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What is MDEF™ Investing? Strategy before tactics. Strategic investments dictate tactical actions in the Metals, Defense, Energy & Food sectors.

- Jeffrey C. Borneman

How To Spot Declining Corporate Earnings

Jeffrey C. Borneman | September 23, 2014

The chart below illustrates many things and none of them are good. Just at a glance, what is the biggest takeaway for investors? 

The most glaring takeaway is that corporate profits are unsustainable with such a weak consumer (employment) base.

Said another way, and from the standpoint of investing capital: The DEMAND of goods and services represented by the S&P will fall commensurate with the consumer's willingness to spend on non-essentials. The decline in earnings will cause a rotation of investing capital into areas of firm and/or growing DEMAND. The bottom line (pardon the pun) of the graph represents a non-recovered economy which in the absence of a significant catalyst, can only continue downward - dragging non-essential earnings with it. 

Corporate profits are sustainable until the consumer decides otherwise. That point of decision will mark the beginning of the rotation of DEMAND - when non-essential spending becomes purchasing for essentials only, and wise investors will want to address the coming rotation of DEMAND before it becomes apparent to all. 

If you want to know more about how the MDEF™ Investing strategy is positioned in this, or other geopolitical possibilities, please contact us directly.

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