Bloomberg Anywhere Remote Login Bloomberg Terminal Demo Request


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Uncertainty Is The Greatest Single Weapon Working Against The U.S.

Posted by: Howard Silverblatt on July 9, 2010

Q2 Reporting Starts Monday: Look at Q/Q and Sales

Earnings season starts Monday, and the S&P 500 Q2 2010 earnings are expected to increase 42% over Q2 2009 - great. And the person who had a mid-level job two years ago, then lost it, and took a lower level job a year ago is also doing much better than last year. Right direction, but no where back to where we were. As reporting starts, headlines of double-digit gains will be many, but beating out last year is no great feat. While I believe that year-over-year comparisons traditionally (during normal economic periods) portrays a clearer picture of change, the current recovery requires more emphasis on the quarter-to-quarter change and the underlying momentum. The Q2 S&P 500 EPS increase of 42% to $19.68 from the $13.81 in Q2 2010 is quite different than the 1.5% gain over the Q1 2010 EPS of $19.38. I’m not being a Bear, I’m just trying to cut through the expected spin and put where we are in this recovery, and where the market prices are together.

The sales ‘growth’ story is the same. I am estimating that sales growth for the second quarter will continue to show positive, but slow, growth. Second quarter sales, excluding Financials, are expected to post a 12.2% gain over the second quarter of 2009. However, the gain over that poor performance of 2009 is not impressive, especially when measured against the expected 3.6% gain over the first quarter. In this light, the second quarter growth is slower than would have been expected for a recovery period.

While Q/Q growth is expected to be slow, margins for both Operating and As Reported are expected to stay relatively high due mostly to prior cost cuttings which have reduced cost per unit. The sustained earnings should give some support to the market, but without an upswing in the underlying economy, prolonged earnings growth cannot be sustained.

The bottom line is that earnings may hold up, but sales growth is slow and companies aren’t going to invest their record cash holdings until it improves. Once sales improve companies will have to replenish inventories, increase production, maybe invest in plant and equipment, and hopefully hire workers (full, part or just extending hours). Then we will have growth, as well as lower EPS since higher costs will reduce margins, but people will be working, and then spending and paying taxes.

However, we are not going to get higher sales until people and companies can figure out what is happening. Uncertainty is everywhere: taxes, health care, jobs, stimulus, cut-backs,… How do you invest if you don’t know where you are going? With all due respect to Simon & Garfunkel’s Seven O’clock News (44 years ago), Uncertainty is the greatest single weapon working against the U.S..

See file for detailsSP500_EPS_DIV.XLS

Reader Comments


July 10, 2010 5:47 PM

I don't think there is uncertainty. People are certain just how bad things are, and how much worse they will get. Record corporate profits don't mean much to the average person. Unless that money finds its way into the pockets of workers (instead of the rich who hoard it or investments in China), sales and profits will stall and the USA will go back into a recession.


July 11, 2010 7:05 PM

Companies are hoarding cash for this very reason. What's next, they wonder. You don't have CEO's lambasting Obama for nothing. Now the thick-headed lefties in the administration are wising up to this pall and are first, defending their policies, and later will actually address their real concerns. After all, Obama can only spend money he doesn't have; he can't force businesses to hire more people.


July 11, 2010 11:36 PM

"Uncertainty is everywhere: taxes, health care, jobs, stimulus, cut-backs,… How do you invest if you don’t know where you are going?"

Sorry, I don't believe it. You can make pretty good educated guesses at each of them if you follow the news carefully -- and if you miss low on one you will likely miss high on another.

The biggest unknown was four or so years ago when we were riding a huge bubble -- but that didn't stop investing.


July 11, 2010 11:40 PM

"Warren Buffett says: "Be fearful when others are greedy, and be greedy when others are fearful."


July 12, 2010 2:59 PM

Silverblatt is wrong. Americans in fact, do know, all too well, what's happening--they have no money to buy anything but the bare essentials! Companies don't invest because they're already able to produce more than consumers can afford to buy. Consumer spending makes-up 70% of American GDP and until consumer confidence returns, companies will have no incentive to invest in new capacity.

Tim Brynteson

July 12, 2010 4:55 PM

The underlying economy is causing uncertainty. We've never really been in quite this precise place and businesses are nervous about the nature, timing and if, there will be a recovery. I'm tired of articles and people saying that uncertainty about governmental policy is the key. If you don't know how many widgets you will sell next month, that is the kind of radical uncertainty that suppresses hiring and growth. Governmental policies don't directly affect that, unless you are a government contractor.


July 13, 2010 10:30 AM

Geez, we were hearing the same mantra when the Dow was at 7k last year. One thing is pour 1.5 trillion of fresh funny money into anything and people keep their jobs and the economy rebounds temporarily. Our friend Doug said it best quoting Buffett. If China is on track, we'll be pulling up the caboose. In the meantime, America, create, create, create.

The Real Deal

July 13, 2010 6:05 PM

Howard, by posting this article, you show you belong to the fools in DC. Or the clueless rackets in Wall Street.

There is a high degree of certainty.

First, foremost, USA is finally entering the decade of reckoning for past mismanagement and wholesale excess. This is a well-deserved punishment. I suggest you enjoy it.

Current situation is such that 'recovery' in every sense of the word, is impossible. Since you don't realize this simple reality, it makes you a fool.

The average person knows extremely well, with high certainty, everything that matters to them. It spells 'we have been screwed and more screwing are coming'.

The rich also knows their situation with certainty. It spells 'We had great time the past decade. Our accounts are down but still loaded with untold millions. Take the money and run!'

As to you, the so-called investor, you have invested nothing. All you did was to play the stock market. Now the stock market is screwed, by your colleagues and the billionaires. And you still want to play the stock market, clueless? How big a fool you want to be?


July 14, 2010 2:06 AM

well govt cannot creat any jobs if this is true cuba will be the richest country in the world,only private sector and small business will creat millinons of jobs in america.

Compare Mortgage

July 15, 2010 7:05 AM

people keep their jobs and the economy rebounds temporarily.

Tom C

July 19, 2010 1:11 AM

I think the comments in this stream work to prove that there is a very deep, fundamental uncertainty of how the economy in general will fare, whether that means economic gain or not. Let's put it this way, if there wasn't any uncertainty at all, we would know how to fix it.


July 19, 2010 8:33 PM

Has anyone noticed how China managed to re-ignite their economy ? Massive spending on infrastructure.


July 22, 2010 11:14 PM

By having stimulus and delaying the pain is certain disaster, not uncertainty.

In fact, recession is natural. It is a process of nature. Just like after we eat alot, now we must visit the toilet.

So,by let the whole thing unwind itself is the best certainty. At least, we know where we are heading, and when bottom come naturally we are in a good footing for the the next up cycle.

But now, by having a hugh stimulus is like planting a time bomb into the future generation. That is a certainty for disaster for future generation.


July 30, 2010 4:15 PM

The U.S. lacks good leadership at a time of great concern. It is hard for the masses to get behind a weak Congress and a President that does not promote the small businesses on main street. The unemployment numbers are not reported to reflect the current reality of the non working people and the load they are bearing through this period.

Post a comment



Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

BW Mall - Sponsored Links

Buy a link now!