What to Expect from Earnings Season

>> I'm Dan Farber, Editor-In-Chief of CBSNews.com, and welcome to EconWatch, which is our, our weekly look ahead of what's going on with money and finance. And I'm joined by Money Watch's Editor-At-Large and extraordinaire, Jill Schlesinger. So Jill, it's Monday, October 5. What do we have to look forward to this week?

>> Jill Schlesinger: All this week we are looking at earnings. And earning seasons gonna kick off on Wednesday with Alcoa. And what we're really trying to determine is whether companies can actually make money, not by cutting costs and laying off employees, but by actually, air sucking sound increasing sales. That would be pretty heartening and would be a great sign that the economy's turning a corner.

>> Dan Farber: Now when you talk about signs of the economy turning the corner, we've heard a lot from Gidner, phonetic from Bernanke, from all the people in the power belt that there are green shoots that things are turning around. But this earning season is really going to tell the tale.

>> Jill Schlesinger: Absolutely! And you know what's interesting about that is that when they first started talking about green shoots there were not that many green shoots. There were some little brown nubs maybe. But now we have seen in the last 6 months that the economic news has gotten less worse, not necessiarly better. But that's the right trend; less worse might eventually lead to better. This earning season very important, because investors have bought stocks in advance of this season expecting the companies can actually make money. And unless they do, we could see a pretty spooky October. And it's been somewhat of a spooky month in the past.

>> Dan Farber: Now traditionally October is a spooky month for the markets.

>> Jill Schlesinger: Absolutely! And you know if you look at it, two big one day crashes, 1929, 1987. Last year the market fell by 15% in October. First two trading sessions of this year down. I'm not expecting it to be as spooky a month, but I think everyone does get a little bit anxious. Well, it's the monthly thing.

>> Dan Farber: Now I, I wanted to spend a little bit of time. I, over the weekend, I think we both saw at different times, Michael Moore's movie, Capitalism: A Love Story. Now certainly he's not in love with Capitalism, because he equates Capitalism with what is wrong with the country. I thought the movie was very one sided, and that he gives his tale, which is everything that the government's doing is bad, and they've stolen our money, and he wants the money back. I think it's a little more nuance, of course. Which is that, you know, the government came to crisis. They decided well unless we do something it's gonna crumble. So instead of letting it crumble, and who knows if that's actually the case. It's very complex. They infused all this money into these cannot fail companies. Now my question to you is, and there was a report today that, according to a special inspector who said that the banks that were said to be healthy really weren't that healthy.

>> Jill Schlesinger: And you know what I might take away from that, is this is Neil Barofsky, he's the Special Inspector General. And if you want to sound cool at a coffee table or at the bar tonight, say the SIG TARP when you talk about this story. The SIG TARP said that Hank Paulson may have stretched the truth a little bit. The reality is that when Hank Paulson got up and started testifying about TARP, he said, these first 9 companies that we're infusing money into, they're all healthy. And now we know a year later that wasn't exactly the case. Specifically, Citi Group was on life support. Bank Of America was close behind. And I think the Special Inspector General is now taking Paulson and some of the other folks to task for not exactly giving the American people the whole story.

>> Dan Farber: Well not only did they not give, they didn't give the American people the whole story, but we don't know where the money, that, that $700 billion dollars, where it is today.

>> Jill Schlesinger: You know.

>> Dan Farber: And have, and have those banks gone back to their old behavior?

>> Jill Schlesinger: Okay, two things. One is we know where some of the money is, because some of those banks repaid the money. Right? So we know we got some money back.

>> Dan Farber: And why did they repay the money?

>> Jill Schlesinger: So they wouldn't have to have any compensation structure imposed upon them by the government. Is that good?

>> Dan Farber: So no, no, no handcuffs.

>> Jill Schlesinger: No handcuffs. But I want to be clear, the TARP's document didn't allow the government to go in and see how that money was being spent. So they're not doing anything wrong, the government really made a big boo boo last year. They didn't put in a facility to go in and monitory exactly where those dollars went.

>> Dan Farber: Now this week there are a couple of cheerings.

>> Jill Schlesinger: Yep.

>> Dan Farber: Will these put these on the road to solving that accountability problem?

>> Jill Schlesinger: You would love to think so. I don't think that's gonna happen. I think regulatory reform has really fallen off the agenda. Health care has really started to take center stage. And when we see them talk about financial regulatory reform right now, it is a watered down version of what it likely necessary to make true substantive changes. That's the shame of what happened over this past year.

>> Dan Farber: Well thank you Jill for that great outlook.

>> Jill Schlesinger: laughter Thank you Dan.

>> Dan Farber: You've been watching EconWatch, and I've been speaking with Jill Schlesinger, the Editor-At-Large at MoneyWatch.com. For CBSNews.com I'm Dan Farber. Thanks for watching.

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