No executive would dispute that analysts’ forecasts serve as an important benchmark of the current and future health of companies. To better understand their accuracy, we undertook research nearly a decade ago that produced sobering results. Analysts, we found, were typically overoptimistic, slow to revise their forecasts to reflect new economic conditions, and prone to making increasingly inaccurate forecasts when economic growth declined.
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Reasons for Nonsensical Earnings Estimates
- Analysts do not do their homework on what is really happening and why. Instead they see rising earnings and take them at face value, nearly always figuring following quarters will be better yet.
- Analysts do not understand the dynamics of debt deflation, peak credit, the baby boomer retirement dynamics, etc. In short, Analysts do not understand the global macro picture is bleak.
- Analysts look at a steep yield curve and think the Fed can lift the economy.
- Analysts have not yet caught on to the fact that consumer spending and bank lending attitudes have changed for good.
- Analysts in general have a vested interest in getting the public to buy stocks, annuities, etc. because that is how they make money.
….read and view more charts at Charts Show Analysts Historically Overestimate Corporate Earnings by 100%