Monday, May 25, 2009

Revenue Shortfalls and EPS beats

SocGen confirms in Barrons what I was suspecting. While companies were beating EPS estimates in 1Q, they were falling short on revenue projections - i.e. margins were expanding. So margins were expanding between 2003 and 2008 when there was expansion, and margins are expanding now when there is contraction. That is not possible beyond a couple of quarters. 

The next fall in the markets is going to come either from revenue/earnings shortfalls in 2Q (July), or if something happens in the commodity/currency complex (oil goes above 80 if dollar keeps falling). People are bullish and afraid to miss out on the wonderful 2010, and it is unlikely that a couple of bad macro data points are going to derail the optimism for the time being. 

So, we need to enjoy while it lasts, with a firm eye on the exit door. 

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