Tags: Kass | earnings | Q2 | rates

Doug Kass: 'I'm Very Concerned Earnings Are Going to Disappoint'

Wednesday, 10 Jul 2013 12:41 PM

By Michelle Smith

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Corporate earnings are going to be a rude awakening for many market participants, warns Doug Kass, president of Seabreeze Partners Management.

"I'm very concerned that earnings are going to disappoint," he told CNBC.

"I don't expect earnings to meet consensus expectations."

Editor's Note:
 
'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

The highly anticipated second-quarter earnings season kicked off this week with aluminum giant Alcoa beating expectations.

Alcoa is "a global barometer of every single area that should be on fire if the rise in interest rates is right," Business Insider quoted CNBC's Jim Cramer saying.

"I see a false economic dawn in the U.S. and around the world," Kass told CNBC.

"The bottom line is that interest rates are a very important raw material in the U.S. economy. As they rise, it affects everything — profits, capital spending, hiring," he added.

Kass expects second-quarter earnings to start unveiling some unpleasant truths.

"Earnings are probably going to drop by about 1 percent, while the top-line increases by only 1.5 percent," he explained.

Barron's compared market participants to parents with high expectations, saying companies have already forewarned that their grades are going to be low.

Citigroup strategists said companies have preconditioned investors for a lousy second quarter. In fact, there have been 6.5 negative preannouncements for every positive one, Tobias Levkovich, the bank's head strategist, told Barron's.

But investors have remained optimistic. And as focus shifts to the second half of the year, many market participants' expectations are also too high for lies ahead, some warn.

"Right now, the Street sees double-digit earnings growth in the second half of 2013 and double-digit growth in 2014," Levkovich said.

"But that requires a strong U.S. and that Europe gets out of its funk, which I am not optimistic of happening quickly given credit conditions. And finally, emerging markets — especially commodity-based economies — such as Peru, Chile, Brazil — will be weaker," he stated.

Kass also believes the second-half growth expectations, projected at 10 percent, are "substantially too high." He compared the outlook to the "very ambitious housing projections for 2013 and 2014."

"I think the U.S. corporate profit outlook is going to disappoint most market participants," he told CNBC.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

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