Cost Cuts and Declining Revenues Signal Lack of Future Economic Growth, According to Investment Contrarians Expert

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In a recent Investment Contrarians article, financial expert George Leong notes that revenues going forward, especially organic growth rates, will be extremely important for a healthy economy. Leong states that revenues need to grow to drive earnings; but businesses are cutting costs to drive earnings instead, signaling a lack of economic growth for the near future.

Cost Cuts and Declining Revenues Signal Lack of Future Economic Growth, According to Investment Contrarians Expert

Cost Cuts and Declining Revenues Signal Lack of Future Economic Growth, According to Investment Contrarians Expert

Based on the current estimates, earnings for the S&P 500 are estimated to fall 2.6% in the third quarter, which would end the 11 straight months of earnings growth.

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In a recent Investment Contrarians article, financial expert George Leong notes that revenues going forward, especially organic growth rates, will be extremely important for a healthy economy. Leong states that revenues need to grow to drive earnings; but businesses are cutting costs to drive earnings instead, signaling a lack of economic growth for the near future.

“Based on the current estimates, earnings for the S&P 500 are estimated to fall 2.6% in the third quarter, which would end the 11 straight months of earnings growth,” states Leong, citing FactSet (http://www.FactSet.com). “So far for the third quarter, 82 S&P 500 companies have issued negative earnings-per-share (EPS) guidance versus only 21 companies reporting positive guidance.”

According to Leong, Alcoa, one of the world’s top aluminum makers, is a good indicator for the global economy, as the metal is used in many industrial applications.

“In the second-quarter earnings season, Alcoa beat slightly on earnings, but revenues are an issue, as will likely be the situation for many U.S. companies,” reports Leong. He also notes that the company’s revenues are estimated to fall 12.7% in the third-quarter earnings season, followed by a 5.0% decline in the fourth-quarter earnings season.

“This is not what you would expect if the economy was healthy,” says Leong, noting that while there is some hope and optimism for the third-quarter earnings season, he expects disappointment across the board.

As in the past quarters, the key question, in Leong’s view, is whether companies are growing their revenues to drive earnings, or is earnings growth being generated by cost cuts. This is critical, and could give a good indication of how well corporate America is actually doing.

“The reality is that many companies cut costs during hard times, and they should be in a better condition now. If the economy was truly healthy, [the market] would see earnings growth driven by revenues,” Leong concludes.

To see the full article and to get a real contrarian perspective on investing and the economy, visit Investment Contrarians at http://www.investmentcontrarians.com.

Investment Contrarians is a daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”

The editors of Investment Contrarians believe the stock market and the economy have been propped up since 2009 by artificially low interest rates, never-ending government borrowing and an unprecedented expansion of our money supply. The “official” unemployment numbers do not reflect people who have given up looking for work and are thus skewed. They believe the “official” inflation numbers are also not reflective of today’s reality of rising prices.

After a 25- to 30-year down cycle in interest rates, the Investment Contrarians editors expect rapid inflation caused by huge government debt and money printing will eventually start us on a new cycle of rising interest rates.

Investment Contrarians provides unbiased research. They are independent analysts who love to research and comment on the economy and investing. The e-newsletter’s parent company, Lombardi Publishing Corporation, has been in business since 1986. Combined, their economists and analysts have over 100 years of investment experience.

Find out where Investment Contrarians editors see the risks and opportunities for investors in 2012 at http://www.investmentcontrarians.com.

George Leong, B. Comm., one of the lead editorial contributors at Investment Contrarians, has just released, “A Problem 23 Times Bigger Than Greece,” a breakthrough video where George details the risk of an economy set to implode that is 23 times bigger than Greece’s economy! To see the video, visit http://www.investmentcontrarians.com/press.

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