Jim Bianco has some comments on this year’s horrific analyst misses:


At Bianco Research, we have demonstrated that earnings forecasts are missing by their widest margin ever in 2009. While we have over 140 years of actual earnings data, IBES earnings estimates date back to 1985.

The chart to below shows the error rates in forecasting operating earnings for both top-down forecasters (strategists) and bottom-up forecasters (company analysts). It measures the forecast one-year forward versus what actually happened one year later. The data covers the period from 1985 to 2002, and unfortunately we have been unable to secure an update. It shows that the largest forecasting errors ranged from +30% in the late 1980s (meaning the forecasters were far too optimistic) to -20% during the recession of 2000 (meaning they were far too pessimistic). Data from 2002 to 2006 is missing, but it is a safe assumption that the earning misses that occurred during this period were not as extreme as the previous records set.


error rates


The next chart uses Bloomberg data for bottom-up forecasts. By mixing IBES and Bloomberg forecasts, we risk comparing apples to oranges. But, if the surveys are done properly they are both surveying the same people and should offer a very similar data set. As highlighted on the chart below, the current forecasting error is now near 100%, more than three times the largest error seen from 1985 to 2002. No other period has ever come close to the current period.


SPX Operating earnings


The final chart comes from S&P. It shows their measures of top-down and bottom-up forecasts for 2009. The blue line shows how bottom up forecasters were quickly revising their forecasts down like the Bloomberg data shows above. The red line shows the top-down forecasts were not too far off from reality. The top-down forecasters miss was on the level of the late 1980s and early 2000s misses.


2009 earnings estimates


Earnings forecasts are worse now than at any time in human history. As the chart below shows, the decline in earnings in the last year was worse than any decline in the last 140 years (again, no typo). The data comes from Robert Shiller who got it by way of the Cowles Commission.

Do you recall anyone forecasting a biblical collapse in earnings? We do not. In fact, Dr. Jeremy Siegel set records in tortured logic to explain this was not happening last February.

Rather than writing about rebounding earnings, a more interesting story might look into why consensus estimates have been so horribly wrong lately. Do the forecasters understand the degree to which they missed, and have they changed their methodology at all to avoid a similar fate should this happen again in the future? Only when these questions are answered should anyone pay attention to these highly inaccurate guesses.

Category: Earnings, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

28 Responses to “Why Have 2009 Earnings Forecasts Been the Worst Ever?”

  1. How come no one mentions that the fundie community on Wall Street has been so unbelievably (world record) wrong on the earnings estimates?

    Instead of asking what their estimates is, the question should be “why should I listen to you?”

  2. jhellman says:

    It would be interesting to see this analyzing with some granularity…e.g. the variance for companies that issue guidance versus those that do not. Also, the variance as it relates to the number of analysts. Such analysis ought to reveal how much of the variance is management-generated versus analyst error.

  3. Mannwich says:

    Because listening to the “experts” who are continually wrong has become a sport unto itself in this country.

    “Better than expected” though.

  4. dead hobo says:

    Well, as long as the media and sales pundits can say the magic words ‘Better than expected” nobody but geeks and squints care about facts.

    The sales analysts on TV are mostly tools for the sales department. Honestly, why should any of these people really know much more than the internet consensus? We all have access to the same facts. They just spin it for sales purposes, but try not to make it look like it’s for sales purposes.

    It’s in nobody’s self interest to remember how bad the forecast was blown last year. Everybody sucks and only get it right by accident. I suppose this is why magic charts are popular. They never lie.

  5. worth says:

    Forecasts are wrong because the companies and suppliers that the forecasters talk to are wrong.
    Those sources, in turn, are wrong because they don’t know what the consumer is going to buy. Or rather, they know [the answer is "nothing that we don't really need until the economy is back to normal"], but they refuse to accept it and report it to the forecasters.
    Anyone who believes this recession is anything other than bad for the next several years is delusional. If anyone can name one single positive development that isn’t directly dependent on temporary programs which require government check writing at thousands of $ at a pop, anywhere in the economy, then I can name 3 potential (and likely) negatives to offset it!

  6. Winston Munn says:

    It is how the game is played – ignore reality and keep the faith, baby. It’s O.K. to be overly-optimistic, just don’t dare deviate from that mentality else you will be labeled a whacko liberal and somehow UnAmerican.

    “We are an empire, now, and when we act we create our own reality…” attributed to an unnamed Bush-era White House aide.

  7. Mannwich says:

    ZH reporting that both the S&P & Dow returned 14.98% in Q3, exactly. Coincidence?

  8. Bruce in Tn says:

    Ford down 5.1%
    GM down 45%
    Chrysler down 42%…how can anyone even approximate earnings with numbers like this? You can’t because there can’t be any…the question one might consider is how much taxpayer principal will be repaid….if any.

  9. Mannwich says:

    The name of the game is DEFLATION. Hate to be so stubborn but I see no evidence of inflation anywhere, aside from the c@sino otherwise known as the commodity markets.

  10. mcHAPPY says:


    I am in total agreement on deflation.

    Everyone is expecting a pull back however consensus is expecting 2-5% before stocks take off to new highs. A few expect a 8-12% correction before stocks take off to new highs. Very few in the room expect a significant correction of 15-20%. Virtually no one is expecting a re-test of the lows or beyond.

    Has anyone noticed the dollar – besides LB? It is making strong gains and few have noticed. Has anyone noticed Treasuries? I can’t wait for CNBC’s documentary at 8EST explaining the second crash no one saw coming.

  11. Winston Munn says:

    More interesting to me is the real rate of deflation. Michael Shedlock has made the argument to substitute the Case Shiller price index for OER when determining CPI – by his CS-CPI guage that would make deflation at 6.2%, meaning that real treasury rates are much higher than they appear and can still go lower still.

  12. Vermont Trader says:

    the reason that analysts are wrong is that while they might quibble with management forecasts; they accept the big picture that management is selling. or else they get replaced.

    99% of companies got the big picture wrong last year..

    by the time the bottom(for now) came in March all the bulls in management and sell-side were washed out…

    they failed twice!!! missed both sides of 2 of the biggest moves in stock market history.

    so what do they say now?

    the fucking green shoots represented by the blue line on chart 2.

  13. leftback says:

    “Has anyone noticed the dollar/Treasuries?”

    LB notices everything, including the fact that spreads are widening across the board.
    Flight to Quality. D-train, Mannwich?

  14. HarryWanger says:

    mcHappy: put me in the 2-4% camp. 9500 is 3.5% down from closing high. Tomorrow may dictate my position in regards to closing some positions or adding.

  15. Mannwich says:

    I’ve largely sat things out since June waiting out the green shoots PR campaign awaiting this month to hit. Lo and behold, I woke up this morning and noticed it was Oct. 1st on the calendar. Starting to lick my chops a bit and get primed and ready for the Fall in the fall, part deux.

  16. Winston Munn says:

    “Blissex Says:
    September 20th, 2009 at 7:23 pm

    «Greenspan-encouraged collapse of interest rates accomplished nothing more than a borrowing of future demand.»

    That is physically impossible.”

    If Ford, Chrysler, and GM didn’t utilize the cash-for-clunkers program to borrow from future demand, where did those buyers come from and why is demand down now that we have reached that future and the incentives have ended?

    To be fair, perhaps my wording was unclear or poor? Maybe I should have said Greenspan-encouraged collapse of interest rates changed the time preferences of buyers.

  17. worth says:

    That last paragraph of yours shows that the art of spin is finally seeping into your typing fingers. Bravo.

    What it also changed, in addition to time preferences, was the debt level of a lot of people who went from having a functional, paid-for car, to a new car with a new monthly pmt that will put even more strain on those households. These are households that were persuaded to take on a car loan due to the impending “free money” expiration date.
    Only a Democratic Congress would jump up out of the bath, running naked through the streets yelling “Eureka!” after getting struck by the mental thunderbolt of “we need to correct this debt mess by adding monthly car pmts to people who don’t currently have one! And not only that, we need to correct the problem caused by people buying homes when they shouldn’t have been able to qualify for mortgages by the genius stroke of giving MORE people a free 8 grand to help them get into homes they couldn’t otherwise as easily afford! Because God only knows that it’s far better for our banking system and economy to collapse than for people to have to live in apartments instead of houses – the horror!”

  18. dead hobo says:

    Thinking back to the picture of the guy making friends with the bull … I just realized something. The guy leaning into the wall looks a lot like Jim Cramer. Now the statue makes sense. Brilliant!

  19. dead hobo says:

    mcHAPPY Says:
    October 1st, 2009 at 2:15 pm


    I am in total agreement on deflation.

    Everyone is expecting a pull back however consensus is expecting 2-5% before stocks take off to new highs. A few expect a 8-12% correction before stocks take off to new highs.

    As many have said and are still saying, the market is grossly overvalued. I’m expecting a 25% drop or more from the recent top. Perhaps an S&P in the high 700 range is in the cards. In fact, an overshoot on the downside would wok out well for the manipulators who can power another drive back up from he bottom.

  20. leftback says:

    We have crossed the 200 DMA without stopping on the way down and again on the way back up. This thing is one undamped emotional oscillator for the time being. An overshoot seems more likely than not on the downside.

  21. mcHAPPY says:

    10 year at 3.19
    Dollar down a little over a cent vs. Euro.

    No worries people
    buy! buy! buy!

  22. HarryWanger says:

    jsgarber: I’m pretty bullish but even I gotta say, this dude’s out there.

  23. leftback says:

    LB looks forward to those days when Cramer is hiding underneath his desk instead of mutilating teddy bears.

  24. gloeschi says:

    I worked as analyst on the sell- and buy side. Not to defend the analysts – they are horrible – but they are “imprisioned” in the system. Meaning: if I as a sell side analyst would have forecast correctly 2009 earnings in summer 2008, I would have been fired (the CFO of the company covered in my report would have demanded it at least). On the buy side, it’s not much better – I once dared to put a large blue chip on “sell” and promptly got angry calls from portfolio managers “You cannot do that – it would force me to sell my entire position!”.
    So the easy way out is to always assume a 10% profit increase for the following year. In normal times you don’t fare to badly. Of course, the deviation from reality will be greatest in times like now. Hence, no surprise there. The big mystery remains why people still read the reports, and why this industry can still afford to pay handsomely.
    To answer BR’s to-the-point question (“why should I listen to you?”): Because you will forget that I lied to you.

  25. holl says:

    When you say that the average estimate of earnings is $50, that means operating earnings. How about reported earnings? The current PE ratio using reported earnings must be around 200… If we are lucky to get $60 operating earnings next year, the forward P/E ratio is 17 now… I suppose we’re gonna have high P/E ratios during the next couple of years to justify these high market valuations. The Fed will probably destroy the dollar to cause hyperinflation so that companies increase their nominal earnings… or maybe another stimulus?

  26. [...] This is ugly… Why Have 2009 Earnings Forecasts Been the Worst Ever? [...]

  27. [...] bring this up because of a post from last week on The Big Picture by Jim Bianco, of Bianco Research: Earnings forecasts are worse [...]