This being earnings season, there's all kinds of new information available for investors to research. If you haven't had the opportunity, it is worthw...
This being earnings season,
there's all kinds of new information available for investors to research. If you haven't had the opportunity, it is worthwhile taking the time to listen in on a company's conference call and it doesn't even have to be a stock you own; it could be one you're considering for investment.
The vast majority of companies offer investors toll-free numbers or Internet streaming of their conference calls and you can even listen in after the event has taken place. In most cases, company management reviews the same information divulged in the earnings press release, and usually there is a forecast for the future and questions from Street analysts and investors.
More than just the plain numbers, an earnings conference call can tell you a lot how a company's management team feels about its business prospects for the future, as well as what sell-side and buy-side Street analysts are looking for from the company. The tone of the call is just as important as the actual numbers.
I'm noticing two distinct trends that stand out this earnings season from these conference calls. One, virtually all corporations are calling for a flat 2009. In fact, many companies are withdrawing their guidance completely, both for the first quarter and the entire fiscal year, because business conditions are just so uncertain.
Second, an increasing number of Wall Street research analysts are asking companies directly what their expectations are for receiving contracts or money from the Federal government as part of the almost trillion-dollar stimulus legislation that is working its way through the House and the Senate.
Wall Street has quickly determined that the only useful game in town is government bailout money. The economy is just that frozen. So, this means that if a company isn't talking about stimulus money for their industry, expectations from the Street are less rosy.
This leads me to the following conclusion: you know you're in a pickle when the hope for the future rests on the government (and from borrowed money no less). It's happening to all Western countries around the world and I hope it's a trend that will be soon be reversed.
I think this period of coddling by government began with the new Chairman of the Board of Governors of the Federal Reserve, Ben Bernanke. In my career in the investment business, I've never witnessed monetary policy actions by the Fed that were so quick to appease the needs of equity investors and Wall Street. The Fed is not responsible for the breakdown of the financial system, but it could have done a lot more to prevent the wildly speculative mortgage lending from the financial industry and it could have been sterner in its monetary policy actions.
Even before the credit crisis last year, the Fed acted too quickly to reduce interest rates when any "bad news" hit the wires. It was as if the Fed was the parent that always gave into its child every time -- the child being the stock market. The actions and the tone from the central bank set the stage for a new era of dependence on the part of investors, Wall Street and corporations. It began the period of monetary policy appeasement that has now grown into fiscal policy appeasement.
I know it's only supposed to be short-term, but I think we're on a dangerous path with so much reliance on government. I also know that this analysis is completely irrelevant if you just lost your job.
I think the economic environment has changed fundamentally and it will take years for us to get out of this mess. When Wall Street wants to know what a company's take will be from the government, you know that you have a fundamental problem in the system. As I've written before, I fear this period of debt-financed spending and money supply creation could create even worse economic times for us down the road. I hope very much that I'm wrong on this prediction.
Profit Confidential
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