corporations have been reducing loan loss reserves, buyback shares via debt, and axing jobs en masse in efforts to juice earnings as high as possible.

 

This has resulted in the HIGHEST corporate profit/ GDP ratio since the Feds began tracking this metric in the 1940s:

 

 

Put simply, corporate profits are at a record high relative to the economy… and they just began to roll over.

 

Take a look at the below chart showing current stock levels and changes in forwards Earnings Per Share (EPS). Note, in particular how divergences between EPS and stocks tend to play out (hint look at 2007-2008).

 

 

We all know what came next.

 

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Best Regards

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