"[Good News]...is fundamentals are about to take front and center stage once again. The bad news is that it is likely to be negative." ~ Morgan Stanley

Morgan Stanley On Why 2012 Will Be The "Payback" For Three Years Of "Miracles" And A US Earnings Recession | ZeroHedge

Whatever the next few weeks brings, I think it’s safe to say that everyone is sick and tired of trading headlines and trying to decipher the next statement/rumor surrounding Merkozy, central bank policies, Washington politics, etc.
Whatever happened to getting paid for channel checks or betting on a unique product cycle that isn’t appreciated by the market? Ironically, while all this meddling by the authorities has helped prop up  asset prices, it has also made it harder to trade and invest. In my view, this is one reason why volatility remains so elevated. According to our Quantitative and Derivative Strategies team, 5, 10, 22, and 60 day realized volatilities are all in the 26-29% range. This is unusual historically, as realized vol has typically fallen by this point in the year.It’s quite possible this higher volatility has compressed multiples and raised correlations, both of which are counterproductive to central banks’ objectives.  
The good news is that the fundamentals are about to take front and center stage once again. The bad news is that it is likely to be negative.
Specifically, there has been a distinct increase in negative earnings results, preannouncements and/or guidance…..ORCL, RHT, GIS, BBY, WAG, ACN, TIF, ANF, DRI, NTAP, TXN, XLNX, ALTR, AMZN, CRM just to name a few.
This is very much in line with my thesis for 2012 that we are likely to avoid an economic recession in the U.S., but we are also very likely to experience an earnings recession.
Importantly, consensus estimates do  not reflect this reality with bottoms up forecasts still modeling 10% EPS growth for the S&P500 next year and top down consensus in the +4-5% range.
While it is a rare outcome to experience positive GDP and negative earnings growth in the same year, it is also just as rare to experience record margins in a world of 9% unemployment and lackluster organic revenue growth.
Think of 2012 as the “payback” year….when many of the extraordinary things that happened over the past 3 years go in reverse.
I am talking about incremental fiscal stimulus, a weaker US dollar, positive labor productivity, and accelerated capital spending.
Exhibit 7 tells the story for what to expect in 2012 assuming the situation in Europe doesn’t implode. In other words, this is not the macro bear case.
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Rather big assumption I should think. ~ CrudeGoldTrader

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