In a relatively stable economy, quarterly earnings releases and public company forecasts can be useful guides to Wall St. Corporations can actually look out a three to six months and forecast how their business should do with some degree of accuracy. But, as securities analysts have shown time and time again, missing projections is commonplace  even when the business world is at peace.

The fourth quarter earnings which are coming out now and the forecasts for next year are as useless as a boat in a drought. Google (GOOG) has a quarter which was better than expected. Because it is in a fast-growing segment of the internet, it would be reasonable to assume that its trajectory would continue up. Actually, there is just as much of a chance that the slowdown in advertising spending will damage Google’s business.

IBM (IBM) also reported extremely good earnings and said 2009 would be at least as good. Only one of its five major businesses would need to get into trouble for that forecast to come unglued. If sales in its hardware operation fall apart, its earnings forecasts could be off by a significant amount. All of those investors that looked at IBM as a good gamble would end up losing money.

Microsoft (MSFT) said its last quarter was bad, and looking out over the next six months, its businesses will probably deteriorate further. With sharp personnel cuts and the sale of its video game operation, the fortunes at the world’s largest software company could rapidly change and the stock could outperform the market. Of course, management may be stubborn and there may be no restructuring at all.

In a failing and turbulent economy, looking at how a company may do over the course of this year requires more imagination than it does math skills. Earnings actually tell very little. They are a picture of the past. Most come out several weeks after a quarter ends. In a recession, that gap in time may make looking backwards a process which is nearly useless. Looking forward. nearly every public company in America is basing its guidance on conjecture more than predictable sales. That is why a growing number of companies are withdrawing forecasts all together.

As terrible as it may seem, what management can say about what has just happened to their companies financially and what management says about what is about to happen, is hardly any guideline at all.

Investors are left going with the best guess, which is probably as good as anyone else’s.

Douglas A. McIntyre

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