Courtesy of Michael Panzner of Financial Armageddon
The Big Picture features a chart by Bianco Research that shows just how far off the mark Wall Street’s strategists (who take a big picture, or "top down," approach) and analysts (who rely on a company-by-company, or "bottoms-up" approach) are when it comes to assessing corporate America’s bottom-line prospects.
According to Barry Ritholtz, the significance of The Street’s seemingly growing inability to come up with realistic estimates is
what might happen if the economy slips into recession: In the event that occurs, present earnings forecasts for 2012 of $112 might too high by as much as 20% to 40%.
Hence, why a recession driven earnings contraction supports much lower equity prices.
Are markets cheap? The correct answer is it depends on the economy and earnings over the next few quarters …
