Reality kicks back in after the upside manipulation

We are getting closer to the earnings season real start and have already 3 warnings from Icons like Intel ,Time Warner and Alcoa. The point even might be that companies do not show the made up earnings and go for bad ones as the new tax ruling might benefit the ones with steep losses as the can recoup the taxes they paid within the last 5 years. That might be counter productive as they will suck in money which will never find its way in a rising economy but finance the former pathetic stock buybacks which are all losses and wee part of the market upside manipulation. The other negative effect will be that the PE downside spiral will drive valuations of markets lower at some point. Especially after the stimulus packages prove to be not really helping. The other big effect to come is that the insane levels of government bond yields will burst and start the next level of this downturn cycle.

Excerpt from CNBC

Early Warnings Signaling An Ugly Earnings Season

By: Jeff Cox, | 07 Jan 2009 | 12:25 PM ET

If the plotline for 2009 was to start the year with an optimistic bang, corporate America doesn't seem to be following the script.

CNBC.com

Before anyone had the chance to soak in the early-year rally, a slew of big companies have come along with earnings warnings to temper the enthusiasm.

The warnings—from giants Alcoa, Intel and Time Warner—were a big factor in the selloff in stocks on Wednesday.

Moreover, these early warnings are expected to be just the first few rumbles in an avalanche of dour outlooks to come.

"It's going to be ugly," said Tom Higgins, chief economist at Payden & Rygel in Los Angeles. "We're certainly not through the thick of it...I think you're going to see a horrible earnings season."

Analysts expect consumer-sensitive areas such as retail and parts of technology to be among the hardest hit as rising unemployment squelches consumer spending and hurts revenue and earnings. Even President-Elect Obama's plan for a massive stimulus package isn't expected to have much impact until later this year.

"While we do anticipate that monetary policy will gain traction over the course of 2009, I don't think you'll see any impact on consumer spending and business spending that would make optimistic about equity prices at this point," says Higgins, who sees consumer spending rebounding perhaps in the third or fourth quarter this year.

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Current DateTime: 09:28:53 07 Jan 2009
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While there's hopes for a turnaround later this year, Higgins says the economy has more difficult times to weather before that happens.

"Analysts have been way too optimistic all the way up to this point," he adds. "After this quarter you may start to see where they'll be playing catch-up to the downside...and maybe we'll see more rational expectations for earnings. Right now I think we have more downside than upside on earnings."