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Why Have Analysts Been So Wrong This Quarter

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Let's take a few moments away from Merrill Lynch's conference call to discuss the dismal performance of Wall Street analysts this quarter. Did they get anything at all right? The analysts had pegged Citi to lose 97 cents per share; on Tuesday it announced a loss of $1.99 per share. JPMorgan was expected to make 94 cents per share; it actually came in at 86 cents per share. They had Merrill Lynch down for losses of $4.57 per share. Instead they booked a net loss of $12.01 per share.
I called a few analysts this morning to ask them about what went wrong. They all offered similar excuses: the credit market write-downs are still largely discretionary since they are based on some complicated accounting, and it just isn't possible to anticipate how management will handle these things. That's satisfactory as far as it goes but it raises the question: why keep pretending you can estimate earnings when you admit you cannot. If market conditions have made accurately predicting earnings for financial institutions impossible, perhaps that's exactly what the analysts should say. Instead they have been putting out earnings estimates that turn out exactly wrong.
Does being an analyst really mean never being able to say "I have no clue?" Because sometimes admitting what you don't know is the first step to not being a total monkey.


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